Britain’s energy regulator is drawing up plans for a “bailout” scheme for the large monopolies that run Britain’s gas and electricity networks, which would see consumers provide “potentially unlimited” money to companies that run into unexpected financial difficulty and could not make debt payments. Ofgem has proposed slashing roughly in half the amount network companies such as National Grid, Cadent Gas and Northern Gas Networks, which own the pipelines and cables that deliver gas and electricity to homes and businesses, should be able to pay their investors from 2021. Networks are in effect monopolies that generate their revenues from consumers, who are charged through their energy bills. Such charges – which cover the costs of maintaining pipelines and cables, and ensuring power supply meets demand, plus any new investments required – make up about a quarter of a typical bill. In December, Ofgem, which regulates these charges by evaluating the cost of work that needs to be carried out by companies and what would be a fair return, proposed a baseline cost of equity – or how much networks can pay their investors – of about 4 per cent based on current market conditions from 2021, down from 7-8 per cent currently. This new regime will apply to all gas networks and the electricity transmission companies. However, Ofgem has admitted lower returns may mean companies have “less headroom” over their costs of debt to deal with any unexpected problems.
FT 25th Feb 2019 read more »