RIIO2 final determinations to be revealed

Ofgem will publish its final determinations on the RIIO2 business plans for gas and transmission networks and the electricity system operator next Tuesday (8 December).

This will see the regulator update its findings from its draft determinations, published in July, on the price control period spanning 2021 to 2026.

It follows an often acrimonious public debate between Ofgem and the networks, with the former criticising the quality of many business plans and the latter highlighting “errors” in the regulator’s methodology.

Networks have also accused Ofgem of being out of step with the government’s drive to invest in net zero projects. This has led to calls for statutory guidance on the regulator’s duty to support decarbonisation – an option picked out in last week’s National Infrastructure Strategy.

Its approach to setting the cost of capital in the final determinations is likely to come under particular scrutiny. Since the draft determinations were published, the Competition & Markets Authority (CMA) announced a potentially significant readjustment to the cost of capital for the four appellants to Ofwat’s PR19 final determinations. However, the CMA will not release it definitive stance until February.

During open hearings in October the chair of Ofgem’s RIIO2 challenge group, Roger Witcomb, said he saw “no reason” to raise the cost of capital beyond the levels currently proposed.

Meanwhile, Akshay Kaul, director for networks, has urged the CMA to make clear its findings “focus only on the water industry, and should not be read across to other regulatory contexts”.

Speaking at Utility Week’s Build Back Better forum in October, Ofgem chief executive Jonathan Brearley said the regulator had received a “huge amount more evidence from the network companies” since July. He added: “I am confident we will end up in December with the right balance between the interests of customers, who need to be protected, the investment we need to make sure we get to net zero, and making sure there is a fair and reasonable return for shareholders.”

In an appearance before the Business, Energy & Industrial Strategy Committee last month, Brearley acknowledged that the uncertainty mechanisms proposed in the regulator’s draft determinations are “too slow and not fit for purpose” and said they would be reconsidered before the final determinations were published.

You can view Utility Week’s archive of RIIO2 coverage here.