Ofgem's Competition Proxy Plans Disappoint National Grid PLC
January 23 2018 - 3:58AM
Dow Jones News
By Oliver Griffin
U.K. energy regulator Ofgem said Tuesday that it plans to use a
competition-by-proxy approach to reduce costs relating to the
connection of a nuclear reactor to the country's electrical grid,
in a move that National Grid PLC (NG.LN) labeled "very
disappointing."
Ofgem said that the cost of connecting the Hinkley Point C
reactor to the U.K.'s grid is projected at 800 million pounds
($1.11 billion) that would be passed on to consumers via their
electricity bills. However, a competition-by-proxy approach could
reduce those costs by GBP100 million, it said.
Under this approach, National Grid will build the
infrastructure, but Ofgem will set the revenue for building and
operating this infrastructure based on the assumption that the work
would have been put out to tender, the regulator said.
Ofgem plans to determine the amount of revenue that National
Grid can earn from the project based in part on the regulator's
experience in tendering the ownership of transmission links to
offshore wind farms, Ofgem said.
National Grid said that it is "very disappointed with the proxy
competition proposal which includes financial parameters proposed
for the delivery of this complex and major infrastructure
project."
The company said it doesn't believe that the proposed ranges for
cost of debt and cost of equity reflect actual financing costs, or
the risks associated with building such a complex project.
National Grid said that Ofgem has significantly overestimated
potential consumer savings and that the parameters don't offer the
level of returns that would allow sustainable investment in the
U.K. energy sector.
The electricity-and-gas utility said it will work with Ofgem in
the coming weeks on reaching a fair outcome for both customers and
investors. If talks don't progress satisfactorily, National Grid
said it will consider all other options.
Ofgem said it will make a final decision on whether to use the
competition-by-proxy approach in the spring.
National Grid shares at 0828 GMT were down 2.1% at 810.90
pence.
Write to Oliver Griffin at oliver.griffin@dowjones.com
(END) Dow Jones Newswires
January 23, 2018 03:43 ET (08:43 GMT)
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