Energy networks challenge ruling that would slash gas and electricity bills

Firms appeal against Ofgem’s plan to slash their profits and save consumers money

The networks that operate UK energy infrastructure say they need to keep higher margins so they can invest (Getty)

Nine energy networks have appealed against a decision that would reduce their profits and save households money on gas and electricity bills.

The companies, including National Grid, Cadent Gas and Scottish Power, have been told by Ofgem that they must halve the financial returns they generate from their investments in the nation’s energy infrastructure.

Ofgem says the companies’ business model is low-risk and the returns should reflect that. Cutting the profits extracted by networks would mean lower bills for millions of households. The networks argue that slashing their profits would mean less money to invest in making the UK’s energy supply greener.

The Competition and Markets Authority (CMA) will decide whether to grant the companies permission to appeal within two weeks. It will then have six months to determine whether Ofgem's proposals can go ahead.

The CMA said: “The appeals largely focus on the allowed return on investment and the way Ofgem calculated the costs the companies would spend on maintaining and investing in their networks over the next five years.”

Energy companies reacted strongly against Ofgem’s proposals after they were first released in July. The initial plans limited the rate of return that companies could make off their investments to 3.95 per cent.

These returns are achieved through a charge on household energy bills and cutting them would have saved each UK household around £20, Ofgem said.

But after hearing further opinions from the sector, the regulator somewhat softened its stance, upping returns to 4.3 per cent, which would slash energy bills by £10 on average.

The UK’s energy networks are heavily regulated and network returns are capped by Ofgem for multi-year periods.

The companies that have joined the appeal also include Northern Gas Networks, Southern Gas Network, Scotland Gas Networks, Scottish Hydro Electric Transmission and Wales & West Utilities.

They will take heart from a provisional CMA ruling from last year which found in favour of four water networks that had launched a similar appeal against their regulator, Ofwat.

Akshay Kaul, Ofgem's director of networks, said: “Our price control drives a fair price for consumers, improves services and boosts green energy investment.

“We respect the Competition and Markets Authority appeal process, where we will defend robustly our decisions which are in the best interests of consumers and tackling climate change.

“While the appeals could take around six months to resolve, they will not delay any investment and we look forward to working closely with industry to accelerate investment for a green recovery.”

Ross Easton, director of external affairs at the Energy Networks Association trade body, said: “The UK’s energy network operators remain focused on providing a low-cost, net-zero energy system to the public.

“To deliver this, it is essential that the regulatory environment is attractive to the significant investment the country needs over the coming years.”

Additional reporting by PA