LONDON --National Grid (LSE: NG.L) fell 2% to 677 pence this morning after OFGEM announced proposals to upgrade the company's gas and electricity networks. The energy regulator confirmed a potential 15 billion pound investment, part of which would help fund new sub-sea electricity cables, between 2013 and 2021.

OFGEM chairman Lord Mogg said: "Britain faces an unprecedented need to invest to replace aging infrastructure, meet environmental targets and deliver secure supplies."

He also said OFGEM's aim was to ensure the FTSE 100's (INDEX: ^FTSE) National Grid could keep costs "as low as possible for consumers by incentivising efficient investment and penalising poor performance."

Lord Mogg claimed a "vanilla" weighted average cost of capital of around 4.5% would achieve such criteria.

However, National Grid said OFGEM's proposals "differed substantially" from the business plan it had previously submitted to the regulator, and also claimed the proposed financing package did not "adequately reflect the increased scale of investment and implicit risk associated with the major investment required."

As this morning's news shows, National Grid's difference of opinion with OFGEM does underline the risk of regulatory interference with utility shares.

Indeed, this letter to OFGEM confirms (link opens PDF file) how dividend expert Neil Woodford saw the writing on the wall for regulated utilities last year... and why he sold out of National Grid and the wider sector.

Such insights have helped Mr. Woodford deliver an impressive 347% total return -- and thrash the market -- during the 15 years to Dec. 31, 2011.

And while National Grid's forecast yield at 677p is about 6%, Mr. Woodford currently owns a bevy of other high-income shares that he thinks do not carry as much regulatory risk as utilities.

You can discover the juicy dividend plays Mr. Woodford presently favors within "8 Income Shares Held by Britain's Super-Investor" -- a free report from Motley Fool.

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