For years energy networks have been seen as safe and attractive places to invest. Yes, their returns have been regulated but the growth in the size of the networks has allowed many companies to grow their profits and dividends to their shareholders. Now it seems that the energy regulator has said “enough is enough” and that it’s time for customers to save some money. This could be very bad news for shareholders in National Grid (LSE:NG.) and SSE (LSE:SSE).
Last week, OFGEM, the UK’s energy regulator, gave its latest view on how much money gas and electricity transmission and distribution networks could make from their assets between 2021 and 2026. The short answer is a lot less than they are making now.
Along with so many businesses over the last decade, utility networks have benefited from very cheap borrowing costs. They have been able to finance themselves more cheaply than the regulator assumed that they would be able to and have pocketed the difference. OFGEM now wants the benefits to go back to electricity and gas consumers where transmission and distribution charges make up around 20 per cent of a household energy bill.