By Christian Moess Laursen


The U.K. gas and electricity regulator outlined the approach it will use to set the next price controls for energy utilities ahead of final decisions on charges and consumer bills for 2026 to 2031.

Ofgem on Thursday set an initial range of returns to investors of 4.57% to 6.35% for utilities, which it will then use as it considers cross checks, forward-looking risks, and the need to ensure the price control is investible.

Final decisions on network investment and charges included on consumer bills are expected to be taken in late 2025 at the earliest.

The next step for U.K. electricity and gas utilities is to submit business plans to Ofgem including on the activities they intend to undertake during the price control and their associated costs.

The companies have until Dec. 11 to submit their final business plans. Ofgem will offer additional incentives of potentially 0.60 percentage points of return on regulated equity rewards or penalties based on the quality of the business plans, it said.

In a response to the methodology, National Grid said it was pleased to see Ofgem recognizing the need for appropriate financial framework that retains and attracts capital the sector needs.

"It is crucial that Ofgem set an appropriate cost of equity that recognizes the high level of risk borne whilst attracting the unprecedented levels of investment required to decarbonize the economy and deliver net zero," Chief Financial Officer of SSE Barry O'Regan said in a statement.

The methodology seems constructive at first glance, Citi analyst Jenny Ping wrote in a research note. "Overall, we see this as an attractive starting point for electricity transmission network operators, with not only aiming up potentials on the cost of equity, but also opportunity to earn generous rewards," Ping wrote.


Write to Christian Moess Laursen at christian.moess@wsj.com


(END) Dow Jones Newswires

07-18-24 0413ET