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Policy & Regulation This reflects a noticeable confidence among businesses that they are well equipped to deal with the changes RIIO will entail. Ofgem's senior partner for distribution, Hannah Nixon, welcomed the findings. She said: "RIIO was designed to change behaviours quite fundamentally and get the networks thinking about their businesses and customers in a different way. It is a game changer, and does provide a big challenge for many of the network companies." Risk We asked respondents to estimate the risk that comes with RIIO in a number of regulatory and business areas. RIIO ups uncertainty Two out of five respondents agreed that RIIO significantly increased business risk. There was a stronger sense of risk in the electricity sector, with slightly over half the respondents agreeing or strongly agreeing compared to just 11 per cent in the gas sector. Commenting on the results, Ofgem's senior partner for distribution, Hannah Nixon, points out that the regulator never intended for RIIO to change the risk profile of the business. "That's reflected in the fact the financial packages we've put in place for the gas distribution and transmission businesses are not that different from those we see historically," she said. The main element of risk in RIIO is "management risk", Nixon added. UKPN's director of strategy and regulation Ben Wilson agreed that while networks faced greater external risks, RIIO itself provided more business certainty. "The RIIO framework reduces risk, particularly on cost of debt allowance, and by introducing an eight-year price control rather than five," he said. Customer challenge Of 14 operational and regulatory issues, all but one were scored by respondents as greater than moderate risk. But the greatest risk was seen in the challenge of meeting customer service requirements laid out in RIIO. It was considered high-risk across the board by three-quarters of respondents or more. Readiness We asked respondents to rate their organisation's current standing on each of the RIIO output categories, which are: • safety; • environmental impact; • customer satisfaction; • social obligations; • connections; • reliability. We also asked how likely they were to have all outputs in place as "business-asusual" by the start of the next price control review. RIIO introduces considerable new risk into your business 4% 22% Strongly disagree 33% Disagree 33% Neither disagree/agree 8% Agree Strongly agree RIIO introduces considerable new risk into your business 60 56% 50 41% 40 30 20 11% 10 0 Overall Gas sector Electricity sector Customer satisfaction is considered to be the most significant regulatory risk. On a scale of 1 to 5, how do you rate the significance of the following regulatory risks under Riio? 100 80 12% 28% 8% 16% 12% 24% 12% 12% 36% 20% 36% 36% 60 40 32% 56% 52% 56% 40% 48% 20 40% 16% 4% 12% 0 28% Length of price control 8% 12% 12% 8% 4% 4% 4% Timing of rev adjustments GBEU legislation Cost of debt approach Incentive rate Uncertainty mechanisms 1: Not at all significant 2 3 4 12% 4% Customer satisfaction 5: Very significant RIIO is associated with above average risks across many business areas. On a scale of 1 to 5, how do you rate the significance of the following regulatory risks under RIIO? 100 80 4% 20 42% 15% 38% 15% 15% 19% 4% 38% 42% 39% 46% 46% 42% 31% 39% 42% 38% 27% 31% 31% 15% 8% 4% 4% 4% 4% 8% 8% 4% 12% 0 15% 27% 60 40 8% 15% Pension costs Totex approach 1: Not at all significant 4% 4% 8% Real price effects Cost recovery Scale of investment 3 4 2 4% Demand for new net capacity Smart meter impltn. Focus on outputs 5: Very significant UTILITY WEEK | 24th - 30th January 2014 | 13