Citizens Advice application to intervene in CMA Energy Licence Modification Appeal 2026 (RIIO3)

Citizens Advice intervention notice 2026 388 KB

Summary of our application to intervene in this Competition and Markets Authority (CMA) appeal for the RIIO3 Energy Licence Modification 2026: 1. Citizens Advice wishes to intervene, to oppose this appeal, as part of its statutory role to represent domestic and small business energy consumers in Great Britain. 2. Estimating productivity is challenging. However, it is likely that economy and sector wide productivity estimates based on non-regulated companies situated within competitive markets will be too low for regulated network companies - counter to company claims. 3. Regulated network companies should be expected to out-perform competitive benchmarks. Unlike competitive companies who innovate at their own expense and take on all risk, network companies have innovation funded by consumers and these guaranteed revenue streams de-risk innovation. This provides a more enabling environment to drive productivity increases. 4. Further, a regulated sector allows each network company’s progress to be shared across all over network companies, despite each being individually funded to innovate. This means regulated network companies receive a ‘multiplier effect’ from their innovation spending, and means their productivity increases should by default outperform the competitive sector. 5. AI has the potential to accelerate productivity increases across network companies, which may not be captured in external productivity estimates. Real world evidence from industry pilots suggests that AI interventions within network companies specifically can drive field productivity improvements of 20-30%. An ongoing efficiency target of 1% is therefore insufficient. 6. Cadent’s claim that productivity assumptions could lead to overspending and erode investor returns are not supported by the evidence. Firstly, companies have not offered any evidence that actual expenditure is expected to exceed allowances. Secondly, the evidence suggests that baseline returns are set too high. 7. Real-world energy network transactions show significant premiums being paid. For instance, Engie will acquire UKPN at a market-to-asset ratio (MAR) of 1.5, and Iberdrola acquired an 88% stake in ENWL at a MAR of 1.6. Such premiums cannot be explained other than higher than required returns or expected significant out-performance. 8. Further, Ofgem has erred when setting its allowed return on equity which leads to it being over-estimated. Ofgem makes a change from their established equity beta methodology, against the CMA’s decision at RIIO-2 appeals, without sufficient evidence. They further err in how they apply this decision, by relying on out-dated (higher) asset beta data, despite publishing updated data. This leads to an over-estimation of the allowed return on equity. 9. These factors mean the allowed return on equity is too high. This effectively gives ‘headroom’ before investors would be unable to make the base rate of return, if evidence can be provided that companies are likely to overspend, let alone the rate of return required by investors