Utility Week

Utility Week 1st November 2013

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Comment Chief executive's view Steve Johnson, Electricity North West Standing up for the networks Energy suppliers pay DNOs for distribution, then recharge customers for it. With an average DNO price reduction of 11 per cent proposed from 2015, our hope is that this will be reflected in customers' bills. T here's no denying that the energy sector's reputation is at a low point. It is difficult not to have an opinion on rising bills. Everyone is affected in some way, and everyone has a view – from the man on the street to the prime minister (and exprime ministers, for that matter). There is genuine anger at the sector as suppliers are perceived to announce price rise after price rise, and almost always just in time for winter. Such vitriol towards energy companies is widespread. You need only look at the reaction that British Gas received when it took to Twitter for a Q&A the day it announced a 9.2 per cent rise in bills. Reading through the search results of #AskBG is not for the fainthearted. We are all so dependent on power for heat, light, work and play. But are the price rises justified? And should the whole industry be tarred with the same brush? The suppliers almost universally have a three-point defence of the rises: •  higher wholesale costs; •  government green schemes; •  he cost of getting power to people's t homes. It is the third of the points above with which I take issue – at least where electricity is concerned. Distribution network operators (DNOs), such as ours in the North West, are responsible for taking power from National Grid, and delivering it to homes and businesses across the country. Our service, and even our existence, is often hidden from the view of many consumers and is rarely explained on bills. We are wholly separate to suppliers and I am proud of our service and value. The network of wires across the UK covers half a million miles (the same distance to the moon and back, or 20 times around the world, if you like). The cost of maintaining those cables, transformers, substations, control systems and everything else involved in managing such a vast infrastructure, makes up just 16 per cent of a typical domestic electricity bill. That's around £100 – less than £2 a week – and represents excellent value. Since privatisation, networks have deliv- 6 | 1st - 7th November 2013 | UTILITY WEEK ered improved efficiency, delivered improved We have listened, and continue to lisquality of supply and committed to signifi- ten, to what our customers are saying. They cant investment programmes. want us to invest in the future, unsurprisInvestment in the networks has increased ingly "keeping the lights on" is seen as our significantly in recent years following a fall number one priority. But we have to make it after privatisation as DNOs made big strides affordable and sustainable while also delivin asset utilisation and management. Sig- ering the excellent customer service that is nificant increases in investment are required quite rightly expected. to replace old and worn out equipment If approved, we believe that our plan will installed in the rural electrification pro- reduce costs and improve our service. It is grammes of the 1950s and 1960s. The cur- suppliers who pay us for distribution, then rent price control period from 2010 to 2015 recharge customers for it, along with the required a 25 per cent increase in investment other elements that make up energy bills. from the previous five years as a Unfortunately, one thing we cannot result. do is force suppliers to pass on savDNOs have a good track record ings from our plans to customers. of improving efficiency while Customers demand transpardelivering essential investment. ency. Networks have delivered this Despite the 25 per cent increase in spades through consultations in investment, prices were and publication of detailed business adjusted at the start of the price plans. We are proud of the value review period to keep them low in we offer customers, and they're response to the financial crash of happy too. 2008, then allowed to rise by 5.6 In marked In marked contrast to electricity per cent a year. retailers, customer satisfaction with contrast to Suppliers have known since electricity distributors is at an allsuppliers, 2009 that these rises were comtime high, with average satisfaction ing, and in the grand scheme of customer ratings among customers who have things they are relatively small. satisfaction had cause to contact the DNO at 80 The proposed rise in 2014 would with per cent and rising. add an average of just over £5 to Looking forward through the new electricity an overall electricity bill that is RIIO price control, Ofgem has chalnearing £600 (a less than 1 per distributors lenged DNOs to address the issues cent increase in the overall bill). is at an allof managing affordability, facilitatRIIO-ED1, the latest price time high" ing the move to a low-carbon future, review for which Ofgem is curand meeting customers' and stakerently assessing DNOs' plans, has done a holders' ever-increasing service expectafantastic job to encourage network operators tions. DNOs have responded very positively, to drive down costs even further. Proposals proposing further improvements in service submitted to the regulator earlier this year levels, continuing investment (more than include an average DNO price reduction £29 billion over eight years) as well as price of 11  per cent in nominal terms from 2015, reductions. despite investment levels being maintained. When the component parts of a bill Electricity North West has gone further increase, it is understandable that the overall and we have proposed a price reduction for bill will increase. When the component parts our distribution costs a year early in 2014 – go down – as distribution charges are set to forgoing an already-agreed rise of 8.5 per do potentially as early as March next year for cent. Our prices will then reduce by another North West customers – I can only hope that 18 per cent at the start of RIIO-ED1 in 2015 the huge work we have put in to reduce costs and will only rise with inflation until 2023. will be reflected in customers' bills.

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