Britain’s energy networks are privately-owned monopoly businesses with revenue for a specified period, known as a price control, decided ex-ante by the energy regulator, Ofgem. The network companies follow an agreed framework to create a business plan for the period, with requested revenue awarded dependent on the justification of costs within the plan. Traditionally, the regulatory framework incentivised economic efficiency by allowing the network companies to keep any underspend of their awarded revenue. Over the last decade, meeting the sustainability agenda has seen reforms to this framework. In addition to gaining revenue through being more efficient, networks can now also earn additional revenue by meeting a wider range of social and environmental outcomes. Building on previous research that investigated how regulatory frameworks for energy were evolving to include a greater focus on customers, this present research focusses on the gas distribution sector over the RIIO2 business planning period, and presents an assessment of one of the methods used to incentivise companies to meet these non-traditional outcomes – the consumer value proposition (CVP).
The CVP was introduced in the RIIO2 price control as a mechanism to incentivise the network companies to show the additional social and environmental value of their investments. For this research we created a timeline of events from the initial introduction of the RIIO2 framework and up to the release of the final determinations, where the allowed revenue for the 5 year price control period is released. Following the business planning process in combination with expert interviews, we present a narrative history of the design and implementation of the CVP initiative and discuss the challenges of implementing such an approach in practice and embedding it the regulatory model.
Authors:
Helen Poulter and Ronan Bolton
Publication details:
Helen Poulter and Ronan Bolton. Embedding broader values in the regulatory model: An analysis of Ofgem’s consumer value proposition for the natural gas distribution sector. Utilities Policy, Volume 80, 2023.
https://doi.org/10.1016/j.jup.2022.101470