WWU predicts major change to price control outputs

Wales and West Utilities (WWU) has warned outputs in the next price control for gas distribution network operators are likely to be based on consequence rather than asset health which will be a “challenge for the industry to get its head around.”

WWU’s asset strategy and performance manager Ian Dunstan said at Network’s asset performance conference that measures such as monetising risk are likely to be big drivers of allowances in the next price control.

The approach could see an increased link between cost and output, which Dunstan said would make outputs “very very challenging”, and could potentially simplify the structure down to a single output.

He added there is a drive towards being comparable across sectors such as with electricity but said “that’s very visionary I don’t see that happening for many many years.”

WWU developed the monetised risk approach in a network innovation allowance project. Ofgem’s senior technical advisor Gurpal Singh said at the same event that the regulator wants to see an increased focus on asset management in innovation projects so the allowance in price controls relating to asset health can be decreased in the future.

The level of detail the monetising risk measure reveals is also exposing a lot of “myths” on the true benefits of asset intervention.

The iron mains replacement programme, on which GDNs are spending several billion each during the current price control, has environmental benefits which far out way the benefits of preventing explosions – the main reason for the replacements.

Dunstan said this is good for the industry as in recent years it has been a challenge to justify the cost of the 30-year programme, but this measure “allows us to demonstrate why we are spending money on iron mains, its more than just the very very slight chance of explosion and death, there are much wider benefits which customers can see.”