NGG - U.K. energy regulator seeks to cut returns for electricity distribution firms

U.K. energy regulator Ofgem proposed Wednesday to reduce return on equity allowances for Britain's electricity distribution companies for the 2023-28 regulatory period to 4.75% from 6%-6.4% for the current five-year period, which ends next year, and a weighted average cost of capital allowance of 3.26% for most companies.

The regulator proposed a total spending package of £20.9B (~$25.5B), including £2.7B in upfront funding, to be split across the six applicable companies, including National Grid's ( NYSE: NGG ) Western Power Distribution, which it acquired last year.

National Grid ( NGG ) shares closed +1% in London on Wednesday, and are up by roughly the same percentage in U.S. trading.

The other five U.K. distributors are Electricity North West, UK Power Networks, Northern Powergrid, SP Energy Networks and Scottish & Southern Electricity Networks.

RBC utilities analyst John Musk said he regards the proposals as a slight positive for the companies , as expectations were for similar total expenditure and return on equity of ~4.6%.

Ofgem said it is "proposing tough efficiency targets for the networks along with a sharp reduction in their allowed rate of return, meaning less of consumers' money goes to company profits," adding that most consumers could see a small drop in network charges.

The regulator will hold consultations on the proposed plan until August 25 with a final decision to be confirmed in December.

National Grid ( NGG ) is a "solid utility but [with] limited upside," Retirement Pot writes in a bearish analysis newly published on Seeking Alpha .

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