Household gas bills will rise by at least £10 next year after the energy industry regulator, Ofgem, unveiled proposals to allow the companies which run Britain's gas distribution networks to spend £946m on upgrading work.
The move comes after increases of 40% since the start of the year despite wholesale gas prices falling by 40% over the same period.
Ofgem also announced proposals to allow £5bn worth of investment in expanding and upgrading Britain's gas and electricity transmission networks over the next five years.
The move comes after increases of 40% since the start of the year despite wholesale gas prices falling by 40% over the same period.
Ofgem also announced proposals to allow £5bn worth of investment in expanding and upgrading Britain's gas and electricity transmission networks over the next five years.
The regulator said its proposals for gas distribution - the pipes that bring gas into homes and businesses - would add around £10 a year to bills for 2007/08, while spending on the gas and electricity transmission network would add another £2 to £3 a year to domestic energy costs.
Ofgem's proposals will allow the three companies which run the gas and electricity transmission networks - National Grid, Scottish Power and Scottish and Southern Electricity - to double the amount they were allowed to spend over the previous five years.
It said additional spending was needed not just to replace existing assets but to allow gas and liquefied natural gas imported into south east England and Wales and electricity produced by Scottish windfarms to be linked into the national transmission networks.
Ofgem's latest figures, which include £530m already approved for infrastructure to link renewable energy projects into the electricity network, are £100m above its initial proposals but are some £1bn below what the companies had sought.
Ofgem has also increased the companies' return on capital from 4.2% to 4.4%, but that is still below the 4.8% that National Grid, the leading transmission company, had been seeking. Last month it warned that it would need to see "further progress" on Ofgem's initial proposals.
The three companies have the option of challenging Ofgem's plans before the Competition Commission - the final arbiter for the regulated industries - but were giving little away today.
All three said they were studying Ofgem's proposals in detail before deciding their responses. They have until January 8 next year to submit their responses.
Analysts suggested that Ofgem could have done enough to head off a challenge to the Competition Commission.
"Ofgem has given some ground but not a huge amount. It is probably enough to prevent the companies involved, National Grid in particular, from appealing," according to Evolution Securities analyst Angelos Anastasiou.
Analysts at Dresdner Kleinwort took a similar view. "Although there is still a chance that NG refers to the Competition Commission, we believe that the regulatory uncertainty over a referral will unwind benignly over the next 6-9 months."
Ofgem said it believed the rate of return was sufficient to attract investment and that it had put in place measures to ensure the companies spent the amounts they had been allocated.
"We've introduced what we call a safety net ... what we are trying to prevent is us setting an allowance which is what we think is necessary but the company deciding it can spend less and then pocketing some of the cash," managing director David Gray said.
Karen Darby, the chief executive of Simplyswitch.com said the investment was necessary and would help the UK maintain and improve its transmission system and its climate change objectives but she warned that the benefits would be at consumers' expense.
"Energy prices have increased by over 40% for gas and over 25% for electricity since the start of 2006 and, as we head into winter, bills are at an all-time high.
"Although this investment programme is necessary we don't feel it should be at the cost of the long-suffering householders."
Ofgem's proposals will allow the three companies which run the gas and electricity transmission networks - National Grid, Scottish Power and Scottish and Southern Electricity - to double the amount they were allowed to spend over the previous five years.
It said additional spending was needed not just to replace existing assets but to allow gas and liquefied natural gas imported into south east England and Wales and electricity produced by Scottish windfarms to be linked into the national transmission networks.
Ofgem's latest figures, which include £530m already approved for infrastructure to link renewable energy projects into the electricity network, are £100m above its initial proposals but are some £1bn below what the companies had sought.
Ofgem has also increased the companies' return on capital from 4.2% to 4.4%, but that is still below the 4.8% that National Grid, the leading transmission company, had been seeking. Last month it warned that it would need to see "further progress" on Ofgem's initial proposals.
The three companies have the option of challenging Ofgem's plans before the Competition Commission - the final arbiter for the regulated industries - but were giving little away today.
All three said they were studying Ofgem's proposals in detail before deciding their responses. They have until January 8 next year to submit their responses.
Analysts suggested that Ofgem could have done enough to head off a challenge to the Competition Commission.
"Ofgem has given some ground but not a huge amount. It is probably enough to prevent the companies involved, National Grid in particular, from appealing," according to Evolution Securities analyst Angelos Anastasiou.
Analysts at Dresdner Kleinwort took a similar view. "Although there is still a chance that NG refers to the Competition Commission, we believe that the regulatory uncertainty over a referral will unwind benignly over the next 6-9 months."
Ofgem said it believed the rate of return was sufficient to attract investment and that it had put in place measures to ensure the companies spent the amounts they had been allocated.
"We've introduced what we call a safety net ... what we are trying to prevent is us setting an allowance which is what we think is necessary but the company deciding it can spend less and then pocketing some of the cash," managing director David Gray said.
Karen Darby, the chief executive of Simplyswitch.com said the investment was necessary and would help the UK maintain and improve its transmission system and its climate change objectives but she warned that the benefits would be at consumers' expense.
"Energy prices have increased by over 40% for gas and over 25% for electricity since the start of 2006 and, as we head into winter, bills are at an all-time high.
"Although this investment programme is necessary we don't feel it should be at the cost of the long-suffering householders."
Source: The Guardian
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