UK Grid, Networks Slam Draft Price Control
UK gas and power transmission system operator National Grid and the national networks association Energy & Utilities Alliance (EUA) have this week asked the regulator Ofgem to rethink its price control for the 2021-6 period, so-called RIIO-2.
The regulator's role is to prevent natural monopolies from abusing the market and force them to act efficiently and safely, which it does by determining how their investments are made and their tariffs are set, among other things.
The last price control lasted for eight years and the regulator was then accused of allowing them to earn too much, at the expense of gas and power customers but this time the operators argue Ofgem's draft proposal has gone too far the other way. Unlike the last price control, network operators have to deal with the much greater uncertainty of net zero carbon investments and their impact on grid stability on top of the usual unknowns such as asset failure.
“EUA is deeply disappointed that it appears as though Ofgem had decided on the determinations before the consultation had even started. EUA and the wider industry put in many hours participating in consumer and business planning groups, and putting together detailed reports on how the networks should operate, yet these seem to have been ignored,” it said September 8.
“The regulators draft determinations published July 9 risk the UK’s progress towards meeting Net Zero. The networks have been leaders in pushing new and innovative ways to meet our climate obligations, hydrogen for example. It is the gas networks, through projects such as H21, HyNet, HyDeploy, Freedom Project, and H100 that are leading the debate around decarbonisation of heat to homes. They have embraced Net Zero, even before the politicians and the regulator thought to do so.
"Ofgem’s draft determinations could derail this progress which, in turn, could result in job losses and business closures at a time when the country needs to ‘Build Back Better’,” they said.
National Grid said September 7 in a stock exchange presentation that the water industry, a less risky sector, had been given more generous terms, and argued for some flexibility on the part of the regulator. If not it said it could consider taking the proposals to the Competition and Markets Authority.
It said that as it stood, the draft would weaken the company's financial resilience. It was therefore urging Ofgem to undertake a financeability assessment factoring in delays between spend and revenue; to provide additional ex ante allowances for uncertainty mechanism expenditure and apply forecast of outputs for allowances subject to reopeners.
The present draft would increase the risk profile of its networks, jeopardise the UK’s transition to net zero and dampen innovation through lower returns. But it ended on a note of optimism, saying that a sensible outcome, working closely with Ofgem and stakeholders, was possible.