Following the release of Ofgem's draft determinations for the RIIO2 price controls for transmission, gas distribution and the electricity system operator, Utility Week presents a rundown of the main features, facts and figures.
Steve Horne, principal policy manager at Citizens Advice, says the desperate warnings from the energy networks on the possible impacts of RIIO2 are nothing new. But, he admits net zero does cast a shadow of uncertainty across the next price control.
A trade body for the gas networks and their supply chain has said Ofgem’s RIIO2 draft determinations fail to deliver for vulnerable customers. The Energy and Utilities Alliance also criticised a “top down” approach to both net zero re-openers and innovation funding and called for the networks to be allowed more autonomy.
The chair of Ofgem’s RIIO2 challenge group has reaffirmed its view that there is no case for raising the cost of capital beyond the levels currently proposed by the regulator for the next set of network price controls. Roger Whitcomb said the coronavirus pandemic has made the stable returns of regulated utilities more attractive to investors, meaning “if there is argument at all, it will be for a reduction”.
Ofgem’s proposals for the RIIO ED2 price controls set out how DNOs will be incentivised to deliver in areas such as consumer vulnerability and large connections. Sustainability First’s Judith Ward asks why the same approach has not been taken on decarbonisation. Without clear signals there is a real risk of only incremental steps towards net zero rather than the step change that is needed, she argues.
Consumer watchdogs have welcomed the CMA's increased spending allowances for projects that were important to consumers but warned its overall stance could set a precedent for other regulated companies and add to the pressure on household finances.
The pandemic has created a unique opportunity for Ofgem to provide a framework that embraces flexibility and incentivises networks to facilitate the transition to net zero, writes James Crouch of Burns & McDonnell
Citizens Advice has argued Ofgem’s would be justified in cutting another £1.7 billion from networks' revenues over the next price control. Chief executive Gillian Guy urged Ofgem to “hold its nerve in the face of the significant pressure from the networks and look at whether it can go further”.
National Grid has warned that incentive arrangements "skewed" towards penalties will make networks overly cautious and averse to taking any risks. Chief financial officer Andy Agg also complained that the incentives on offer to networks in RIIO2 are significantly weaker than those available to water companies following the PR19 price review.
Wales and West Utilities has claimed the proposed cuts to its irons mains replacement work could mean the Health and Safety Executive refusing to sign off the plans. The gas network said Ofgem’s disallowance of vital work in its RIIO2 business plan could lead to more than 6,600 additional gas leaks by 2030, of which almost 600 would be “gas-in-building” events. It said the Grenfell incident has shown that such dangers are “unacceptable to society”.
In a price control, companies will always claim the regulator has made errors but the RIIO2 draft determinations do appear to contain an unprecedently high number of basic arithmetic mistakes, says Maxine Frerk.
SP Energy Networks (SPEN) has warned Ofgem it could appeal to the Competition & Markets Authority (CMA) over the regulator’s “manifestly flawed” take on its business plan for the next price control. The electricity transmission company has demanded a revised draft determination by early October correcting what it claims are errors on Ofgem’s part and reversing a £15 million business plan penalty.
Renewable UK has said the RIIO2 price controls as currently proposed by Ofgem will hold up investments in Britain’s electricity transmission network that will be vital to meet the government’s target of building 40GW of offshore wind capacity by 2030. The trade association said Ofgem has failed to deliver on its promise to align its decisions with the UK’s net zero emissions target and that embedding the commitment with the regulator’s remit “looks like it’s increasingly necessary”.
The brooding row between Ofgem and networks over the draft price determinations would appear to strike at the very heart of energy companies’ ambitions to Build Back Better – no more so than at National Grid as executive director Nicola Shaw tells Denise Chevin
Sustainability First has criticised Ofgem over the “apparent disregard” for stakeholder engagement exhibited within its draft determinations for RIIO2. It warned the failure to acknowledge the work of both stakeholders and networks companies could discourage them from devoting time and resources to the process in future.