Our views on the Ofgem RIIO-ED2 Final Determinations for the electricity distribution sector
This report gives our views on Ofgem’s Final Determinations (decisions) for the electricity distribution sector in its RIIO-ED2 (ED2) price control. We have highlighted where decisions are an improvement over the prior RIIO-ED1 (ED1) price control, but we also detail where we believe that Ofgem could have gone further to get better value for money for consumers or better services from the Distribution Network Operators (DNOs). We make a series of recommendations to Ofgem to make in-period improvements for elements of the ED2 price control or to make longer-term improvements for future price controls for these operational elements.
ED2 as a whole shows progress when compared with the ED1 price control. The new ED2 framework is more adaptive to a changing environment for electricity demand and supply. Ofgem has also tightened some elements in favour of consumers so that companies are less able to pick up windfall gains or easy wins. But we still think that Ofgem should have gone further for consumers in financial areas such as cost of capital, and believe that incentive targets will again be too easy to beat. Ofgem should have used the opportunity to raise service standards to best practice at the outset of ED2 rather than using monitoring programmes to progress change more slowly.
We have focussed our report on Ofgem’s decisions which will affect the funding of the DNOs and their services. We have separately addressed improvements for the price control process within another report on Future Network Regulation: Delivering a regulatory framework fit for the future [ 1.1 mb].