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8 | 15TH - 21ST SEPTEMBER 2017 | UTILITY WEEK Interview "reasonable". Will we meet the deadline? "Broadly yes, I certainly hope so." He's not committing – "I'm not a prophet" – but has this to say to suppliers: "In the next 12 months it is crucial that you get on with delivery." It's a point he repeats several times: "The next 12 months are key." So much for the retail market. On, then, to distribu- tion, where the energy networks have recently joined their retail peers in the spotlight, coming under criticism from bodies including Citizens Advice and the Energy and Climate Intelligence Unit for making "excessive" profits. Yet the regulatory indicators suggest that, under the RIIO framework, they are performing well. Are the networks making too much money? "The returns in the first round of RIIO, particularly the first price control involving gas distribution and both gas and electricity transmission, have been higher than expected, higher than when we talked about returns in RIIO we thought would occur. We are conscious of this. "I do think by and large the companies have delivered on what was expected of them… The whole principle of the RIIO price control is that a company that really deliv- ers for consumers is entitled to earn a good return, and in that sense, I think much of RIIO has been a success." Will returns come down in RIIO2 – as has been indi- cated by the open letter that kicked off the planning process this summer? Nolan confirms Ofgem will "learn the lessons" of the last round of RIIO, and more publica- tions can be expected in the next few months. He also mentions, uninvited, Cadent's recent decision to return £54 million to customers following delays to its planned iron mains replacement programme in central London, calling it with classic regulatory understatement a "posi- tive development". Would he like other companies to do the same? "That's a matter for them, but it's something that perhaps we would welcome." A gentle hint, but a hint nonetheless. Putting the eternal question of what constitutes a fair profit to one side, the big issue for distribution networks is their evolution to become distribution system opera- tors, or DSOs. While it has become the received wisdom that this transition will occur, a consensus on its exact shape has yet to emerge. Does Ofgem seek a uniform model and if so, how will it be developed? "We are not sure yet precisely what DSO models will look like. We are in the process of thinking carefully about that." Nolan himself raises the contentious issue of storage. Networks are keen to play an active role in the emerg- ing storage market, but Ofgem and the Department for Environment, Business and Industrial Strategy (BEIS), in a joint paper this summer, ruled out direct ownership. Nolan says he is "aware there are other jurisdictions which have permitted a degree of ownership", and says "Ofgem is looking at those models." Nolan hints at more drastic change ahead, suggest- ing that if DNOs evolve as planned into DSOs with local balancing responsibilities, that raises issues for a level playing field and "further separation within distribu- tion companies might be needed to deal with that". He doesn't go into detail, but one imagines the pro- posed legal separation of the system operator role from National Grid's other activities isn't far from his mind. For Nolan, this all comes back to the energy transi- tion and the question of fairness. This is at the heart of the current targeted charging review, which is seeking to realign the way network costs are appor- tioned to users. Nolan sees more active energy consumers going off-grid and setting up community energy companies, and says this is happening quicker than he would have imagined possible. "Trying to deal with [that] in a manner that is efficient, in some sense fair, a level playing field… that will be a particular priority for us in the next 12-18 months, and will indicate in one sense the way in which we think the charging system may evolve, which of course will have impacts for DNOs as well." Finally, the conversation turns to generation. Had this interview been happening two or three years ago, near the beginning of Nolan's tenure, the inevitable question would have been, "will the lights go out?" These days, with the capacity market up and running, we don't hear so much about the capacity crunch. Is it over? "Cease- less vigilance is the phrase I would use here," Nolan says, though he acknowledges "we are in a more positive place than we were two years ago", and says with a rare glimmer of smile: "I do feel very positive about capacity going forward." On to distributed generation (DG), where there seems an apparent conflict between the push for more DG on the one hand, and the very controversial decision ear- lier this year to drastically cut embedded benefits to distributed generators on the other, coupled with the separate decision by BEIS to tighten the rules on battery derating. The only time in the whole conversation that Nolan becomes a little snippy is when Utility Week makes the mistake of suggesting that, triad payments aside, Ofgem is "pushing" for DG. In fact, Nolan emphasises with steel, Ofgem is technology-neutral and its role is to ensure a level playing field. There are no regrets here about cutting the triad payments or about the howls of protest that doing so caused: "I would say very clearly to any new entrants, we welcome new entrants, we want as much innovation as possible, smaller distributed gen- erators are very much part of that, but no new entrants should come into the energy system on the basis of say- ing we think there's a significant distortion there, we're building our business plan on that." Will the decision face judicial review? "I don't know, I really can't comment on it, if we do face judicial review all I can say is we will defend it rigorously." A judicial review over triad payments is not Nolan's only potential day in court. Change is coming, and Nolan is getting ready for a fight: "Many of the issues I think we will see in energy transition, particularly in electricity but perhaps in the future in gas, are likely to be conten- tious. I'm not dodging that. We want to make it less con- tentious as [far as] possible but ultimately, we will make decisions, potentially difficult decisions, that we think are in consumers' interests, and that could lead to litiga- tion... we will defend any decisions we make vigorously." Ofgem has taken more than its fair share of flak over the past few years as the whole energy value chain, from security of supply to retail prices, has been hauled through the public wringer. With Dieter Helm's cost of energy review set to report next month, the scrutiny is not over yet. Nolan is clearly determined that, in the next few years which are so crucial to the energy transition, the regulator leads the debate. He acknowledges that the question of public trust in the energy system keeps him up at night, as does "the sense that, if we don't make good decisions, we'll muck it up". The stakes are high, and Nolan's ready. "The whole principle of RIIO is that a company that really delivers for consumers is entitled to earn a good return"