Power network upgrades to raise energy bills

Upgrades to the regional electricity network will add an average of £3.76 a year to bills over the next five years, the regulator said today.

Around £6.5 billion will be invested between 2010 and 2015 but Ofgem has told the companies responsible for the network that they must deliver their plans for 17% less than they originally forecast.

The regulator said its proposals aimed to protect consumers from "unnecessary price rises in today's difficult economic environment".

There are 14 electricity distribution networks in the UK, with Ofgem's price controls responsible for the revenues that their owners can collect.

Electricity customers currently pay about £3.6 billion a year for the distribution of electricity from the national grid to homes and businesses. This accounts for about a sixth of domestic customer electricity bills, with a household paying typically about £67 a year for electricity distribution.

Ofgem said the proposed average annual increase in the distribution element was likely to be around 5.3% - £3.76 a year for the next five years, although this will vary considerably across the country.

The proposals cover funding for upgrades of the network that were largely built in the 1950s and 1960s, as well as incentives for the companies to invest in a low-carbon future.

Ofgem said firms will earn rewards for "outstanding" customer service but will be penalised and be forced to pay compensation for poor service.

Alistair Buchanan, Ofgem's chief executive, said: "Our electricity network proposals are tough but fair and will deliver for energy consumers today and in the future. We have accepted the companies' investment plans but told them to deliver them at much lower cost.

"In return for higher prices we expect even better customer service and reduce carbon emissions."