In December 2018, Ofgem published a consultation document on the RIIO-2 Sector Specific Methodology for gas transmission and distribution and electricity transmission. The RIIO (Revenues + Incentives + Innovation = Outputs) framework is used to set price controls and dictates the allowed revenues for the gas and electricity networks in Great Britain. RIIO-T1 is coming to an end in 2021 and Ofgem are now considering how to implement phase two, which will last for 5 years; what should be retained from the original price control and what needs to change?
One of the proposed changes is to consolidate the six output categories introduced used in RIIO-1 into three overarching outcomes. In the RIIO-2 framework decision Ofgem stated that the outputs would be specified as a set of consumer facing outcomes that they expect companies to deliver:
- Deliver a high quality and reliable service to all network users and consumers;
- Deliver safe and resilient networks, efficient and responsive to change; and
- Enable the transition towards a smart, flexible, low cost and low carbon energy system for all consumers and network users.
There are a number of questions Ofgem are requesting views on for each section of their consultation document, and responses are required by 14th March 2019, to be returned to RIIO2@ofgem.gov.uk. Although this consultation does not include electricity distribution, some of the DNOs are already beginning to consider what they will include in their Business Plans for RIIO-ED2, which will commence 1st April 2023. TNEI attended the WPD Stakeholder Workshop on 13th February where WPD presented their initial ideas for their Business Plan and requested feedback from stakeholders on their top priorities.
One of the main questions posed during the event was how can WPD fit their current commitments into the new proposed output categories? A large part of the commitments they are currently working towards under RIIO-ED1 could be classified as their “‘social contract’ “ they are wider commitments that WPD and their stakeholders’ value, but they will not be regulated under RIIO-ED2. This creates questions around how the performance of such activities should be measured, and whether they should be included in the Business Plan or as a separate document.
The workshop was an informative event that showed the kinds of the challenges network operators will face when navigating the transition from RIIO-1 to RIIO-2. Luckily Ofgem and the network operators are beginning their preparations in plenty of time, and TNEI will keep you up to date with any new developments.
For further information, please get in touch.
