Ofgem warns gas suppliers on prices

7th Dec 2009 07:18

UK energy regulator, Ofgem, has warned gas suppliers that prices charges to households must come down if the price of wholesale gas continues to fall."Ofgem's role is to ensure that companies can invest, but do not use investment as a shameful excuse to overcharge consumers," Alistair Buchanan, the chief executive of Ofgem, said.He added that a new investigation into retail prices will be launched in the New Year and Ofgem "will not shy away from proposing radical reform to protect the interests of consumers." Earlier, the regulator indicated electricity bills will rise by more than expected after it gave the 14 electricity distributors some respite in its final price review for the five years starting in April.The new measures will allow total electricity bills to rise by an average of £4.30 a year, or 5.6%, to fund a 40% increase in investment to £7.2bn, including sustainability funding, made up of £6.7bn capital expenditure plus a new £500m low carbon fund.This is more than the £6.5bn the regulator proposed in its original recommendation in August, when Ofgem suggested a £4 annual increase in bills, but there was a rider in the latest proposals to favour the most efficient distributors. "The two most efficient companies can spend the sum they asked for, but overall the bids were cut by 8% as Ofgem ensured value for money for consumers," it said.About 16% of the average electricity customer's bill goes towards the regional electricity distributor. 'Our proposals are tough on inefficiency and poor service but are fair in allowing the companies to invest to replace ageing network assets and in improving the environment. The controls provide great opportunities for companies which are more efficient and excel at providing what their customers want - but they will penalise poor performers,' Buchanan added.The electricity firms, though, were disappointed with the review and Scottish & Southern Energy blasted the proposals. 'At 4%, the headline allowed weighted average cost of capital is significantly lower than all comparators, including that set by Ofgem in its previous electricity distribution price control, the gas distribution price control and the electricity transmission price control,' it said.'It is also significantly below the level of return proposed by Ofwat for the water and sewerage industry last month. Unlike that review, Ofgem's final proposals represent the first time that electricity distribution companies have had any firm indication of the allowed cost of capital,' SSE added.