Ofgem - Development of a Risk Based Approach to Network Licensee Data Compliance
Energy transportation businesses are natural monopolies – there is no realistic means of introducing competition.
In this sector Ofgem protects customers’ interests by regulating the
companies through five-year price control periods which include curbs on
expenditure as well incentives to be efficient and to innovate
technically.
The price controls set the maximum amount of revenue which energy
network owners can take through charges they levy on users of their
networks to cover their costs and earn them a return in line with agreed
expectations.
The users in this case could be electricity generators which connect to
the network or shippers which use gas networks to transport gas to
customers.
Energy transportation charges make up about one fifth of a household
customer’s bill. Therefore when Ofgem reviews the price controls every
five years it looks to balance the need to allow the companies
appropriate resources with the need to protect customers’ interests.
Price controls are set for the 14 companies that run the regional
electricity networks, the four companies that operate the energy
transmission networks and the four companies that own the local gas
distribution networks.
An important piece of work that the networks team has undertaken with
the Department of Energy and Climate Change has been to set up the
regulatory framework for the operation and licensing of cables that will
carry electricity from offshore wind farms to the onshore grids. These
links will be subject to the same price control approach used for
onshore networks.