We will agree with Ofgem an amount that is fair to charge you for the eight years starting 1 April 2015.
The cost of what we do in maintaining your electricity distribution network involves us making an upfront investment of hundreds of millions of pounds each year. When you get your bill, our costs are included in the final amount charged by your supplier.
Each year our charges will automatically change if variable elements outside of our control change – like inflation and taxes. From a user perspective, our charges are the cost equivalent to the line rental of a telecoms company. Our agreed costs are spread across all the customers in our areas using an industry model.
In 2012/13 the average household distribution charge was £166 in the north of Scotland compared to £103 in the south of England. The difference is because proportionately there are fewer customers in Scotland spread across a larger area – 25% of the country’s landmass, but only 2% of the customers. Distribution costs are different for businesses as against homeowners because of their different use of electricity.
Our cost breakdown to you can be explained in five steps…
On average, across the country, the costs on your electricity bill break down like this:
Every time you get a bill approximately 16% of its cost is made up of electricity distribution costs.
Because each electricity network is the sole network in its region, we have to agree with our regulator, Ofgem, exactly what our customers should expect us to do with the 16% we receive. In the case of Scottish and Southern Energy Power Distribution, the amount we agree we needed in 2012/13 was made up of the following elements:
We agree with Ofgem a base return for our investment, our expenditure and service levels. We then deliver our 12 commitments and we strive for a better return through efficiency initiatives.
Our forecast for the next eight years is to spend 95% of the equivalent amount we agreed with Ofgem for the current period. Because we spend less, our customers’ bills are lower. Our best estimate is that our part of an electricity bill will reduce by 10% in 2015 and only increase in line with inflation thereafter.