Source · Select Committees · Business and Trade Committee
Recommendation 46
46
Deferred
Paragraph: 202
RIIO-ED1 regulatory process proved overly generous for distribution network operators' profits.
Conclusion
The RIIO-ED1 process, which set the amount network operators could charge energy bill-payers for making upgrades to the grid over the period 2015–2023, proved overly generous. Distribution Network Operators were able to either build 108 Decarbonisation of the power sector more infrastructure that is rewarded through the Regulated Asset Value, or not spend on that infrastructure and keep a proportion of underspends. Given that technology deployment curves are hard to forecast, we understand Ofgem’s use of uncertainty mechanisms for RIIO-ED2. We will be looking to the regulator to ensure that they better manage risk and that network companies bring forward the required investment. The uncertainty mechanisms will need to be used efficiently, before customers see problems, particularly if the economics of heat pumps or electric vehicles change quickly.
Government Response Summary
The government details the establishment of the Future System Operator (FSO), aiming for it to be operational in 2024 with a duty to promote net zero. It will also create a framework agreement outlining FSO's relationships. This response focuses on the FSO's role rather than Ofgem's management of the RIIO-ED2 process or uncertainty mechanisms for network investment.
Paragraph Reference:
202
Government Response
Deferred
HM Government
Deferred
158. The FSO will maintain the UK’s energy security and operate at the cutting edge of net zero with a long-term ambitious vision. The Energy Bill imposes a duty on the FSO to carry out its functions in a way that it considers best calculated to promote the net zero objective. 159. Progress is reliant on several factors, including timings of the including timings of the Energy Bill and delivery by key parties. The aim is for the FSO to be operational in 2024. 160. As part of the FSO’s establishment, the Government will create a framework agreement to outline the primary aspects of FSO’s relationships with government. This will include clear articulation of the roles of Ministers, Ofgem and the FSO, and will be made public. 161. The ESO already makes available public information on the Network Options Assessment and publishes a wide range of documentation on future challenges. The select committee will be able to invite the CEO and Chair of the FSO to attend their sessions.