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RIIO-2 price control Enhanced Engagement process: Recommendations to Ofgem and energy network Customer Engagement Groups and User Groups

27 January 2021

RIIO-2 price control Enhanced Engagement process: Recommendations to Ofgem and energy network Customer Engagement Groups and User Groups

Our report ‘RIIO-2 price control Enhanced Engagement process: Recommendations to Ofgem and energy network Customer Engagement Groups and User Groups’ provides a series of reflections on this important process that was introduced for the RIIO-2 energy price control. Enhanced Engagement has been used in the RIIO-2 price controls for the electricity and gas transmission, Electricity System Operator, and gas distribution network companies. It is now being used within the electricity distribution price control (RIIO-ED2) and has been a valuable means of improving the quality of stakeholder engagement in both RIIO-2 and RIIO-ED2.

We were closely involved with the Enhanced Engagement process including serving as members of challenge groups and undertaking relevant research.

Our key messages for Ofgem are:

  • Continue to use CEGs and User Groups to scrutinise company Business Plans for ED2 and future price controls. We have seen and heard first hand that these Groups can make a significant difference to company Business As Usual practice, and the ambition and cost of Business Plan proposals.
  • Continue to use the RIIO-2 Challenge Group to scrutinise company Business Plans across the board. Its comparative view of multiple companies and their wider scope (i.e. including financeability) supports Ofgem’s scrutiny efforts, and its challenge to companies has resulted in beneficial changes to Business Plan proposals.
  • Approve any future CEG and User Group Chairs, as with prior Chairs, given the key role that the Chairs play in the effective work of the challenge group.
  • Continue the use of the Open Hearings and Meetings format which we believe has improved transparency of the price control process.
  • Provide the challenge groups with guidance on what constitutes “quality and robust engagement”.
  • Use their upcoming review of Enhanced Engagement to consider whether members that have commercial interests with the company should be allowed to sit on that company’s CEG or User Group. We believe that the independence of the challenge group is weakened by members who also receive remuneration from the company other than that related to their CEG or User Group activity.
  • Use the CEG and User Group Chairs, and their members as a resource. For example, we make several recommendations for Ofgem for review of the engagement process. This could be done through a survey of (former) members or a workshop with Chairs.
  • Use the review of the Enhanced Engagement process to show how the information gathered during the various price controls has assisted the regulator in its review of Business Plans, and whether more flexible regulation has been made possible through it.

Our key recommendations for the CEG and User Groups are:

  • Aim for a mix of expertise in the group to meet Ofgem requirements. We recommend having multiple people with expertise in engagement as it’s a key topic for the CEG. Diversity and inclusion of members will also be valuable to ensure that views represent the demographic of the company’s area.
  • Aim for a mix of paid and unpaid members.
  • Chairs should review membership regularly, e.g every 6 months or so, to assess members’ levels of contribution and whether they may best serve in sub-groups or for occasional expertise.
  • We recommend that sub-groups are formed with a clear purpose and limited list of questions they want to explore.
  • To prevent capture and bias over time, we recommend that a Chair stays in place for a maximum of 2 price controls. It may be better to have Chairs serving for only 1 price control, and we recommend that the Ofgem review of Enhanced Engagement seeks stakeholder input as to whether 1 term as a Chair is the best option.
  • CEGs and User Groups should publish their costs and impacts as far as possible, including Chair’s remuneration and aggregated member fees, and travel and accommodation costs.