Taylor is professor of electrical power systems at Newcastle University, and was an academic witness in the inquiry. He told Utility Week the decision “changes the landscape of regulation”, and means Ofgem must “have a lot more evidence in the future”.
“Northern Powergrid has now got more money to spend on its networks, in order to make them ready for the low-carbon transition, and make them secure and cost-effective.
“But the broader principle of more evidence-based regulation is good for everyone because sometimes that will mean that Ofgem ‘wins’ and makes the DNOs do more for customers where appropriate. But it will do it in an effective, robust way.
“It means the regulator has got to use evidence more carefully and consult more thoroughly, and then it will be able to regulate more effectively and as a result DNOs will be smarter for the benefit of customers.
“That’s better for the industry and better for customers. In this case, the regulator has sought to deliver savings for customers but it’s done it without the evidence base and then it has not been deemed a safe decision by the CMA. It is good that the regulator is challenging for DNOs, but it’s going to have to do it in a way that it can justify.”
In March, British Gas appealed against Ofgem’s £17 billion eight-year price settlement for the distribution companies, known as RIIO-ED1, having previously criticised the regulator for being too lenient in its price controls. Northern Powergrid also appealed against the ruling, arguing for greater leniency.
The CMA dismissed four of the five grounds of appeal brought forward by British Gas but has upheld one, reducing the amount of revenue the five DNOs are allowed to recover through charges by around £105 million over the eight-year price control period.
It also dismissed two of three grounds of appeal by NPG but upheld one relating to Ofgem’s adjustments to reflect potential savings through smart grids and technological innovations, increasing NPG’s allowable revenue for ED1 by about £11 million.
These were the first appeals of price determinations in the energy sector since 1996, and the first since the Electricity and Gas (Internal Markets) Regulations in 2011 introduced important changes to the process.