Ofgem has set out its plans to bring in tougher price controls with lower expected returns for network companies.

The regulator has confirmed that the default length of the next price controls which set the revenue network owners can earn from charges to consumers from 2021 will be cut to five years.

The reduction from eight years is part of Ofgem’s plans to deliver savings of over £5bn to consumers through tougher price controls for energy networks.

There is no update to the 3%-5% cost of equity range (the amount the companies can pay their shareholders) at present. The figure is the lowest rate ever proposed for energy network price controls in Great Britain.

Ofgem said it will also extend the scope for opening up high value network upgrades to the benefits of competition across the gas and electricity sectors in the next price controls.

Jonathan Brearley, Ofgem’s executive director for systems and networks, said: “We have set out our plans which will bring in tougher price controls with lower expected returns for network companies.

This is part of our ongoing programme to ensure that consumers get reliable and secure power supplies at a fair price.

Network companies respond

David Smith, Chief Executive of Energy Networks Association, says:

“Energy networks are focused on providing homes and businesses with a safe, reliable network and the best possible service. Since 1990 they have improved significantly the reliability of their networks while at the same time cutting costs for consumers by around 17%. They are the nerve-centre of a low cost, smarter and cleaner energy system and are responsible for delivering a range of exciting new services for their customers.”

“Dynamic regulation is fundamental to help the networks continue enabling new, low carbon technologies while responding to the changing needs of consumers. RIIO-2 must allow networks to carry on delivering while also being founded on the principles of transparency and stability to provide predictability for investors, innovators and consumers.”

“Customers are at the heart of our businesses so we will be looking to build on our track record of high customer satisfaction throughout the current price control period and into RIIO-2. Network companies look forward to working closely with Ofgem in the weeks and months ahead on their RIIO-2 proposals.”

> See Ofgem's statement