Ofgem dims hopes of power firms

ENERGY regulator Ofgem is doing its bit to keep a lid on rising household electricity bills by telling power distributors they must cut charges.

Ofgem said today it expects the electricity distributors - regional monopolies running the wires that carry electricity from the national grid into the home - to cut charges by an average 2% next year and will allow increases of 1% below the rate of inflation over the following five years.

That tough stance - laid down in a provisional judgment by the regulator before a final verdict in November - immediately had the distribution firms up in arms.

They want higher charges to enable them to increase capital spending on their ageing networks. If not, it is warned, security of supply may be at risk and could lead to blackouts.

However, with electricity generators having already raised prices - which are feeding through to higher household bills - Ofgem believes distributors receive enough money to do their job.

Ofgem chief executive Alistair Buchanan said: 'This price-control proposal balances the need for future investment with the case for continuing efficiency - both of which are key to protecting electricity customers' interests.'

But EDF Energy, the French State-owned company that runs electricity networks in London, the South East and East Anglia, believes Ofgem's called-for cuts of between 2% and 5% in its regions need to be renegotiated.

'There is no higher priority than long-term security of supply for the 20m people relying on our networks,' said EDF's chief executive Vincent de Rivaz.

'Without power, life stops. Ofgem's initial proposals would not allow the level of investment EDF considers necessary in its electricity networks.

'We believe that, in London and the surrounding area - so critical for the economic consequences of this country - we have a special case [for higher charges]. Here there will be higher economic growth and growth in demand and, at the same time, it is the most expensive part of the country to operate.

'Tomorrow we resume discussions with Ofgem. We do not want to be controversial - we want to be co-responsible.'

Ofgem said EDF had demanded capital spending rises of between 40% and 60%, whereas it wants average allowable rises of 33%

Dealers marked down the shares of the electricity distributors affected. Scottish & Southern Energy, which covers the south of England, saw its shares fall 5p to 678p. United Utilities, covering the North-West was down 1 1/2p at 545p, and Scottish Power fell 2p to 395p.