Ofgem's Competition Proxy Plans Disappoint National Grid PLC

By FeaturesDow Jones Newswires

U.K. energy regulator Ofgem said Tuesday that it plans to use a competition-by-proxy approach to reduce costs relating to the connection of a nuclear reactor to the country's electrical grid, in a move that National Grid PLC (NG.LN) labeled "very disappointing."

Ofgem said that the cost of connecting the Hinkley Point C reactor to the U.K.'s grid is projected at 800 million pounds ($1.11 billion) that would be passed on to consumers via their electricity bills. However, a competition-by-proxy approach could reduce those costs by GBP100 million, it said.

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Under this approach, National Grid will build the infrastructure, but Ofgem will set the revenue for building and operating this infrastructure based on the assumption that the work would have been put out to tender, the regulator said.

Ofgem plans to determine the amount of revenue that National Grid can earn from the project based in part on the regulator's experience in tendering the ownership of transmission links to offshore wind farms, Ofgem said.

National Grid said that it is "very disappointed with the proxy competition proposal which includes financial parameters proposed for the delivery of this complex and major infrastructure project."

The company said it doesn't believe that the proposed ranges for cost of debt and cost of equity reflect actual financing costs, or the risks associated with building such a complex project.

National Grid said that Ofgem has significantly overestimated potential consumer savings and that the parameters don't offer the level of returns that would allow sustainable investment in the U.K. energy sector.

The electricity-and-gas utility said it will work with Ofgem in the coming weeks on reaching a fair outcome for both customers and investors. If talks don't progress satisfactorily, National Grid said it will consider all other options.

Ofgem said it will make a final decision on whether to use the competition-by-proxy approach in the spring.

National Grid shares at 0828 GMT were down 2.1% at 810.90 pence.

Write to Oliver Griffin at oliver.griffin@dowjones.com

(END) Dow Jones Newswires

January 23, 2018 03:43 ET (08:43 GMT)

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