Utility Week Live: Brearley provides update on RIIO2
Jonathan Brearley, senior partner networks at Ofgem, provided an update on its proposals for a new regulatory framework at Utility Week Live earlier this week.
22nd May 2018 by Networks
Speaking at a session entitled ‘learning from RIIO1 and moving towards RIIO2′, Brearley (pictured) told attendees: “Looking at RIIO and what it has delivered, we do think it is a regime that works. We have a stable regulatory regime, we’ve seen cost to consumers fall, we’ve seen huge improvements in customer services, we’ve seen huge improvements in reliability – and RIIO as part of the framework introduced a much more innovative and changeable nature to many of the network companies. Overall, there’s a lot this regime has delivered and a lot we can build on.”
In March, Ofgem set out proposals for a new regulatory framework from 2021 and stated these plans will deliver over £5 billion worth of savings for consumers over five years.
Ofgem has proposed that the cost of equity range (the amount network companies pay their shareholders) will go down to between 3% and 5%, from 6 to 7% currently.
Brearley continued: “There are two things happening for RIIO2 which are front and centre of Ofgem’s mind. The first is the scale of pace and change that is happening across this industry. We hear a lot of stories about what’s happening in electricity, but I’d argue that in gas we’re seeing the beginning of some quite fundamental changes. We need a price control that is fit for purpose of an industry that is changing. Equally, at this time you would expect us to be looking hard at what we have and making sure we learn the lessons of the price control that we’re running now to build on it for RIIO2.”
Highlighting the importance of innovation, Brearley explained: “We want to build on the innovation regime. We do think it is something that’s been successful but we want to focus it more on the big, strategic cost cutting issues. That means more collaborative projects, more projects focused on the much wider scale issues, that we as a sector face.”
During his summing up, he said: “RIIO1 has delivered. We have seen a step change in the way companies perform. We’ve seen record levels of customer service and we have focused on the things that matter to customers.
“However, we do think we need to go further. We need to give a stronger voice to customers. We need to respond to this ever changing disruptive world and we need to structure the price controls to do that. We want to drive as many efficiencies as we can. We want to stick by the price control and allow it to respond to changing circumstances. Equally, we want to have a fair and balanced debate between investors and consumers about returns to make sure that if things go away from what we expect we have a way of adjusting. That’s the ambition for RIIO2. In July we will come forward with further proposals then we’ll begin to build for sectoral business plans towards the end of this year. That’s when we’ll get into the details of the business plans and the meat of what we all need to deliver to make sure consumers continue to have safe, flexible, reliable and sustainable network systems of the future.”
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