Energy industry divided over mid-period review for networks

The energy industry is divided over the need for a mid-period review (MPR) in the current eight-year price control for companies operating both in electricity and gas transmission, and gas distribution.

Big six supplier British Gas and consumer body Citizens Advice are leading the call for a review for all three sectors to identify if the current price control still represents value for money for consumers and to address systemic “outperformance” by network companies against their required outputs.

British Gas said in its submission to the Ofgem consultation on the possibility of an MPR: “We recognise that much has changed since the first round of RIIO price controls were finalised which, in turn, has significantly impacted consumers’ interests”.

Citizen’s Advice said the average return on investment for network companies in T1 and GD1 is forecast to be 9.4 percent and is “well in excess of what appears appropriate for such low-risk investment”.

It added the mid period review presents “an opportunity to identify the root causes of outperformance, for both transmission and gas distribution”.

Ofgem signalled its intent to hold an MPR for transmission in November last year, saying it had identified some issues with the price control a review could address – such as the network output measures, the customer and stakeholder incentive mechanism and the strategic wider works submissions.

It did not identify any material issues for gas distribution that would require an MPR.

Network companies have welcomed Ofgem’s findings on gas distribution but have disagreed with its intention to hold an MPR for transmission, saying the issues identified would be better addressed through other, ongoing mechanisms.

Trade body the Energy Networks Association (ENA) said the changes experienced since the price control was set, such as in the volume of distributed generation connections following changes in government policy, are “within the range of uncertainty anticipated in the design of RIIO-T1 and can be managed through the existing uncertainty mechanism”.

It added that a review risks creating two four-year price controls and could “undermine longer term investor confidence”.

“Our transmission operator members would urge Ofgem to consider the longer term customer interest when assessing the scope of the RIIO-T1 MPR and not just the short terms benefits within the last four years of this price control,” it said.

Only SP Energy Networks said it would support an MPR if Ofgem decided one was required, but felt the issues identified could be addressed more effectively through other specialist working groups.

It also said that “as a matter of fairness” all companies should be reviewed if Ofgem decide to proceed with a MPR in any one area.