Ofgem reduces and rejects raft of network funding applications

Ofgem responded to a number of funding requests on Wednesday, saying it will allow network companies to recover an additional £90m, including funding, to tackle cyber and physical security threats, but was set to refuse National Grid’s requests to recover around £263m from consumers for replacing a pipeline and maintaining gas compressors.

It said it wanted to allow National Grid around £116m for undergrounding existing electricity cables in an area of outstanding natural beauty in Dorset.

Under current rules, network companies can apply for additional allowances to cover “any extra costs” for the current price controls which had not been forecast when they were set.

Ofgem was consulting on requests to allow National Grid, Wales and West Utilities and Cadent to pass on an additional £144m of costs for improving resilience to physical and cyber security threats, managing street works, and compensating landowners for work on gas pipelines.

It confirmed it reduced the additional amount it intended to allow to £90m.

National Grid had also requested additional funding to pass on around £263m of costs to consumers for replacing a gas pipeline across the Humber estuary, and maintaining gas compressors.

Ofgem said its initial view was that National Grid had not demonstrated that replacing the pipeline across the Humber estuary would be in the best interests of consumers.

It was therefore not persuaded that it should allow National Grid’s request to pass the £140m replacement cost on to them.

“National Grid uses gas compressors to send gas through the national gas pipeline system,” the regulator explained with regards to the other part of National Grid’s claim.

“Ofgem plans to reject the vast majority of the company’s request to pass on £123m costs that it claims are needed to ensure that nine compressor sites comply with the European Industrial Emissions Directive.”

It said it believed some of the works were already funded by the price control, and that in other areas, the investment National Grid waned to make did not relate to ensuring the compressors were compliant with the directive.

Separately, Ofgem confirmed it was consulting on National Grid’s proposal to spend around £118m to place almost 9km of electricity cables underground in the Dorset Area of Outstanding Natural Beauty.

“Ofgem allows electricity network companies to make the necessary investment to reduce the visual impact of existing power lines if it is in the interests of consumers.

“Ofgem considers that the cost could be cut by over £2m as National Grid has not justified some of the expenditure.”

The regulator said it would make a final decision on the costs it would allow National Grid to recover this autumn.

It said the work could then be completed by April 2022.