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24 March 2004 - UK Energy regulator Ofgem today (Wednesday) set out its framework for determining price control proposals for the electricity distribution companies due to come into effect in April 2005. Summaries of the business plans provided to Ofgem by the 14 distribution companies - which run the local electricity networks - are also published with the framework.
Ofgem Managing Director of Networks, David Gray said: "Ofgem's priority for this review is, as always, to protect the interests of consumers. This means ensuring prices are no higher than they need to be, while ensuring that there is sufficient investment in the networks to safeguard security of supply and meet future demands for distributed generation."
"Companies may need to increase network investment above existing levels. But their projections on what is required under the next price control vary enormously, with some companies predicting little or no increase and others increases in excess of 50 per cent."
Much of Ofgem's work before the publication of initial proposals in June will focus on these projections.
One of the factors that will most influence companies' views on investment is the allowed cost of capital. Today, for the first time, Ofgem has set out its initial view that the proposed cost of capital at this review should fall within the range 6 to 7.2 per cent pre-tax. The final figure will be announced in November when the final proposals for the price control will be published.
David Gray added: "Building on two years of extensive consultation, this policy paper sets out the broad policy framework within which Ofgem intends to develop price control proposals, and lays the groundwork for Ofgem to publish Initial Proposals in June."
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