Ofgem accepts £54m rebate from Cadent

Decision follows delay to iron mains replacement programme in central London

Ofgem has accepted an offer from Cadent to waive £53.9 million of RIIO allowances as part of its mid-period reviews for gas and electricity transmission and gas distribution.

Cadent proposed the refund following its decision to delay part of a gas mains replacement programme until after the current price control period.

The gas distribution network was originally allocated funding to replace 69 kilometres of medium pressure iron mains in central London but will now only replace 29 kilometres due to “unexpected engineering and stakeholder problems”, according to Ofgem’s decision document.  

“The London medium pressure replacement work remains a value positive programme”, Cadent explained in a consultation response.

“We remain committed to deliver the benefits for customers as soon as we can, given access constraints in London – but for now we are rightly returning money to customers for the work that will not be completed within GD1.”

Cadent was formerly known as National Grid Gas Distribution but was rebranded in May after National Grid sold a majority stake in the business to an international consortium.

Ofgem has also opted to postpone allowances which had been allocated to National Grid Electricity Transmission and SP Transmission to deliver the £1 billion Western HVDC subsea cable linking Hunterston in Scotland with Deeside in North Wales. The project was due to be completed in 2016/17 but has been delayed until 2017/18 owing to cable manufacturing problems.

“The companies will likely receive a financial benefit by paying suppliers later despite the delay likely increasing costs to consumers”, said the regulator. “We have decided to delay allowances to protect consumers.” 

The cable is being deployed to increase the capacity of the transmission network to absorb the large volumes of wind generation in Scotland. National Grid has estimated that the project will reduce constraint payments by around £140 million per year.

Ofgem said the project is likely to be delayed by around six months and therefore expects the hold-up to cost consumers roughly £70 million.

The regulator said it would consider whether National Grid Electricity Transmission and SP Transmission took “reasonable and efficient steps” to prevent the delay. If the companies have not complied with the relevant license conditions, then Ofgem may decide to impose "financial penalties and/or redress payments".

In February, Ofgem cut the RIIO allowance for National Grid Gas Transmission by £185 million, largely to reflect the cancellation of a new high-pressure gas pipeline project in Avonmouth.  

Author: Tom Grimwood,
Channel: Policy & Regulation , Finance & investment

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