Utility Week

UTILITY WEEK | 21ST - 27TH JUNE 2019 | 11 Policy & Regulation properly and calibrate it properly and get your incentives and sharing factors right, they're not needed." On this front, there is some measure of agreement with Citizens Advice. "In a perfect situation, we think that you wouldn't need the return adjustment mecha- nisms, because if the calibration is perfect then actually you wouldn't need to have this kind of safety valve at the end," says its head of energy networks and systems, Stew Horne. "But," he adds, "consistently the price controls have gone against consumers and in favour of industry, so we think it's sensible to keep this on the table. "We've argued consistently that these aren't something that should be used on a regular basis in every price control. These should be for occasions when something has gone awry on an exceptional basis." And Horne and the ENA are both on the same page when it comes to anchoring: "We thought that might have some unintended e† ects that should be avoided, so we're pleased that's gone. "We're in favour of the sculpting mecha- nism. That seems to be quite a reasonable and proportionate approach." He says the thresholds for triggering the mechanism that Ofgem has suggested of 3 per cent above or below the baseline "seems sensible", although he would need to see more details and analysis before taking a ‰ rm position. Overall, Horne is very happy with what he's seeing from Ofgem: "What we've been advocating for is regulators to stop forecast- ing and use the market evidence that's avail- able and that's what Ofgem has done… "What's really important now is they hold their nerve in the face of what's likely to be formidable industry lobbying and actually deliver for consumers in the next price con- trol… The current saving on the table is £6 billion, which is pretty signi‰ cant". He says Ofgem should be given credit for being bold: "They've responded to the criticism that's been made of them and been willing to do some soul-searching and look at what the right solution is for consumers. "Things did go wrong in RIIO1, and reg- ulators have – not just Ofgem but Ofwat as well – paid attention and are now looking to put things right." Glover, by contrast, says the changes will discourage ambition by network operators and make it harder to attract the huge invest- ment needed to transform Britain's energy system over the coming years: "There feels a very strong mismatch between the level of ambition it claims it will achieve… and the package itself… The two don't go together." FORECAST RETURN ON REGULATORY EQUITY DURING RIIO1 Source: Ofgem IMPACT OF SCULPTED SHARING ON NETWORK RETURNS Source: Ofgem "Our proposals are on track to deliver a tough, fair settlement that strikes a better deal for consumers." Jonathan Brearley, director for system and networks, Ofgem 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Post-adjustment return Allowed equity return + IQI -4% -2% 2% 4% 6% 8% 10% NPG SP SSE UKPN WPD Cadent NGN SGN WWU SPT SHET NGGT NGET Operational performance - totex Operational performance - other Financing and tax performance Operational RoRE Total RoRE – with fi nancing and tax RIIO1 period – totex out (under) performance Pre-adjusted return No sculpting 50% 50% 50% 75% 75% 0% NWL

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