Iberdrola Slams UK’s Proposal for Lower Network Returns

Spanish utility Iberdrola's chief executive, Ignacio Galan, has strongly criticised UK energy regulator Ofgem's proposal to cut the allowed return on equity for transmission network companies, and threatened to pursue legal action "if nothing is changed".

Ofgem proposes a baseline return on equity of just 3.95pc for 2021-26, almost half the current level, to provide better value for money for consumers.

It has also suggested cutting £8bn (€8.8bn) from network companies' spending plans by "stretching efficiency targets" and disallowing some costs "that companies have simply not justified as delivering value for money for consumers".

Ofgem's proposal was a "surprise" for power firms, especially as they had been in "close collaboration" with the regulator for the past two years, Galan said today in a conference call for analysts and investors.

The UK government had until recent weeks "pointed" to an average return of around 4.8pc, plus further incentives, according to Galan. "Suddenly they modified that to 3.9pc with no incentives or little incentives," he said. "And all this mess has been generated just because of an extra cost saving for consumers of less than £1 per customer per annum. If nothing is changed, we will explore legal action and job cuts".

Iberdrola's UK subsidiary Scottish Power and UK utility SSE had already criticised the proposal. Scottish Power said the low rates of return will divert investment away from the UK and into green infrastructure projects in other countries, while SSE noted it would "be forced to keep all options open to secure an ambitious, fair and balanced price control settlement that meets the needs of all stakeholders".

Industry association RenewableUK also criticised the proposal, saying it "will not bring forward the investment that the government says it wants to kick-start a green economic recovery".

Ofgem's proposals will first go through public consultation before the regulator makes a final decision in December. The new price control settlement will take effect in April next year.