Ofgem takes on network firms with plans to cut bills

Ofgem said it was "driving a harder bargain" with energy network companies as it set out plans to cut returns paid to investors which it said could help save consumers £45 a year.

The proposed changes, which would apply from 2021, cover the companies that run the wires and pipes that supply the UK's electricity and gas.

National Grid (LSE: NG.L - news) , one of the main players in the sector, said it was "disappointed" with the plans, saying it did not reflect the level of risk borne by transmission networks. Its shares fell 9%.

Consumer body Citizens Advice welcomed the proposals by the regulator.

The plans were set out in Ofgem's consultation for price controls over the 2021 to 2026 period.

As part of this calculation it wants to cut the rate of returns that network companies can pay to investors to 4%, compared to 7-8% for the current 2013-2021 period.

It said it would also keep adjusting the cost that network companies face to borrow annually, so that "consumers continue to benefit from the fall in interest rates since the financial crisis".

These measures are expected to save consumers £6.5bn from 2021 onwards, Ofgem said.

Combined with plans announced last month to reform the way electricity network charges are passed on to users, it could mean consumers saving £45 a year, the regulator said.

Jonathan Brearley, executive director for systems and networks at Ofgem, said the proposals would "help build a lower cost, fairer energy system".

He added: "This will mean driving a harder bargain with network companies to ensure that households who need it always have access to safe and secure energy at a fair price."

National Grid said: "We are disappointed with the proposed financial package… as we do not believe it appropriately reflects the level of risk borne by transmission networks.

"In order to deliver the major capital programme required across our networks in a rapidly changing energy market, we need to ensure the regulatory framework also provides fair returns to shareholders and enables us to continue to deliver world class networks for consumers."

Citizens Advice chief executive Gillian Guy said: "Energy network companies have had it too good for too long.

"Ofgem's commitment to a tougher price control should curb the excess profits networks have been allowed to make.

"This is good news for people as this should result in lower bills.

"It is vital now that Ofgem continues to hold its nerve in the face of the inevitable push back from industry."

Last year, Citizens Advice blamed the regulator for allowing the network companies to make an excess £7.5bn in profit - paid for by households - over the past eight years.