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Speakers in the Network Theatre, held in association with Smarter Grid Solutions, examined the implications, opportunities and challenges presented by stor- age, decarbonisation of heat, the future of the gas network and flexible integrated smart infrastructure and how these will contribute to the transformation of networks. Jonathan Brearley, senior partner networks at Ofgem, pro- vided an update on its proposals for a new regulatory framework. Speaking during the opening session, which was entitled 'learning from RIIO1 and moving towards RIIO2', Brearley told attendees: "Looking at RIIO and what it has delivered, we do think it is a regime that works. We have a stable regulatory regime, we've seen cost to consumers fall, we've seen huge improvements in customer services, we've seen huge improvements in reli- ability - and RIIO as part of the framework introduced a much more innovative and changeable nature to many of the network companies. Overall, there's a lot this regime has delivered and a lot we can build on." In March, Ofgem set out proposals for a new regulatory framework from 2021 and stated these plans will deliver over £5 billion worth of savings for con- sumers over five years. Ofgem has proposed that the cost of equity range (the amount network companies pay their shareholders) will go down to between 3% and 5%, from 6 to 7% currently. Brearley continued: "There are two things happening for RIIO2 which are front and centre of Ofgem's mind. The first is the scale of pace and change that is happening across this industry. We hear a lot of stories about what's happening in electricity, but I'd argue that in gas we're seeing the beginning of some quite fundamental changes. We need a price control that is fit for purpose. Equally, at this time you would expect us to be looking hard at what we have and making sure we learn the lessons of the price control that we're running now to build on it for RIIO2." Highlighting the importance of innovation, Brearley explained: "We want to build on the innova- tion regime. We do think it is something that's been success- ful but we want to focus it more on the big, strategic cost cutting issues." During his summing up, he said: "RIIO1 has delivered. We have seen a step change in the way companies perform. We've seen record levels of customer service and we have focused on the things that matter to custom- ers." During the same session, net- work operators defended the RIIO framework from criticism over excessive profits, saying the price controls have driven a marked improvement in performance. However, they also called for tweaks to the regulatory regime to sharpen financial incentives and account for uncertainty. "If you were a customer of ours in 2010 you'd be interrupted on average once every one and a half years," said UK Power Net- works (UKPN) director of strategy Suleman Alli. "That's now once every two and a half years. "In 2010, if you had the mis- fortune of having a power cut it would last over an hour. It's now half an hour." Alli said this improvement is the result of the regulatory framework and its focus on op- erational performance. Wales and West Utilities direc- tor of regulation, Steven Edwards, said networks have changed "massively for the better" since RIIO came into effect. He said the best scoring networks at the beginning of the price controls would now rank lowest if judged by the same performance. However, Alli also said that networks need to tackle "head-on" the criticisms which have been lodged against RIIO, whether "perceived or real". In July last year, Citizens Advice released a report claiming that energy networks were on course to earn £7.5 billion of "un- justified profits" over the current price controls. The findings were disputed by the Energy Networks Association. Alli implied that financial incentives should be sharpened to exert greater competitive pres- sure on networks and penalise those that underperform: "If a company is high-performing and delivers what its customers want, it should be able to deliver higher than average returns. "Conversely, in a competitive market, if you don't deliver what your customers want you go out of business. So, we need to think what that means for a regulated monopoly. "Do we want regulated net- works to go out of business? Or should we say actually, you can earn enough to service your debt and no more?" Edwards was more explicit: "Some returns are too high. I think some networks are earning their returns where they are showing exemplar performance. "What we need to make sure is that RIIO2 addresses the net- works that are not delivering and not earning those returns." Concluding the session, Laura Sandys – CEO of Challenging Ideas – argued that the creation of a multi-utility regulator and network regime would help improve collaboration across sectors, lower costs and simplify the industry for consumers. She said the current regula- tory arrangements must be overhauled to accommodate the emergence of bundled utilities. She explained that her "great desire" is to end up with "one consumer regulator for all es- sential services" as well as "one multi-utility network regime". This would encourage the cross-vector optimisation of ex- isting infrastructure - "the brain" - and lower the cost of procuring new assets - "the brawn". "When you start to look at the consumer side you're going to get quite a lot more bundled products anyway," she remarked. "They might be invisible be- cause I think we're going to see more and more energy becoming a B2B product rather than con- sumer product." Sandys continued: "I don't want as a consumer to have go to the financial services authority, to Ofgem, to Ofcom, to Ofwat, to Of-whoever. I want to be able to go to one regulator who under- stands that complexity and will do the unpicking. I also want one ombudsman as well because, to be frank, I think we've got a proliferation of redress bodies and none of them are totally fit for purpose." Other sessions covered the areas of decarbonising heat, the role of transport in the energy system, smart grids and the DNO to DSO transition. Additional reporting by Tom Grimwood. NETWORK / 10 / JULY/AUGUST 2018 UTILIT Y WEEK LIVE CONFERENCE HIGHLIGHTS Visitors to the Network Theatre heard an update from Ofgem's Jonathan Brearley along with some network operators views on learning from RIIO1 and moving towards RIIO2.