Bills poised to rise after electricity price review

Household electricity bills could rise by about 2 per cent under proposals published yesterday by the energy regulator Ofgem that set out how much the industry plans to spend on its regional wires networks over the next five years.

Household electricity bills could rise by about 2 per cent under proposals published yesterday by the energy regulator Ofgem that set out how much the industry plans to spend on its regional wires networks over the next five years.

Britain's 14 electricity distribution companies want to increase capital expenditure on their networks by 50 per cent to between £8bn and £9bn over the period and raise operating expenditure from £9.4bn to £10bn.

That would mean a 7 per cent increase in distribution charges, which make up 25-30 per cent of the typical domestic bill. That, in turn, would translate into an increase of about £5 per household from next April. Ofgem also announced that the rate of return it will allow the companies will be in a range of 6 per cent to 7.2 per cent compared with the current figure of 6.5 per cent.

That was harsher than the markets had been expecting and shares in the two quoted companies with distribution networks, Scottish Power and Scottish & Southern Energy, fell.

David Gray, Ofgem's director of networks, also said it proposed to clamp down on the incentives distribution companies had to under-invest in their networks.

Trade unions urged Ofgem not to squeeze the industry too tightly for fear it will result in under-investment in the network.