Utility Week

UTILITY WEEK | FEBRUARY 2022 | 23 Regulation Where the di erence seems to come is in UKPN's emphasis on maximising utilisa- tion of the network – a catchphrase that is repeated throughout its plan. Pushing the network harder means exploiting • exibility, energy e• ciency and market mechanisms before undertaking reinforcement. UKPN explicitly argues against the concept of strategic investment given the uncertainty that exists. Of course, all the DNOs say they will make greater use of • exibility but their language tends to be more around optimisa- tion and balancing the use of • exibility and reinforcement, looking ahead to ED3 and the continued growth in network capacity that will be required moving forwards. Whether this di erence in emphasis in the words is re• ected in the numbers is hard to tell without any common utilisation metrics or • exibility targets. And utilisation metrics anyway are hard to interpret because the consensus is that when you do reinforce you should provide signi… cant spare capac- ity. Again, we are dependent on Ofgem to pick through the detail and ensure that we are comparing like with like. Moreover, there is a really open debate as to what the right approach is and the role for strategic investment. At an individual project level, the Energy Networks Association (ENA) has produced a Common Evaluation Methodology that looks to trade o • exibil- ity and reinforcement, but it ignores the real option value in • exibility and struggles to deal with energy e• ciency as an alternative solution. On the other hand, there are concerns that the Ofgem cost-bene… t methodology understates the cost of losses (because it ignores the fact that they are most prevalent at peak times) – and losses increase steeply as utilisation increases. At a strategic level, Ofgem has been clear that it wants to see the networks maximise utilisation and exploit • exibility – and UKPN is clearly playing to that tune. However, the Department for Business, Industry & Industrial Strategy (BEIS), the National Infrastructure Commission, and the CCC have all at di erent times emphasised the need for strategic investment, taking a longer-term view of what is required to hit 2050 (or 2045 in Scotland). That debate is key to decisions on the DNO business plans but absent a way of comparing the di erent approaches that strategic debate is unlikely to happen. It is not all about load-related invest- ment but the other areas are equally hard to unpick. However, as a … nal simple test of relative ambition one can look at the ongo- ing e• ciency assumed by the companies. This was a battle ground in the GD2/T2 appeals with the Competition and Markets Authority (CMA) supporting Ofgem's use of a 1% per annum ongoing e• ciency challenge. Only Electricity North West and UKPN have o ered up 1%, with UKPN being clear that it was only doing so because of the CMA and it considers it tougher than historic evidence would support. But it's hard to see how anything else has credibility aœ er the CMA decision and to propose a lower … gure suggests the companies know that Ofgem is going to take a slice at their costs – and per- haps suggests similar "protective padding" will have been applied elsewhere as well. Of the others, Northern Pow- ergrid, Western Power Distribu- tion and SP Energy Networks all went with 0.5% and SSEN compromised at 0.7%. Out of the 20 million words those 6 numbers probably say as much as anything about how the companies have approached the plans. Of course, the plans cover a range of other issues span- ning social and environ- mental commitments, data and digitalisa- tion, whole systems solutions, the distri- bution system operator role, working with local authorities, and so on. Across these and other areas the companies have written very many … ne words explaining why the issues are important, and how they are committed to making a real di erence but – with some exceptions – it can be hard to locate among all the narrative what exactly is being delivered. Which brings me back to the question at the beginning – who is the audience for these documents? For RIIO3, perhaps Ofgem could consider a business plan incentive linked inversely to the number of pages produced (together with a restriction on font size). It was Mark Twain who said he wrote a long letter because he didn't have time to write a short one. It's a massive exercise for the compa- nies to produce all this material but it's also a challenge for the reader. There must be a better way. Maxine Frerk, director, Grid Edge Policy and former Ofgem partner UTILITY WEEK | FEBRUARY 2022 | 23 Regulation This was a battle ground in the GD2/T2 appeals with the Competition and Markets Authority (CMA) supporting Ofgem's use of a 1% per annum ongoing e• ciency challenge. Only Electricity North West and UKPN have o ered up 1%, with UKPN being clear that it was only doing so because of the CMA and it considers it tougher than historic evidence would support. But it's hard to see how anything else has credibility aœ er the CMA decision and to propose a lower … gure suggests the companies know that Ofgem is going to take a slice at their costs – and per- haps suggests similar "protective padding" will have been applied elsewhere as well. tion and SP Energy Networks all went with 0.5% and SSEN compromised at 0.7%. Out of the 20 million words those 6 numbers probably say as much as anything about how the companies have approached the plans. Of course, the plans cover a range of other issues span- ning social and environ- mental commitments, data and digitalisa- tion, whole systems solutions, the distri- bution system operator role, working with local authorities, and so on. Across these and other areas the companies have written very many … ne words explaining why the issues are important, and how they are committed to making a real di erence but – with some exceptions – it can be hard to locate among all the narrative what exactly is being delivered. Which brings me back to the question at the beginning – who is the audience for these documents? For RIIO3, perhaps Ofgem could consider a business plan incentive linked inversely to the number of pages produced (together with a restriction on font size). It was Mark Twain who said he wrote a long letter because he didn't have time to write a short one. It's a massive exercise for the compa- nies to produce all this material but it's also a challenge for the reader. There must be a Maxine Frerk, director, Grid Edge Policy and former Ofgem partner A mountain to climb: DNOs' ED2 business plans

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