Energy regulator, Ofgem, has laid out plans which will reduce domestic energy bills by £12 a year.
Seeking to control the amount afforded to the UKís electricity network, the energy watchdog has allocated £17bn to the reform of the nationsí electricity distribution system. This princely sum is intended to aid the upkeep of power networks over an eight year period commencing in April 2015.
Roughly 8% of the entire energy bill is accounted for by power distribution costs, and it is this figure which is set to fall by an average of £12 for people across the UK, with the amount saved varying depending on location.
Bill-payers in the north-west stand to save £26 a year, whereas those in the south-east will save a comparably meagre £5.
In their proposal, Ofgem explained the cuts had been fuelled by £2.1bn in savings accrued over the course of the last year. The regulator depict the scenario as a win-win, due to the combination of enhanced public services and a cut in the amount lost by bill-payers.
Ofgemsí energy cuts spell good news for consumers, as the regulatorsí actions could indirectly influence the Big Six energy giants into reducing their tariffs, making for more cost-effective energy use. Given the number of price drops in gas distribution and power costs over the year, the demand for more competition within the energy sector has never seemed more apparent.
Lack of Value
Western Power Distribution was the only electricity distributor to meet Ofgemís requirements, as in November of last year, the regulator adjudged its business model to provide acceptable value for money for bill-payers.
However five of the six primary electricity distributors had their plans vetoed by Ofgem due to the lack of value they offered to customers, all huge names within their industry including Northern Power Grid and SSE Power Distribution.
SSE came out lambasting the harshness of Ofgemís specifications, appearing aggrieved by what it deems as unrealistic expectations, regarding price-cuts on the part, of the regulator. The electrical distributor asserted that it has shown, on numerous occasions, its willingness to provide better value for consumers and pointed to its reputation as one of the more cost-effective distributors around.
However, it said take Ofgemís recommendations into account and strive to tailor its power networks around customer wants.
Ofgem said in a statement: “Today’s announcement is all part of our consistent drive to get the best deal for consumers while maintaining a stable regulatory regime which attracts investment as cheaply as possible.”
These developments, outlined in a recent proposal, prove that Ofgem are refusing to back down and the intensity of their scrutiny could deepen unless noticeable cuts are made to provide consumers with better value.
Despite public clamour for reductions in energy costs, Energy UK, trade association for the energy sector, appeared obstinate on the matter, justifying the amount raked in by energy suppliers by highlighting the quality of service provided.
“The UK needs a healthy energy sector with companies that turn a profit,” said a spokesperson.
“Profitability and investor confidence is vital at a time when the industry needs to attract a lot of investment”: He surmised.
Ofgem noted that although the big six look ready to double their profit margins over the course of 2015, bills look probable to plummet, as energy efficiency ought to be the priority for all suppliers.