The Competition & Markets Authority (CMA) will publish a summary of its preliminary determinations in the RIIO2 appeals next week.
The CMA is due to reveal its provisional findings to the nine appellants and interveners in full but only a summary will be available for public consumption.
It follows two months’ of hearings with the eight gas and transmission networks that referred elements of Ofgem’s final determinations on their business plans for 2021-2026.
The main point of contention is the allowed return on equity, which Ofgem set at 4.3 per cent in real terms in its final determinations in December 2020.
This incorporated a reduction of 25 basis points below the estimated cost of equity known as the outperformance wedge to reflect investors’ expectations that networks would exceed the baseline based on their past performance.
The CMA insisted in March that its permission to grant the appeals was subject to the condition that some of the common grounds of appeal be joined across appellants, namely the cost of equity, the outperformance wedge, ongoing efficiency and the licence modification process.
In its initial response to the appeals, Ofgem argued they were “without merit” and amounted to “no more than disagreements” with the way it has exercised its “expert regulatory discretion”.
Ofgem noted that under the Gas Act 1986 and the Electricity Act 1989, the CMA may only allow an appeal if the regulator has failed to fulfil its principal objective and statutory duties, its decision was “based, wholly or partly, on an error of fact” or its decision was unlawful. It said it is not the CMA’s role to substitute its judgement for that of Ofgem “simply on the basis that it would have taken a different view of the matter if it had been the regulator”.
However, it was also forced to admit two errors in calculations – on the business plan incentive for Northern Gas Networks and in the exclusions it applied for atypical projects in assessing Cadent’s efficiency on the local transmission system.
The provisional determination stage of the PR19 appeals in water produced a shock when the CMA arrived at a dramatically higher figure for the cost of equity. However, this was later revised down in the final determination.
Read Maxine Frerk’s summary of the arguments so far here.