Ofgem rethinks RIIO cycle

Eight-year price control could change in second phase

Ofgem has said it will reconsider the current eight-year price control period for energy networks.

In a speech last week which described Ofgem’s new Forward Work Plan for 2017-2018, the regulator’s chief executive Dermot Nolan said: “We switched to an eight rather than five year price control for RIIO to provide greater certainty for network companies and bring down the cost of capital, delivering lower costs for customers”.

However, Nolan continued, in an environment of rapid technological and market change “unpredictability” in the energy system is high.

This “makes longer term forecasts more challenging. So we need the consider for example whether it’s appropriate to continue the eight year price control period for RIIO 2”.

RIIO was introduced as a new framework for energy network regulation in 2010. The first price controls under RIIO began in 2013 and run until 2021.

The framework aimed to introduce greater stability and predictability for network operators as well as placing an emphasis on business outputs as a means for measuring performance.

Ofgem will turn its attention to preparations for RIIO 2 in the final quarter of its new work plan (early 2018), according to Nolan.

“When you set up a new regulatory framework, you’re never going to get everything right,” he said.

“The priority for us now is to make sure those lessons we have learnt are fully reflected for RIIO 2”.