Ofgem opens consultation on ED2 element of RIIO-2 and seeks further clarity on ESO methodologies

The industry regulator has turned its focus on Energy Distribution with an open consultation letter to the industry and re-opens consultation for the ESO.

Dated the 6th August, Ofgem’s Director of Network Price Controls, Akshay Kaul, has sent an open letter to the electricity distribution sector to consult on the regulator’s approach to setting the next ED price control – RIIO-ED2.

In the letter, Kaul states: “This is your opportunity to tell us if we are focussing on the things that matter most to consumers, and whether there are other services you want from your local grid. We will then try to make it happen through the price control. We also want to hear your views on the approach we should take to achieve these outcomes.”

The letter also lists seven elements that Ofgem believes should be the focus of the Grid over the next RIIO period. In summary these are:

1. Being amongst the safest and most reliable in the world;

2. Keeping network charges on bills as low as possible;

3. Supporting net-zero carbon emissions targets for 2050 through rapid rollout of low carbon technologies, including EVs and their charging infrastructure;

4. Supporting new customer grid connectivity quickly, efficiently and at low cost;

5. Enabling small-scale energy production and sales;

6. Delivering great customer service;

7. Understanding the needs and tailoring services to helping fuel-poor households and those vulnerable from supply loss.

The consultation closes on 15th October 2019.

At the end of August, the regulator also published a further document confirming its key decisions on its RIIO-2 price control methodology for the Electricity System Operator (ESO) and, in parallel, the ESO’s funding model. However, the document also opens further consultation on two elements of the price control. One relates to the calculation of the financial parameters within the funding model; the other focuses on potential changes to the ESO’s incentives scheme.

The document lays out the ESO financial methodology in detail, including the proposed allowed returns and approach to financeability. It also covers the regulators “initial thinking” on the RIIO-2 incentives, the purpose and scope of the scheme and the evaluation approach. In this case, the consultation period is relatively short, with response deadlines required by 25th September 2019.