Ofgem estimate that network costs currently make up around 23 per cent of a dual fuel (gas and electricity) bill. 20 per cent of the bill represents the cost of transporting gas and electricity on local power and gas mains (or distribution) networks. Three per cent of the bill is the cost of transporting gas and electricity through the high voltage grid and the national high pressure gas main (or transmission) network.
While network charges reduced by 50 per cent in the first 15 years after privatisation, they have been rising again as new networks are built to help connect low carbon energy, replace old gas mains and renew ageing parts of the network.
Both Ofgem and DECC have indicated that energy bills are likely to rise in the future as a result of increased network costs. Ofgem have stated, however, that network costs are expected to remain stable in real terms (i.e. excluding inflation) until at least the start of the next decade.
Despite this, questions remain on how transparently current and future network costs are determined and how effective Ofgem is at monitoring and scrutinising the charges and profits of network companies. These are some of the issues, among other things, this inquiry will explore.
Terms of Reference
The Committee invites responses by Wednesday 2 April 2014 addressing any or all of the following questions. Respondents are also invited to focus specifically on transmission or distribution of gas or electricity if preferred:
- What factors determine network costs? What contribution do these factors currently make towards a typical household energy bill and how might this change over time?
- What impact does the Government’s low carbon ambitions (e.g. smart meter roll out, developing the offshore grid and interconnectors etc) have on network costs?
- Does Ofgem provide the right incentives to network companies to ensure they keep their costs as low as possible?
- How does Ofgem identify and regulate profits for network companies within a regulatory settlement period? What scope is there to adjust profit gains over regulatory periods? Are the current levels of transparency sufficient?
- How can UK network costs be benchmarked against utility sectors or networks in other countries? Would this increase confidence in UK network costs?
- To what extent does the way network companies charge energy supply companies impact on consumer energy prices? Is there scope to improve this relationship in order to reduce prices for consumers? How would this be done?
- To what extent are different consumer groups (e.g. domestic and non-domestic) charged different network rates? Is the current charging regime fair to all consumers?
- In the absence of competition, does Ofgem provide sufficient incentives to network companies to maintain, invest and innovate in their networks?
- How do losses and leakages in the networks influence network costs and are these reflected in consumer prices? Could Ofgem do more to ensure network companies keep losses and leakages to a minimum?
- How should the balance be determined between investing in a more reliable network and the impact of this on consumer bills?
Notes on submission of written evidence
Written submissions for this inquiry should be submitted via the inquiry page on the Energy and Climate Change Committee website.
The deadline is Wednesday 2 April 2014. As a guideline submissions should state clearly who the submission is from e.g. ‘Written evidence submitted by xxxx’ and be no longer than 3000 words; please contact the Committee staff if you wish to discuss this. If you need to send hard copy please send it to: The Clerk, Energy and Climate Change Committee, 14 Tothill Street, London, SW1H 9NB.
Submissions must be a self-contained memorandum in Word or Rich Text Format (not PDFs). Paragraphs should be numbered for ease of reference and the document should, if possible, include an executive summary.
Submissions should be original work, not previously published or circulated elsewhere. Once submitted, your submission becomes the property of the Committee and no public use should be made of it unless you have first obtained permission from the Clerk of the Committee. Please bear in mind that Committees are not able to investigate individual cases.
Publication of evidence
The Committee normally, though not always, chooses to publish the written evidence it receives, either by printing the evidence, publishing it on the internet or by making it publicly available through the Parliamentary Archives. If there is any information you believe to be sensitive you should highlight it and explain what harm you believe would result from its disclosure; the Committee will take this into account in deciding whether to publish or further disclose the evidence.
The personal information you supply will be processed in accordance with the provisions of the Data Protection Act 1998 for the purposes of attributing the evidence you submit and contacting you as necessary in connection with its processing. The Clerk of the House of Commons is the data controller for the purposes of the Act.