Under control - Ofgem reviews how networks charges are set

Tougher rules will push network companies to deliver innovation, reliability and investment, at a fairer price for consumers.

Ofgem sets price controls for network companies. This is to to ensure that existing and future consumers get the network services they require at a fair price, and to also make sure companies operate the network efficiently and sustainably, while they make a return.

RIIO (Revenue=Incentives+Innovation+Outputs) is Ofgem’s performance-based framework to set the price controls. The price controls for the gas distribution, gas and electricity transmission networks are due for renewal in April 2021 and the new price control, termed RIIO-2 will apply from that date. This new regime will be tougher on network companies to deliver innovation, reliability and investment at the least cost to consumers.

Ofgem is proposing to the cut the rate of return on networks assets to 4% from the current 6-7%. It is also proposing that the rate of debt indexation is moved from using Retail Price Index (RPI) to Consumer Price Index Housing (CPIH) for inflation.

Ofgem is proposing to consolidate the current six customer facing performance categories into three corresponding categories namely: 

  • meet the needs of consumers and network users
  • maintain a safe and resilient network 
  • deliver an environmentally sustainable network 

You can read the consultation here.

You can read our latest regulatory report here