Utility Week

22 | FEBRUARY 2022 | UTILITY WEEK Regulation Comment How is anyone expected to read the ED2 plans? The DNOs' fi nal business plans run to millions of words with appendices, making an analysis of the numbers very diffi cult, but here Maxine Frerk gives it her best shot. R ather too much of my time was spent wading through the nal RIIO-ED2 business plans that the Distribution Network Operators (DNOs) sub- mitted to Ofgem at the start of December. Any individual plan was limited in length to 200 pages but alongside that the compa- nies each produced around 50 additional supporting documents – annexes, strate- gies et cetera – oƒ en with appendices to the annexes. These supporting documents varied in length between a dozen pages and 200. By my estimation that's around 30,000 pages or close to 20 million words in total. And that's before you get into the engineer- ing justi cation papers (or cost-bene t analyses) for speci c investments, which accounted for perhaps another 100 docu- ments per company. Who do the companies think is actually going to read all these documents and is this really the basis of the agile regulation that Ofgem claims it wants to see? The tone was set by Ofgem's business plan guidance – itself 150 pages long – but the companies decide what level of information they need to provide and how to present it. Of course, I didn't try to read all the docu- ments, and the structure of annexes meant I could just dip into my favourite obscure topics (like the losses strategies) but the information could still have been presented more concisely with some sympathy for whoever – stakeholders or Ofgem – might ultimately have to read it. More worrying, though, is the fact that without armies to wade through all the detail (and perhaps even with them) it is nigh on impossible to tell how ambitious a company's plan is compared with the oth- ers. Aside from the volume of material, the problem is that Ofgem has done very little to ensure that the information is presented on a consistent basis, making compari- sons across DNOs a real challenge. There is detailed guidance on the numbers to be included in the spreadsheets that Ofgem relies on, including a helpful strategic sum- mary sheet that Ofgem has requested but which only Scottish and Southern Electricity Networks (SSEN) appear to have published. Utility Week summaries of the ED2 plans in numbers set out the headlines but it is hard to draw any real conclusions from them. However, here I'm going to try. If you simply look at totex (total expendi- ture) compared with ED1 then that starts to tell a story. UK Power Networks (UKPN) is projecting an increase of 12% while the rest of the DNOs are all projecting signi cantly higher increases of between 28% and 33% (which for these purposes are pretty much in a pack). The precise gures depend on whether or not you include Real Price E™ ects (RPEs) and the basis of the ED1 gures but the picture is clear. So, what is it that makes UKPN di™ erent? And it really the superstar that these gures suggest? The rst obvious test is what level of load growth is assumed in these forecasts given that there is huge uncertainty around the pathway to net zero, and putting less into the baseline and relying more on uncertainty mechanisms is one way to make your plan look super cially good. Working out what is actually assumed here is incredibly diš cult because even though the companies all use the National Grid Future Energy Scenarios (FES) as a starting point, UKPN has Consumer Trans- formation as the least-cost scenario (as it implies a high level of consumer engage- ment, for instance with smart charging) whereas others see it as the most costly (involving greater uptake of electric vehicles and heat pumps). At one point, Ofgem was going to set out a central base case the companies should all use but it ducked that one, instead requiring the companies to consider all the FES and Climate Change Committee (CCC) scenarios – with the end result that they have all opted for di™ erent base case scenarios and di™ er- ent interpretations of the impacts for DNOs. That will make Ofgem's job hard as it comes to benchmark across the plans. But on rst blush it doesn't seem that UKPN has taken a very di™ erent approach to the baseline versus uncertainty mechanism balancing act than the other DNOs have. "Aside from the volume of material, the problem is that Ofgem has done very little to ensure that the information is presented on a consistent basis, making comparisons across DNOs a real challenge." "Aside from the volume of material, the problem is that Ofgem has done very little to ensure that the information is presented on a consistent basis, making comparisons across DNOs a real challenge."

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