National Grid broadly backs Ofgem pricing proposals, plans £10bn investment
By Abigail Townsend
Date: Tuesday 02 Mar 2021
(Sharecast News) - National Grid has accepted most of Ofgem's price control proposals but will appeal on one aspect, the energy firm said on Tuesday.
The blue chip, which also announced it would invest £10bn in its transmission networks, said it would accept the regulator's overall package for the electricity system operator, and was "broadly accepting" of the overall package for electricity and gas transmission.
National Grid pointed to "significant movement" in total expenditure allowances and to the introduction of greater flexibility around future net zero investment for transmission.
However, it said it would submit a technical appeal to the Competition and Markets Authority regarding Ofgem's proposed cost of equity and outperformance wedge.
"We believe that the methodology used to set the cost of equity ignores evidence for higher total market return and risk-free rate levels," it argued.
"We also maintain the view that the outperformance wedge, a downward adjustment to allowed returns in expectation of future outperformance, is conceptually and practically flawed.
"We are disappointed it remained in the final determination."
Spending on gas and electricity infrastructure is funded through levies on energy bills, which are set by Ofgem in multi-year price control settlements. The regulator needs to balance the price customers pay with ensuring the companies who own and operate the gas and electricity networks generate enough revenues to run efficient networks that meet customer needs.
With the current settlement, which was introduced in 2013, coming to an end this month, last July Ofgem initially proposed halving the returns that energy transmission network operators could make. In December, following appeals by energy companies, it improved the package, though the latest proposed return on equity remains around 40% lower than the current price control.
National Grid expects to invest around £10bn of capex through the course of the five-year price control across its electricity and gas transmission networks.
It also said that from the 2021/22 full-year, it would aim to grow annual dividend per share in line with UK CPIH. The dividend policy for the current year remains unchanged.
CPIH is consumer price inflation with a measure of owner occupiers' housing costs.
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