Northern delight at Ofgem's switch-off

Britain's energy regulator will tone down controversial plans that would have raised the cost of generating electricity in the north of the UK. The climbdown is expected at the end of the month when Ofgem issues revised proposals on electricity supply.

Ofgem, headed by Callum McCarthy, caused outrage last May when it published plans to levy a charge on electricity companies for power lost through transmission across the grid. Over long distances, electricity naturally deteriorates through high-voltage cables. Ofgem estimates the transmission losses cost the UK more than £100m a year.

Effectively, the plans would have created a north-south divide in the electricity industry because most power stations are in the north and the highest demand is in the south. The proposals could have also damaged the Government's plans to promote the use of renewable sources of electricity through wind farms. Again, most existing turbines are in northern England.

One power company senior executive, who asked not to be named, said the proposals were draconian. If implemented in full they would have cost the company £100m a year in extra charges, the source said.

But people close to Ofgem say the regulator has reacted to the barrage of criticism and is about to unveil a less expensive charging structure.

David Love, head of regulation at British Energy, Britain's largest generator, said: "We hope that Ofgem has listened to our responses and has come up with more sensible proposals that are subject to full and proper cost-benefit analysis."

He said that if Ofgem continued to chop and change the regulations, companies would be discouraged from investing in the infrastructure. An Ofgem spokesman refused to comment on the contents of the revised proposals. But he said there was still a need to encourage electricity companies to site their generators closer to demand. "We need more generation in the south," he said. "At present, the cost of the electricity losses is spread across all generators and therefore the south loses." He said the proposals were issued "to get the industry talking".

When the revised proposals are published, the industry is still unlikely to welcome the concept of even a lighter transmission-charging regime. A senior source at a generating company said: "The principle of attracting new plants in the south is fine. But there is no point in hammering existing power stations."

Power stations have traditionally been sited in the north to be close to the coal, gas and water supplies plentiful in the area. The north's lighter planning regime also acts as an incentive.

But local authority experts said that if the Government wanted new generators in the south, planning policy would need to be revised.