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NETWORK / 11 / APRIL 2018 O fgem has now published its consultation on the RIIO Framework. The headline messages – a reduction to ve years, increased consumer en- gagement and a reduced cost of capital were all well trailed. The move to drop fast tracking for transmission is no big surprise. Aligning the transmission and dis- tribution price controls is o• the table. But beyond that the consultation raises more questions than it answers. What is clear from the document is that Ofgem's number one pre-occupation is how to make sure the companies don't earn such high returns in future. Although there is a brief acknowledgment that higher returns might be justi ed by high performance the focus seems to be entirely on reducing returns, with any discussion of what the companies need to deliver being le‚ for another day. In the 153 pages vulnerable customers get two mentions while returns are refer- enced 125 times. A• ordability is mentioned just once. It reminds me of the Oscar Wilde quote about a man who knew the price of everything and the value of nothing. So there is a very detailed discussion around the cost of capital building on work by the joint regulators group (UKRN) and a suite of options for how to ensure that com- panies don't earn returns that signi cantly exceed that. There is some discussion of the trans- formation that is needed in the energy system but the questions that were raised in Ofgem's original open letter about how you promote whole system thinking and how you cope with the uncertainty around the future demands on the system, includ- ing the future of gas, are le‚ to be answered as part of the sector speci c consultation which is now not due until quarter three. But these issues could have radical repercussions for the framework overall. The risk of asset stranding is still noted – More questions than answers RIIO2 shorter price control. Ofgem suggest that some cost allowances could be longer dura- tion but it is unclear how that would work in practice given currently companies have an overall revenue allowance not allow- ances for particular activities. For companies starting to think about their business plans there is little guid- ance. Ofgem has yet to decide if the output categories it used before will apply this time, despite asking several questions on that in its open letter. It gives no indication of the sorts of incentives it envisages and how these will be set. It talks in principle about whether to judge incentives against an absolute or relative benchmark but this is again driven by a concern about how to prevent companies earning high returns rather than what behaviours it wants to see and how these are best measured. Do Ofgem want companies to perform well on customer service as judged against other sectors or is Ofgem content to reward them for winning the fat boys race by simply beating other networks? Although Ofgem is keen for companies to engage with stakeholders it is unclear if the Challenge Group it is setting up will challenge Ofgem's own thinking as well as the company plans. Ofgem needs that consumer sense check to ensure it is actu- ally delivering what matters to consumers not just tightening the screws in response to political pressure. Ofgem has done con- sumer research but focused at this stage on how consumers could be engaged in the process rather than on what they value. However, all the research I have seen shows that consumers primarily care about a• ord- ability, safety, reliability and protection for vulnerable customers – with support also for building the future energy system. Reading Ofgem's document, consumers could be forgiven for thinking that Ofgem was not on the same page. Hopefully that balance will be redressed over time but there is still a lot of work to do. Maxine Frerk, former senior partner networks at Ofgem and now director of Grid Edge Policy, gives her views on RIIO2. but not fed into any of the discussion on the cost of capital and Ofgem say they do not plan to revisit asset lives. Which leaves a big question mark over how the uncertainty will be handled. The innovation question Another question mark is around how to ensure that companies think long term and continue to innovate when faced with a slimmed down innovation incentive and a "Although there is a brief acknowledgment that higher returns might be justifi ed by high performance the focus seems to be entirely on reducing returns."