RIIO2 cuts ‘will hit vulnerable customers’

A trade body for the gas networks and their supply chain has said Ofgem’s RIIO2 draft determinations fail to deliver for vulnerable customers.

The Energy and Utilities Alliance (EUA) also criticised a “top down” approach to both net zero re-openers and innovation funding and called for the networks to be allowed more autonomy.

It also accused the regulator of risking delays to preparations for a hydrogen transition and said suppliers would struggle to understand the complexities of some of the processes proposed.

EUA chief executive Mike Foster Mike Foster said he was “deeply disappointed that it appears as though Ofgem had decided on the determinations before the consultation had even started”.

Fuel poverty

The EUA’s response to the draft determinations accused Ofgem of curtailing projects “worth almost £164 million in benefit to vulnerable customers”, which the trade body has estimated would add approximately 30p on each annual gas bill.

Ofgem has instead proposed that these projects could be delivered through a specific “use-it or lose-it” allowance. EUA retorted that this mechanism would not cover all of the work needed and stressed that Ofgem had not previously indicated this would be the only funding mechanism available for projects focussed on vulnerability.

It added: “Fewer projects helping vulnerable customers will happen during the price control, and therefore households that are struggling the most will receive less value than proposed.”

Right to trigger

Although expressing support for the principle of net zero re-openers, EUA said several changes were needed to make it more able to support the sort of projects required to help decarbonise heat. It suggested a lower threshold for the re-opener, the ability to aggregate projects together and a trigger mechanism that network companies can use.

“Ofgem’s exclusive right to trigger the net zero re-opener could unnecessarily delay investment. Network companies will have to make representations to Ofgem about a relevant change in circumstances in order to prompt Ofgem to undertake a series of consultations before amending the network companies’ licences to implement any adjustments deemed appropriate.”

On the overall implications of the draft determinations for the net-zero journey, EUA was damning, saying resulting delays to new projects would “slow our progress in a period where every year counts, and we will be spending less on developing new low-carbon technologies”.

Hydrogen

EUA highlighted the need to take on more risk and invest more in building up the UK’s supply chain capability on hydrogen but said the draft determinations did little to advance this cause.

It said a cut of 20 per cent in the innovation allowance for investing in technologies compared to RIIO1 would lead to delays of as much as £150 million of investment in preparing for a hydrogen transition.

It further criticised Ofgem for wanting too much control over the innovation process, saying it did not have the specialist skills to do so. Furthermore, it claimed the whole process was unclear and greater clarity was needed to educate the supply chain.

Echoing points made by Wales & West Utilities, EUA also expressed concerns around proposed cuts to its irons mains replacement work.

It said the implications of this decision “have not been reflected in maintenance and repair costs, nor has the impact on customers from increased interruptions and costs been assessed, and neither has the environmental damage from this decision been considered”. It warned that if gas networks were unable to meet statutory requirements they would “have little choice but to pursue the appeal option”.

The EUA concluded: “Our concern is that in setting an extremely limiting draft determinations Ofgem will prevent the networks from delivering what is expected of them, it will prevent them from innovating, bringing new solutions to meeting net zero and it will harm the very consumers Ofgem is saying it is acting in the best interests of.”