Source · Select Committees · Business and Trade Committee
Recommendation 50
50
Acknowledged
Paragraph: 206
Introduce rigorous annual performance processes for network owners and publicise information for engagement.
Recommendation
We recommend that Ofgem consults on how best to address the asymmetries in resources and knowledge between network companies and other stakeholders, such as consumer groups, which influence processes such as price controls. We recommend that Ofgem introduces a more rigorous annual performance process for network owners, and that this information is given appropriate publicity to ensure consumer and parliamentary engagement.
Government Response Summary
Ofgem acknowledges the importance of addressing asymmetries in resources and knowledge, outlining its sustained engagement process in price controls and future measures in the Energy Bill. However, it does not commit to consulting on the issue or introducing a new rigorous annual performance process for network owners.
Paragraph Reference:
206
Government Response
Acknowledged
HM Government
Acknowledged
115. [Response provided by Ofgem] Ofgem recognises this is an important issue: the approach to RIIO-ED2 as well as the wider RIIO-2 price controls have sought to ensure consumers and consumer representatives are placed at the heart of the price control processes. To support this, Ofgem undertook a sustained and enhanced engagement process, which began with the publication of an initial open letter in summer 2019. This included a detailed consultation on the methodology adopted during 2020, a call for evidence on the DNOs’ final business plans at the start of 2022, and the Open Hearings with each DNO in March, which each involved large numbers of representative organisations. 116. Ofgem published its Draft Determinations on 29 June 2022 and undertook an eight-week consultation period, which saw around 150 responses submitted. Ofgem required each of the companies to convene an independent Customer Engagement Group to confirm that DNOs have engaged appropriately with consumers and stakeholders in developing their business plans. Separately, consumer representatives are members of the independent RIIO-ED2 Challenge Group. This approach has helped ensure consumers’ voices are integral to Ofgem’s overall approach and decision making, in line with its statutory duties. 117. The existing RIIO-2 price controls for electricity and gas transmission and gas distribution networks will run until March 2026, with the new price control for electricity distribution running for 5 years until March 2028. Ofgem is considering responses to a consultation on the process for deciding the overarching framework design for the network price controls that will replace these. The outcome will be shared with the Committee in due course. 118. Ofgem sets the price controls through negotiation with the network companies, and engages with a range of stakeholders in doing so, including with consumer groups. Part of the price control process requires that networks engage with Consumer User Groups to feed into their business plans, which they submit to Ofgem. While this helps to ensure a range of views are taken into account when setting the price control, it is true that networks are still a strong voice in this arena. Ofgem does compare different submissions from different networks to ensure fairness in setting the price control. This will be further assisted by data from network competitions, once introduced through the Energy Bill, when data on costs for build and delivery of infrastructure on the open market filters through to Ofgem’s consideration. This, as well as the Special Merger regime, which is being introduced through the Energy Bill, will help Ofgem to set a fair price control for consumers and minimise information asymmetries.