Ofgem says distributors can raise prices by 1%

Ofgem says electricity distribution companies can increase charges by around 1% for the first year of a new distribution price control, which was announced on Monday.

In final proposals for the price changes, effective from April 2005 for five years, Ofgem says distribution companies can introduce the increase for the first year. This increase is approximately 6p a month on the average domestic bill. From then on, distribution charges will increase by no more than the rate of inflation.

Ofgem’s chairman, Sir John Mogg, said the proposals reflect a “need to increase investment and efficiency, to improve quality of service and to accommodate the growth in distributed generation”.

Allowances for capital expenditure to maintain and improve Britain’s electricity distribution networks will increase by around 48% on current levels and should, according to the regulator, lead to £5.7bn being invested in the networks. With the cost of capital set at 4.8%, Ofgem hopes distribution companies will have the necessary incentive to undertake this programme of investment.

Ofgem anticipates that distribution companies will reduce their operating expenditure by 3% on average, or £21m a year, over the five-year period.