Ofgem gives power firms a better deal

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The Independent Online

The energy regulator Ofgem yesterday cut the regional electricity companies a little slack by allowing them to spend more on maintaining and operating their networks over the next five years than it had previously planned.

Capital expenditure will rise by 3.6 per cent to £5.7bn over the period while the 14 companies in England, Scotland and Wales will be allowed £755m a year in operating expenditure - an 8 per cent increase on Ofgem's initial proposals.

The effect will be to keep distribution charges, which account for a quarter of household electricity bills, frozen in real terms until 2010. Under the regulator's previous proposals, they would have gone down by 2 per cent next year and 1 per cent in each of the following four years.

Ofgem said it had decided to give the industry a better deal to compensate for the higher tax charges and pension fund contributions faced by electricity firms.

However, the regulator has yet to reach a decision on the most contentious aspect of the new price control: the return on capital the industry will be allowed to earn. In its initial proposals published in June, Ofgem suggested a range with a mid-point of 6.6 per cent - less than the 22 water suppliers in England and Wales have been allowed by their regulator. It said it would deal with the issue of cost of capital in November.

EDF Energy, the French-owned operator of the electricity networks in London and east and south-east England, said some progress had been made. But Vincent de Rivaz, its chief executive, said the proposals still did not properly reflect the fact that running, updating and developing the electricity network in London and the surrounding areas was more expensive than elsewhere in the country.