Delivering a regulatory framework that works for all

The energy industry continues to go through a period of rapid transformation, from the huge growth in renewable electricity generation to the new, exciting move to local flexible grids that will unlock the value of maturing technologies such as electric vehicles, micro generation and battery storage. Electricity networks are pivotal to this change, providing the critical national infrastructure and innovative solutions required to facilitate this transition to a flexible and low-carbon electricity system.

Against this backdrop, the energy regulator, Ofgem, has today published its decision on the future regulatory framework for energy networks, RIIO2, which for SSEN will begin in 2021 for our electricity transmission business and in 2023 for our electricity distribution business. Today’s announcement is another important step in the process of setting the direction of travel for the next set of price controls.

As expected, Ofgem has confirmed a number of functional changes to the price control process, such as the move back to five-year price control periods. We understand Ofgem’s rationale for reducing the price control duration, which we believe should address many of its concerns resulting from the period of rapid change faced by the industry.

We also strongly support the enhanced voice for customers and stakeholders in the development and scrutiny of price control business plans through the establishment of independent user groups and panels. Our customers and stakeholders remain at the forefront of our business plans and we are confident their increased role in determining our business priorities will help address any legitimacy issues currently faced by network companies. Importantly, the user groups and panels will ensure our customers and stakeholders will be involved throughout the price control decision process in an open and transparent way, constructively challenging and ultimately approving the development of our business plans.

The existing RIIO framework has a strong track record of delivering for customers, stakeholders and shareholders. It has encouraged record levels of investment, leading to significant improvements in network performance and record levels of customer satisfaction. It continues to support the transition to a low carbon economy, from the decarbonisation of electricity generation to the shift to low carbon heat and transport. All of this has been delivered against a backdrop of sustained reductions in cost to consumers.

As we look forward to the next stage of the price control process and the development of sector specific consultation, it is crucial that this new regulatory framework continues to strike the right balance between driving efficiency and maintaining a stable investment climate that continues to deliver improvements in network reliability, innovation and customer service. We welcome Ofgem’s acknowledgement of this balance and support its decision to retain options in areas where further evidence, analysis and engagement is clearly required.

As the RIIO-2 process develops, we will continue to work constructively with the regulator, our customers and other stakeholders to ensure the evidence base is robust, the outcomes are clear and the views of customers, communities, other stakeholders and investors are fully considered, helping to deliver a regulatory framework that works for all.

About the author

Colin Nicol Managing Director, Networks

Colin Nicol is Managing Director, Networks. He joined SSE in 2010 and is responsible for SSE’s electricity networks. Colin represents the Networks business at the Executive Committee.

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