Ofgem has docked £4.7 million from the Data and Communications Company’s (DCC) allowed revenues for its failure to meet its two go-live deadlines for the smart meter network.
Announcing the penalty in its final price control decision for 2016/17, it also noted that many customers are “unhappy with the level of transparency and influence they have over DCC’s costs and performance”.
The regulator said it would “fully support” their requests for greater engagement.
The business plan for the 12-year license period forecast allowed revenues of around £98.9 million in 2016/17. In its annual price control submission, DCC requested an increase of more than £98 million to roughly £197.4 million, mainly due to the impact on timelines and costs from the decision to go-live in two stages rather than one.
Ofgem said the “significant majority” of the increase was justified. The regulator deemed just over £0.9m of incurred internal total costs to be unacceptable, leaving an allowed revenue of £196.5 million.
It subtracted £4.7 million from the allowed revenue for 2017/18 on the basis that DCC “largely failed to achieve the final implementation milestones related to the multi-stage live release”.
DCC forecast total internal costs over the remaining license period from 2016/17 to 2025/26 to be £338 million. Ofgem determined that £67 million of these costs between 2017/18 and 2020/21 were unacceptable.
“We have disallowed all proposed variation in RY19/20 – 20/21 because DCC’s forecasts did not incorporate any efficiency and headcount reduction plans which we expect to see from an increasingly mature organisation,” the decision document states.
External costs were forecast to be £2.2 billion, marking a 20 per cent over the previous projection in 2015/16 and 31 per cent increase on the estimates in DCC’s business plan. Ofgem accepted the forecast as “economic and efficient”.
The regulator also increased allowed revenues between 2017/18 and 2019/20 by almost £3.3 million via a gain share mechanism to reflect a reduction in external costs achieved by DCC. The baseline margin between 2016/17 and 2018/19 was raised by nearly £6.8 million.
The aforementioned adjustments resulted in a total allowed revenue between 2016/17 and 2025/26 of roughly £2.4 billion.
Ofgem outlined its preliminary price control decision back in October. According to the decision document, DCC spent £210.8 million connecting smart meters with suppliers over 2016/17.
The month before, the regulator confirmed plans to implement a new performance regime from April 2018 which will place DCC’s entire margin at risk if it fails to meet new minimum standards.