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RNS Number:1217N
OFGEM
04 December 2006


R/57


EMBARGOED UNTIL 07.00 HOURS ON MONDAY 4 DECEMBER 2006


100 PER CENT INCREASE IN INVESTMENT IN BRITAIN'S ENERGY NETWORKS


* More than #5 billion authorised by Ofgem for investment in Britain's
  electricity and gas transmission systems

* Investment will maintain the networks' high levels of performance and
  reliability

* Post-tax rate of return on capital of 4.4 per cent (post-tax real) to
  attract new investment

* Safety net to be put in place to protect customers if companies under-invest


Energy regulator Ofgem continues to pave the way for upgrading Britain's energy
networks by authorising funding for more than #5 billion of investment in
Britain's gas and electricity transmission systems over the next five years.


This unprecedented 100 per cent increase in authorised investment, since the
last price controls were set, will enable network operators to maintain the
current high levels of performance of their networks by replacing ageing assets.
It will also help Britain meet climate change objectives by connecting and
delivering more low-carbon generation. Greater security will also be brought to
the nation's gas supplies by building and improving connections to new import
and storage facilities to the national gas network.


Ofgem is proposing a 4.4 per cent rate of return on capital in the price control
and believes there is scope for companies to out-perform the price control by
running their networks more efficiently. The price control is also flexible and
automatically allows the companies to earn more revenue in response to an
increase in demand for connections to the transmission networks.


Ofgem Chairman, Sir John Mogg, said: "Investment in the backbone of Britain's
gas and electricity networks is vital to maintain high levels of reliability and
secure supplies for customers. It also meets the challenge of developing a
sustainable policy for the climate change agenda, notably for the connection of
low-carbon generation.


"Throughout the review Ofgem has sought to protect customers, who ultimately
must pay for such investments, by scrutinising the companies' investment
proposals and operating costs to make sure that the plans represent good value
for money. A #5 billion investment programme is authorised by Ofgem between 2007
and 2012 - a 100 percent increase on the companies' allowances over the last
five year price control periods."


Ofgem is also putting in place a safety net to protect customers against any
substantial shortfall in investment against the companies' plans. If a company's
investment falls 20 per cent below the amount allowed we will be able to review
whether the allowances remain appropriate.


To fund these investments, overall transmission charges to consumers will
initially increase by 8 per cent against the current revenue allowances for
2006-2007. To reflect rising investment levels electricity transmission revenues
will then increase by a further 2 per cent above the rate of inflation each year
thereafter, while gas transmission revenues will increase in line with
inflation. The effect on domestic customers will however be relatively small as
transmission makes up only 3 percent of household energy bills.



                                     - ends -



Notes to editors


1. Sustainable development. Ofgem has set out in a separate Information Note
Making Britain's energy transmission networks more sustainable, how the price
control will help develop a sustainable energy industry in more detail. It has
also published a factsheet which provides more details of the price control.
Copies are available from the Ofgem website on www.ofgem.gov.uk.

2. Ofgem has reviewed the price controls for the four electricity and gas
transmission companies which own Britain's high-voltage national networks and
the national gas pipeline:

      * National Grid Electricity Transmission (NGET)

      * National Grid Gas NTS (National Transmission System)

      * Scottish Power Transmission Limited (SPTL)

      * Scottish Hydro-Electric Transmission Limited (SHETL)

3. The companies have until January 8, 2007 to respond to the final proposals.
If accepted by the companies the finalised controls will then take effect from 1
April 2007 and run to 31 March 2012.


4. Capital expenditure:

The table below summarises Ofgem's final proposals for the companies' capital
expenditure requirements:

National     National Grid       Scottish Power      Scottish           Total
Grid Gas     Electricity         Transmission        Hydro-Electric
NTS          Transmission Ltd    Limited             Transmission
                                                     Limited

#825m        #2997m              #608m               #181m             #4.6bn

Already agreed investment to connect new   #530m - already authorised under the
low-carbon generation during the price     Transmission Investment for Renewable
control period                             Generation regime in 2004.

Grand total                                #5.1bn


5. Flexibility in the price control:

As part of the review Ofgem is also introducing new flexible mechanisms enabling
it to adjust the companies' revenue allowances, either up or down, in response
to the needs of users of the networks. The need for this arises from uncertainty
over which low-carbon generation or gas import projects will go ahead and when
they will be completed. If these projects do go ahead then the flexibility will
allow the transmission companies to make additional investments.  If the
companies' high case estimates prove correct, this could add a further #1
billion of investment, potentially increasing the total to as much as #6
billion.

6. The safety net mechanism:

To safeguard consumers against any under-investment, if a company's investment
falls by more than 20 per cent below its allowance in any year, this will
trigger an automatic review of its capital expenditure allowance.

7. Cost of capital:

Ofgem sets the allowed rate of return the companies can recoup when they invest
in their networks. Ofgem has proposed a real post-tax cost of capital of 4.4 %
for all four companies.  This is lower than the 4.8% set for the electricity
distribution companies in the light of continuing evidence of relatively low
interest rates.

8. Ofgem has also today published its final proposals for the gas distribution
one year price control (2007-2008). It was decided to extend the current
five-year control by one year to 31 March 2008 to provide a more balanced
workload for companies and Ofgem. The one year control also creates an
opportunity for Ofgem to review an additional year's data from National Grid and
the new owners of four of the networks when setting the main control.

9. Ofgem is the Office of the Gas and Electricity Markets, which supports the
Gas and Electricity Markets Authority, the regulator of the gas and electricity
industries in Great Britain. The Authority's functions are set out mainly in the
Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the
Utilities Act 2000. In this note, the functions of the Authority under all the
relevant Acts are, for simplicity, described as the functions of Ofgem.



For further press information contact:

Chris Lock: 020 7901 7225 or 07766 511470
Mark Wiltsher: 020 7901 7006 or 07774 728971
Trevor Loveday: 020 7901 7288 or 07801 290554







                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

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