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Ofgem warns UK electricity distributors could see revenue cut

Staff Writer |
UK energy regulator Ofgem warned operators of the country's electricity distribution network to step up their efforts in completing new connections for "larger customers", or face having revenue cut.

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However, the six companies that operate the 14 networks in the UK would face a combined revenue cut of "up to" GBP13.9 million, Ofgem said.

The distribution networks in the UK take electricity from the central transmission network operated by National Grid PLC, lower the voltage, and then deliver it to the end user such as homes and businesses. Increasing amounts of power plants - particularly renewables - are connecting to distribution networks directly instead of the central transmission network.

For London-listed firms, SSE PLC is the only distribution network operator, running the networks spanning over the North of Scotland and the South of England.

In its most recent financial year that ran until the end of March 2017, SSE generated around 23% of its total adjusted operating profit from electricity distribution - accounting for GBP433.4 million of the total GBP1.87 billion. Profit from electricity distribution had risen from GBP370.7 million the year before.

Notably, electricity distribution was SSE's second largest individual contributor to total adjusted operating profit in that year, lagging only behind its electricity generation operations, which accounted for around 27% of total profit that year.

Investment in electricity distribution in the last financial year totalled GBP284.7 million, only 16.5% of the total spending budget. SSE's electricity distribution network assets had a regulated asset value at the end of March of GBP3.24 billion.

The segment generated GBP1.07 billion in revenue in the last financial year, up from GBP932.6 million the year before - suggesting the GBP13.9 million cut in revenue across all six network operators would have a nominal impact on SSE. Electricity distribution accounted for just 3.7% of SSE's total annual revenue.

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