ENERGY giants have suffered a setback in their campaign to get the regulator to drop plans to cut the returns they can generate.
ScottishPower, SSE and other big players appealed to the competition watchdog after Ofgem proposed to make changes that could mean the total profits they make in the networks business fall sharply.
The changes will mean the return firms are allowed to generate on investment in electricity and gas networks will fall to 4.3 per cent from around 7%.
Energy firms argued the proposals were based on unrealistically low estimates of their financing costs.
However, in a provisional finding in respect of their appeals, the Competition and Markets Authority said it had decided the cost of equity that Ofgem proposed to allow was not wrong.
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Ofgem chief executive Jonathan Brearley noted: “The CMA has found in favour of Ofgem on most grounds of appeal, including the reduction in returns for investors.
“We will continue to engage with the CMA to finalise these price controls, and look forward to working with the industry to deliver efficient investment which will benefit both consumers and the planet.”
A spokesperson for Glasgow-based ScottishPower said: “We will consider carefully all aspects of the CMA’s provisional determination, particularly the CMA’s rejection of our appeal on cost of equity.”
The person added: “We believe the UK needs to remain attractive in the international competition for capital to deliver green infrastructure, and we will now consider what further evidence we can submit to the CMA on the importance of providing sufficient incentive for investment in our transmission network.”
Perth-based SSE said Ofgem’s cost of equity proposal did not reflect the risks associated with the investment needed in electricity transmission to deliver net zero.It will continue to engage constructively with the CMA.
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SSE last week agreed a £1.2 billion deal to sell its one third stake in SGN, which operates gas networks in Scotland and Southern England, to Canadian investors.
SGN was one of the firms that appealed to the CMA about Ofgem’s cost of equity proposal.
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