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UPDATE 2-National Grid slams Ofgem's network spending curb
July 16, 2012 / 6:43 AM / 5 years ago

UPDATE 2-National Grid slams Ofgem's network spending curb

* National Grid says Ofgem proposals flawed

* Ofgem said upgrades would create about 7,000 jobs

* Says Middle East dependence exposes UK to disruptions

LONDON, July 16 (Reuters) - National Grid Plc says UK regulator Ofgem’s proposals to limit overall spending in gas and electricity infrastructure to 22 billion pounds ($34.2 billion) could jeopardize the safety and reliability of the energy network.

Ofgem has cut the total investment figure by nearly 25 percent of that requested by energy companies over the next eight years. It will still lead to a 7 pounds rise in household bills in 2013 and 15 pounds in 2021, it said.

Britain’s biggest energy distributor, which puts the cost of renewing and decarbonising the country’s ageing transmission networks over the next eight years at 31 billion pounds, said Ofgem’s plans did not adequately reflect the increased scale of investment associated with building an energy system for the future.

“We believe that these initial proposals will not appropriately incentivise the essential investments necessary to provide safe, reliable networks for the UK consumer and avoid delays to the achievement of the UK’s environmental targets,” National Grid said.

Ofgem’s proposal is part of plans to radically overhaul Britain’s ageing energy infrastructure by 2020 as set out in its energy-security review Project Discovery.

Ofgem said the proposed upgrades included in its 22 billion pound plans would create around 7,000 jobs, mainly in construction, and connect 80,000 fuel poor households to gas distribution companies.

Ofgem lowered the investment figure by reducing National Grid’s proposed return on investment from upgrade work, in a bid to safeguard consumer interests by limiting the impact on household energy bills. It argues that investment must be delivered as cost effectively as possible.

“As Ofgem’s Project Discovery set out, Britain faces an unprecedented need to invest to replace ageing infrastructure, meet environmental targets and deliver secure supplies,” Ofgem Chairman Lord Mogg said in a statement.

Heavy investment in pipelines and liquefied natural gas terminals in recent years has greatly increased Britain’s import capacity.

Ofgem argues that rising dependence on gas imports exposes the UK to supply disruptions from unstable energy-rich regions in the Middle East.

Deutsche Bank analysts said National Grid’s return on equity for gas transmission proposed by Ofgem at 6.8 percent versus 7 percent, and 6.7 percent versus 7 percent for gas distribution, were dissappointing.

Ofgem expects to present full details of its proposals later in July.

National Grid said it will highlight its own investment program and present further support for its position in response to Ofgem’s proposals in early August.

At 1106 GMT, National Grid shares were down 2 percent.

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