PPL Corp. (PPL)’s Western Power Distribution unit was the only company to win fast-track approval from the U.K. regulator for its electricity-network cost-control rate plan.
Ofgem turned down the plans of five other local power distributors because they didn’t “sufficiently demonstrate value for consumers,” it said today in a e-mailed statement. Fast-track status means PPL will be paid an incentive valued at about $35 million a year, the company has said.
This is the first time Britain has set power-distribution price controls under a new set of rules and it comes amid a political storm over household energy costs. Ofgem wants the companies to find more ways to cut the charges, which account for 19 percent of average power bills, it said. PPL’s proposal will cut the annual bill by 11.30 pounds ($18.30), Ofgem said.
“We are pleased that nearly all companies have pledged to cut bills, but we feel that most companies can go further in cutting their costs,” said Hannah Nixon, Ofgem’s senior partner for distribution.
The other distributors need to submit revised plans by mid-March. They include SSE Power Distribution, U.K. Power Networks, SP Energy Networks, Electricity North West Ltd. and Northern Powergrid.
The price controls set the outputs power-distribution network operators must deliver for consumers and revenues they can collect from April 1, 2015 to March 31, 2023.
PPL told investors in July it was “well-positioned” for its cost-control plan to be fast-tracked. Companies awarded fast-track status receive 2.5 percent of total expenditures as a reward, or about $35 million a year for Allentown, Pennsylvania-based PPL, its July 1 investor presentation shows.
Companies “slow-tracked” could still claim the award, though not guaranteed at that level, if they can deliver the required efficiency levels.
Early approval may raise U.K. earnings to $1.25 to $1.32 a share in 2014 from a $1.20 forecast in 2013, with cash paid back to the parent at $255 million to $305 million next year, it said.
Western Power’s plan envisages about 7 billion pounds of expenditure including 3 billion pounds to upgrade and maintain networks. The proposal reduces the power distribution element of the bill by an average 11.6 percent compared with prices from 2012 to 2013 prices, Ofgem said. British households pay an average 610 pounds a year for power, according to the regulator.
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