SCOTTISH energy firms are to join the National Grid in a rebellion over the UK regulator plan to stop them charging customers more on their gas and electricity bills.

All three had till a deadline of today by which to appeal to the Competition and Markets Authority against plans to curb the returns they make at consumers’ expense.

Glasgow-based ScottishPower, Perth-based SSE and the National Grid have said they are seeking to overturn parts of an Ofgem ruling that would cut their allowed returns.

It came as ScottishPower and SSE apologise after being forced by Ofgem to compensate customers for overcharging in a separate regulatory investigation. They were among 18 gas and electricity suppliers who have were told to pay £10.4 million in compensation for failures to one million homes over overcharging.

All three have said they plans to appeal parts of the Ofgem’s decision in December, which from April will reduce returns for companies that own electricity and gas infrastructure in Britain by almost 40 per cent.

The industry protest began brewing last summer when Ofgem initially set out plans to halve the returns allowed on investment in the UK’s transmission cables and gas pipes to protect household energy bills.

Energy network companies - which run the pipes and wires that transport gas and electricity around Britain - are monopolies so their returns and how much they are able to charge households through bills to maintain and improve vital infrastructure are regulated by Ofgem through a “price control” framework. Network costs typically make up just over a fifth of a household energy bill.

READ MORE: ScottishPower and SSE apologise after being forced to compensate customers for overcharging

Their multi-billion-pound investments are ultimately paid for by energy consumers, and typically make up one-fifth of the average household energy bill.

Ofgem softened its stance at the end of last year by raising the energy company’s allowed returns on investment from its original proposal of 3.95% to 4.3% for the next five years. The rate is still the lowest ever proposed for a regulated network company, and well below the 5.6% suggested by National Grid.

Energy network firms had in the past been criticised for allowing to make bigger than expected profits, by approving company spending plans that are higher than necessary and plans to recover generous returns from energy bills. Senior executives had speculated that Ofgem may feel under pressure to prove that it can be tough on company profits.

The National Grid said the Ofgem move does not allow large enough returns for its investment in the UK’s gas pipes and electrical cables.

John Pettigrew, its chief executive said Ofgem had “ultimately ignored certain evidence” presented by the industry in its consultation, and had underestimated the financial risk of its major infrastructure investments by setting returns that are too low.

SSE and Scottish Power have raised similar concerns.


"The appeal is both technical and narrow in scope, focussed on areas where Ofgem's decision does not reflect the robust evidence provided throughout the price control process, alongside material errors in the decision," SSE said.

Rob McDonald, the managing director of SSE subsidariy SSEN Transmission,  said its appeal “raises technical but very important issues that we are asking the CMA to correct”.

ScottishPower, owned by Spain’s Iberdrola, said it was “concerned at Ofgem’s approach on a number of discrete issues”.

Akshay Kaul, Ofgem’s networks boss, said the regulation “drives a fair price for consumers, improves services and boosts green energy investment”.

“We respect the Competition and Markets Authority appeal process, where we will defend robustly our decisions which are in the best interests of consumers and tackling climate change,” he said.

“While the appeals could take around six months to resolve, they will not delay any investment and we look forward to working closely with industry to accelerate investment for a green recovery.”

In December, Jonathan Brearly, chief executive of Ofgem, said the regulator would work collaboratively if the energy network owners went to the CMA but added that it was “not about appeasing companies but getting on with the job”.

The regulator did give the green light to greater investment to help deliver clean and reliable energy over the five years of £30bn, up from £25bn, with a further £10bn under consideration for future green energy projects, such as offshore wind farms. It added there was “no limit on the additional funding that could be provided” for viable clean energy investments.

The companies had provided 22,000 pages of extra evidence to justify the increases in permitted returns and investment, Ofgem said.