Source · Select Committees · Business and Trade Committee
Recommendation 49
49
Accepted
Paragraph: 205
Network owners continue to be overly rewarded through current regulatory settlements.
Recommendation
Regulatory settlements for network owners must deliver value for money for consumers. Despite improvements from Ofgem in tackling excessive profits made by these companies in previous price control frameworks, we are concerned that network owners continue to be overly rewarded. Asymmetries throughout the regulatory process between network companies and other stakeholders, including consumer representatives, increase this risk. Greater visibility of network performance is needed to drive up standards and ensure networks deliver against their business plans.
Government Response Summary
The government states that Ofgem's current price controls (RIIO-ED2 and RIIO-T2) already include stringent efficiency targets, lower allowed returns, and mechanisms to share outperformance with consumers, addressing concerns about value for money and excessive profits. They also highlight funding for data and digitalisation to improve network visibility.
Paragraph Reference:
205
Government Response
Accepted
HM Government
Accepted
112. Ofgem’s mandate is to ensure that network users are provided with a safe, secure and reliable energy network at the lowest possible cost. Within Ofgem’s current electricity distribution network price control RIIO-ED2, they have been ambitious in setting stringent efficiency targets. Despite the increase in baseline funding for networks in this price control compared to the last one, the impact on consumer bills is flat, as Ofgem have driven down consumer costs by being stricter on returns. The overall cost of capital allowance is lower than under the last price control (RIIO ED1) to reflect the market conditions. 113. Within the current electricity transmission network price control RIIO-T2, Ofgem have confirmed £30bn in upfront funding alongside lower allowed return on equity of 4.3% and a lower allowed return on debt than RIIO-T1, which should save consumers £2.3 billion over the five-year price control period. 114. Ofgem has also put in place measures in RIIO ED2 (the Return Adjustment Mechanism) to make sure that even if networks outperform the targets they have been set, a greater proportion of this outperformance is shared with consumers. Ofgem have also provided significant funding within RIIO-ED2 for improvements in data & digitalisation and network monitoring equipment that will help support a smarter, more flexible energy system.