ESO finds current regulations ‘difficult to handle’

Ofgem’s regulation of National Grid ESO as an asset-based company has been described as an “absolute nightmare” by the grid’s director of operations.

Speaking at a Westminster Energy, Environment and Transport Forum policy conference in London yesterday (6 February), Duncan Burt was asked what the one regulatory change he believes would enable National Grid to better prepare electricity networks for net zero emissions.

Burt responded by saying the electricity systems operator (ESO) was not an asset-based company, but Ofgem is still regulating it in what “substantially is an asset-based way”.

He said: “We find that very difficult to handle. All our costs are people and IT – and trying to regulate that as an asset base is an absolute nightmare because you lose all of the flexibility, innovation and the instinctive business understanding from the regulator as to how you would drive that.

“It will be as important for us to think culturally about how to create a really open atmosphere in the office and to invest in foundational IT architecture that allows us to be very flexible.

“Those are the kind of things we spend our day thinking about, whether we should have an office dog because that would actually help an awful lot of our very clever people who are slightly autistic relax a bit more, rather than really worrying about the asset performance and refurbishment of the building because that’s capital investment and then drives the regulatory asset base.

“The regulation hasn’t caught up with that and we really wish it would. That for me selfishly is the one thing, I think everything else that Ofgem are doing in terms of competition is excellent. Their announcement on Monday that they should have a clear policy aim implicitly towards driving the whole market towards net zero, I am delighted about and have spent the last 10 years waiting for them to do it.”

In response, an Ofgem spokesperson said: “We welcome National Grid Electricity System Operator’s strong support for Ofgem’s decarbonisation strategy, and for our introduction of a competition-based tendering approach for network companies to save consumers money. Network companies, including the system operator, will be essential in ensuring the UK meets its net zero emissions targets at the lowest cost for consumers.

“The ESO became a legally separate business from asset-heavy National Grid Electricity Transmission last year. We are introducing a separate price control for the ESO from 2021 that is uniquely tailored to its function as a service provider, including giving it greater ability to spend money in consumers’ interests without reducing financial returns.

“Under its licence conditions the ESO must conduct its role in an economic and efficient manner, which means prioritising the interests of consumers in all its operations.”