by Franck Latrémolière on 11 August 2014
On 2 December 2013, ministers announced a set of measures which were branded Government action to help hardworking people with energy bills. This page is about one of these measures, which was described as follows in the December 2013 announcement:
In addition, electricity distribution network companies are willing to take voluntary action to reduce network costs in 2014/15. This would allow a further one-off reduction of an average of around £5 on electricity bills, which energy suppliers will be able to pass on to their customers as well.
Distribution network cost reductions would be the result of distribution network operators (DNOs) voluntarily opting to recover some of their costs over a longer timeframe, which suppliers have indicated that they are willing to pass on to their domestic customers.
DNOs own and operate the distribution network of towers and cables that bring electricity from the transmission network to homes and businesses, and are regulated by Ofgem.
Reductions would vary across the 14 distribution network regions in Great Britain based on what costs DNOs are able to defer.
The way DNO reductions are delivered is a matter for the DNOs, the suppliers and Ofgem, within the existing regulatory framework.
I call this scheme the pre-election bung, because it was clear that the aims was to reduce prices before the May 2015 general election, with the shortfall to be made up substantially after the election.
Electricity North West gave suppliers a reduction of £5 per domestic customer (total £10.9 million). This was applied to fixed charges and spread over the period from 1 April 2014 to 31 March 2015.
Northern Powergrid gave suppliers a one-off discount of £28.5 million across its Northeast and Yorkshire areas. This was accounted for as part of the financial year ended 31 March 2014.
ScottishPower Energy Networks gave suppliers a reduction of £5 per domestic customer in its Manweb area only (total £6.9 million). This was applied to fixed charges and spread over the period from 1 April 2014 to 31 March 2015.
UK Power Networks gave suppliers a reduction of £9 per domestic customer in its London and South East areas only (total £37.2 million). This was applied to fixed charges and spread over the period from 1 April 2014 to 31 March 2015.
Western Power Distribution gave suppliers a reduction of £5 per domestic customer across its four areas (total £35.6 million). This was applied to fixed charges and spread over the period from 1 April 2014 to 31 March 2015.
The total pre-election bung given to energy suppliers was therefore about £119 million.
Suppliers (and therefore presumably consumers) will pay higher charges after the election. The surcharges are to pay back investors in DNOs: the bungs were timing adjustments and not real savings.
The specific arrangements for these surcharges are different between areas.
Electricity North West, ScottishPower Energy Networks and UK Power Networks are proposing to surcharge in the period from 1 April 2015 to 31 March 2016 by the same amounts that they bunged in the period from 1 April 2014 to 31 March 2015. If they stick to that proposal, then the only interest they might earn would be a possible 0.3 per cent from the fact that 2016 is a leap year.
Northern Powergrid proposes to surcharge fixed charges in the period from 1 April 2015 to 31 March 2016. The proposed surcharge varies between £6.33 and £15.59 depending on area (more in Northeast than Yorkshire) and customer type (Economy 7 customers will pay more). Northern Powergrid intends to earn £1,153,180 in interest from the arrangement (4 per cent of the original bung).
Western Power Distribution proposes to surcharge fixed charges in the period from 1 April 2016 to 31 March 2017. The proposed surcharge will be about £5.26 or £5.29, earning Western Power Distribution £1,970,605 in interest from the arrangement (5.5 per cent of the original bung).
Here is my summary of the interest that DNOs plan to charge on their pre-election bung:
This compilation is based on DNO data from http://www.dcusa.co.uk/Public/Documents.aspx?t=10.