Networks are ‘most transparent’ part of energy industry

Energy Networks Association knocks back criticism of network returns

The chief executive of the Energy Networks Association has pushed back against accusations that UK energy networks are making excessive returns.

Writing for Utility Week, David Smith said: “As tightly regulated companies, networks are the most transparent part of the energy industry and the latest Ofgem reports provide clarity and detail on what networks are spending and the value that customers are getting for their money”.

He added that criticism levelled at the energy regulator Ofgem for allowing very high regulated returns on revenue (Rore) among energy networks needs “clarity”.

“We need to be clear that levels of return are incentive-based and dependent on companies providing a very high level of service for customers,” said Smith. “The better networks perform the greater the benefit to the customer.”

Smith also pointed out that Ofgem’s projections for network returns during their current price controls are uncertain. It is “far too early to speculate on the future profitability of network companies and what the end of price control rate of returns will be,” he insisted.

Consumer champion Citizens Advice articulated its concerns over the level of returns being made by energy networks following the publication of Ofgem’s annual RIIO reports. These documents track network company performance against the requirements of their regulatory framework and showed that, across gas and electricity transmission and distribution, companies are commonly enjoying Rore levels of 10 per cent or more.

Citizens Advice said that such levels are inappropriate for low risk regulated companies. It worried that the returns indicate UK consumers are overpaying for their energy infrastructure.

Smith disagreed and concluded: “Rather than focussing on relatively meaningless forecasts for theoretical returns, the network companies would encourage Ofgem to focus on completing the RIIO regulatory framework and documenting how they can address uncertainties, reducing risk for customers and companies alike.”