RIIO-2 price controls spark DNO appeals

Nine network operators are looking to challenge Ofgem’s price control calculations after RIIO-2 pricing and methodologies were revealed in January.

Energy regulator, Ofgem, is facing a backlash from distributors after it revealed its proposed RIIO-2 pricing structure at the start of the year. While offering a £30bn funding package to stimulate innovation, the regulator also set DNOs an “overall efficiency challenge…to do more for less.”

Unsurprisingly, the DNOs are, themselves, setting a challenge – turning to the Competition and Markets Authority (CMA) for the right to appeal Ofgem’s proposed price control structure.  According to the Energy Networks Association (ENA), a CMA appeal is the last step in the process which: allows an independent, fair and transparent assessment of the position set out by the regulator and the network companies.”

The ENA’s Director of External Affairs, Ross Easton stated: “The UK’s energy network operators remain focused on providing a low cost, Net Zero energy system to the public. To deliver this, it is essential that the regulatory environment is attractive to the significant investment the country needs over the coming years.”

Nine companies, from both the electricity and gas industry, are named in the appeal. These include National Grid Electricity Transmission, Scottish Hydro Electric Transmission and SP Transmission. The appeal focuses on the permitted return on investment and Ofgem’s methodology in calculating maintenance and investment over the five years of the RIIO-2 period. Under the proposal announced in January, distributors could see returns drop by as much as 40% across the UK.

In a statement, SSEN’s Managing Director, Rob McDonald added: “We would like to thank Ofgem for its constructive engagement following publication of its Draft Determinations and while it is regrettable we have been unable to reach agreement on all aspects of the final price control settlement, we will continue to work constructively with Ofgem and all stakeholders as the CMA considers the merits of our appeal.”

The process gives the CMA 14 working days to make a decision on granting the appellants permission to appeal, although this can be extended if Ofgem wants to add a submission.  If permission is granted, the CMA then goes through a six month deliberation period before making a final ruling on the appeals.