Republication of RIIO-GD2 and RIIO-ESO Price Control Financial Model following the Annual Iteration Process 2021
Decision
- Publication date
- Industry sector
- Distribution Network
- Transmission Network
On 30 November 2021, Ofgem published the results of the Annual Iteration Process (AIP), for the Electricity System Operator (ESO) and Gas Distribution (GD) licensees under the RIIO-2 network price controls. The AIP updates allowed revenues, which licensees must use when setting their charges for the next regulatory year (2022/23).
Part B of Special Condition 8.2 in the GD licence specifies that the Authority may re-publish the value of Allowed Revenue (ARt) and Adjusted Revenue (ADJRt) after 30 November and before the 30 January prior to each regulatory year.
Part B of Special Condition 5.1 in the ESO's licence specifies that the Authority may re-publish the value of the SO Internal Allowed Revenue (SOIARt) and Adjusted Revenue (ADJRt) after 30 November and before the 30 January prior to each regulatory year.
This re-publication process is set out in further detail in Chapter 2 of the Price Control Financial Handbook and enables licensees to reflect the impact of any unforeseen events on their allowed revenue in time for them to set tariffs, where these events have or are estimated to have a material impact on their allowed revenues.
Since the publication of the AIP in November 2021, there have been material changes to the following values in the GD2 PCFM:
- Shrinkage– shrinkage reflects the cost of gas lost from the gas distribution network. As such, the unprecedented increase in gas prices has led to updated shrinkage cost forecasts.
- Bad debt– bad debt cost forecasts have been updated to reflect the increased volatility in the market.
- Supplier of Last Resort (SoLR) forecast – SoLR cost estimates have been updated in line with guidance from the Authority.
Since the publication of the AIP in November 2021, there have been material changes to the following values in the ESO PCFM:
- System Operator Bad debt– bad debt cost forecasts have been updated to reflect the increased volatility in the market.
The Authority gave the GD and ESO licensees notice of the value of ADJRt, ARt and SOIARt on 14 January 2022.
The Authority received one representation from the ESO in response to the notice regarding a minor correction to the ESO PCFM, which has been made.
The reason for and effect of this re-publication is to revise the PCFM Variable Values to re-calculate the values for the Allowed Revenue and Adjusted Revenue terms for the GD and ESO licensees.
The re-published values for ADJRt, ARt and SOIARt following the November 2021 AIP are shown within the GD2 and ESO Price Control Financial Models published on this page.