Losses Incentive Mechanism

Electrical losses are an inevitable consequence of transferring electricity across the distribution network and they have a significant financial and environmental impact on consumers. For example they contribute to approximately 1.5 per cent of Great Britain’s greenhouse gas emissions.

To encourage distribution network areas to manage an efficient level of losses on their network, Ofgem introduced a losses incentive mechanism as part of our electricity distribution price control.

Owing to volatility with data used to measure losses, for the current price control we have replaced the losses incentive mechanism with a reporting requirement. For the next price control (from 2015) we are introducing a losses reduction mechanism consisting of four components: licence obligation, loss reduction expenditure in the business plans, annual reporting and discretionary reward.

Publications and updates

  • Published: 14th May 2015
  • Decisions
  • 2 Associated documents
Licence modification decision on changes to CRC 2A and CRC 2M of the electricity distribution licences held by particular organisations. The change is to enable the close out the DPCR4 growth term.

  • Published: 11th Mar 2015
  • Closed: 13th Apr 2015
  • Consultations and responses
  • 7 Associated documents
Statutory consultation on changes to CRC 2A and CRC 2M of the electricity distribution licences held by ENWL, NPg, SPEN, and UKPN. Proposed modifications are to enable the close out the DPCR4 growth term.

  • Published: 16th Feb 2015
  • Decisions
  • 1 Associated documents
Direction to change the penalty interest rate applied to Scottish Power Manweb plc.

  • Published: 13th Jan 2015
  • Closed: 10th Feb 2015
  • Consultations and responses
  • 4 Associated documents
Scottish Power Manweb plc have submitted applications to us requesting relief from the penalty interest relating to the close out of the DPCR4 losses incentive mechanism. This consultation sets out our minded to position.

  • Published: 15th Dec 2014
  • Decisions, News and blogs
  • 0 Associated documents
The High Court has refused permission for Western Power Distribution’s application to bring a judicial review of our decision on electricity losses for the fourth distribution price control.

  • Published: 31st Oct 2014
  • Decisions
  • 1 Associated documents
Direction to change the penalty interest rate applied to the licensees of WPD, SPEN and UKPN, to prevent them being unfairly penalised for the under/over recovery of revenue related to the Authority’s decisions on the DPCR4 losses incentive mechanism.

  • Published: 17th Sep 2014
  • Closed: 15th Oct 2014
  • Consultations and responses
  • 8 Associated documents
WPD, SPEN and UKPN have submitted applications to us requesting relief from the penalty interest relating to the close out of the DPCR4 losses incentive mechanism. This consultation sets out our minded to position.

  • Published: 28th Aug 2014
  • Decisions
  • 4 Associated documents
Modification decision on changes to CRC 14 (Distribution Charges: supplementary restrictions) arising from several DNOs’ decision to under recover revenue, in relation to the Authority’s decisions on the DPCR4 Losses Incentive Mechanism.

  • Published: 24th Jul 2014
  • Closed: 21st Aug 2014
  • Consultations and responses
  • 7 Associated documents
Statutory consultation on changes to CRC 14 (Distribution Charges: supplementary restrictions) arising from several DNOs’ decision to under recover revenue, in relation to the Authority’s decisions on the DPCR4 Losses Incentive Mechanism.

  • Published: 10th Jul 2014
  • Open letters and correspondence
  • 1 Associated documents
This letter sets out our way forward for dealing with any adverse impact or penalty on DNOs allowed revenue under/over recovery positions, following our recent decision on the DPCR4 losses close-out.

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