Informal consultation on RIIO-1 price control reopeners (May 2018)

Publication date
17th May 2018
Closing date
20th June 2018
Policy areas
Status

Updates

  • 24 May 2018: Enhanced security costs (IT systems) (Gas Transmission and Electricity Transmission)
  • 23 May 2018: One off asset health costs (Gas Transmission)
  • 17 May 2018: Quarry and loss development claim costs (Gas Transmission)
  • 6 June 2018: Physical Security Upgrade Programme (PSUP) - For information only
  • 6 June 2018: Industrial Emissions Directive (IED)
  • 6 June 2018: Streetworks

Overview

The current RIIO price controls for electricity transmission and gas transmission (RIIO T1) and gas distribution (RIIO GD1) run from 1 April 2013 to 31 March 2021. For cost categories where there was uncertainty about expenditure requirements at the time of setting allowances, the price controls include a “reopener” mechanism. The mechanism allows network companies to propose adjustments to baseline expenditure allowances for these costs when there is more certainty. The reopener mechanism specifies two windows during which adjustments to allowances may be proposed – one in May 2015 and other in May 2018.

We are expecting to receive submissions from four network companies during the May 2018 window. These are National Grid Electricity Transmission, National Grid Gas Transmission, Cadent Gas and Wales and West Utilities.

We will assess these submissions in line with criteria set out in network company licences, taking account of a range of factors, including the need for the proposed expenditure, our assessment of efficient costs, and any allowances that have been previously included in baseline allowances. We are required to make our determinations on all submissions by 30 September 2018.

We will consult stakeholders and seek feedback before making our determinations. We intend to do this in two phases.

  • Phase 1: We will publish non-confidential versions of network company submissions as soon as possible following submission, and seek early feedback from stakeholders. This would allow us to take account of feedback while assessing these submissions.
  • Phase 2: We will consult on our “minded-to” position on all submissions in late July/early August 2018.

We are now launching phase 1 of our stakeholder consultation process. We will update this page with links to submissions as we receive them.

We welcome your views on each submissions. We are expecting submissions to cover the following uncertain cost categories:

One off asset health costs (Gas Transmission)

Consultation opened 23/05/2018.      Consultation closed 06/06/2018.

We have received a submission from National Grid Gas Transmission (NGGT) for additional allowances of £139.9m (2009/10 prices) under the “One off asset health costs” category.

The gas transmission licence defines these costs as:

“costs incurred, or expected to be incurred, by the Licensee in relation to any single low probability high impact event (or series of low probability high impact events with a common trigger) not explicitly included within the allowances provided for under the Special Conditions.”

NGGT’s submission relates to the cost of building a new high pressure gas transmission pipeline under the Humber Estuary through a tunnel, to replace part of an existing gas pipeline called Feeder 9. Feeder 9 transports gas primarily from the Easington gas terminal to the rest of the National Transmission System, and section of this pipeline crosses the Humber Estuary through a trench. NGGT has identified a risk that the underwater section of Feeder 9 could become exposed to damage as a result of erosion and movement of the river bed. Since the risk was first identified in 2009, NGGT has undertaken several rounds of mitigation measures involving the placement of concrete frond mattresses and gravel bags.

In its 2012 Business Plan submission for RIIO T1, NGGT had requested funding for replacing the underwater section of Feeder 9 with a new pipeline through a tunnel at a cost of approximately £100m-£150m.  In our RIIO T1 price control decision, we said that there was uncertainty about costs and timing, and we decided to include an uncertainty mechanism (the reopener) for any costs related to Feeder 9. We said that NGGT obtaining planning permission would be the trigger for the reopener. In August 2016, NGGT secured planning permission for a new tunnelled pipeline to replace the affected section of the Feeder 9 pipeline, and have now submitted an application for funding under the reopener mechanism.

We will assess NGGT’s submission and determine whether the proposed solution and the costs are appropriate and in the interests of current and future consumers. A non-confidential version of the submission is published below.

Industrial emissions costs (Gas Transmission)

Consultation opened 06/06/2018

Consultation closed 20/05/2018

We have received a submission from National Grid Gas Transmission (NGGT) that seeks a reduction to its allowances for costs relating to industrial emissions costs.

In our Final Proposals for the RIIO T1 price control for NGGT, we included a baseline allowance of £288m (in 2009/10 prices) for work on compressor sites to comply with relevant industrial emissions legislation. This was based on information provided by NGGT in its business plan at the time. We recognised that there was uncertainty about these costs, and created an output for NGGT to develop an integrated plan for compliance with emissions legislation, which should consider all feasible options and select the most efficient option for each site. We said that if, following the development of the integrated plan, NGGT’s planned expenditure is different to the baseline allowance, we will adjust this allowance up or down.

NGGT’s submission under the 2018 reopener asks for the baseline allowance to be reduced to £125.4m, which represents a reduction of £162.6m compared to the baseline. This reflects NGGT’s updated view of the work required during the current price control period to comply with relevant industrial emissions legislation.

Whilst we welcome NGGT’s request to reduce baseline allowances, we will assess the submission and determine whether its revised view of costs are appropriate and in the interests of current and future customers.

A non-confidential version of the submission is published below.  

Enhanced physical site security costs (Gas Transmission, Electricity Transmission and Gas Distribution)

Physical Security Upgrade Programme (PSUP) - For information only

We have received submissions from three licensees - National Grid Electricity Transmission (NGET), National Grid Gas Transmission (NGGT) and Wales and West Utilities (WWU) – for costs relating to work to upgrade physical security for sites and assets operated by these licensees and designated by Government as requiring enhanced physical security.

In our Final Proposals for the RIIO T1 (for NGET and NGGT) and RIIO GD1 (for gas distribution companies including WWU) we said that the costs relating to enhanced physical security were uncertain and included provisions for price control reopeners with two application windows (May 2015 and May 2018).

In 2015, following applications from NGET and NGGT, we allowed costs of £342.5m (2009/10 prices) for NGET and £190.4m for NGGT. WWU did not submit an application in 2015.

  • NGET’s submission seeks a reduction of £74.5m for sites that no longer need to be protected, and an additional £9.2m for new sites identified since the 2015 reopener.
  • NGGT’s submission seeks a reduction of £18.11m for sites that no longer need to be protected, and an additional £41.9m for new sites identified since the 2015 reopener.
  • WWU’s submission seeks an additional allowance of £15.4m to protect sites that are shared with NGGT, for which responsibility for protection lies with WWU.

We will assess all three submissions to determine whether the applications for funding reductions and increases are appropriate and in the interests of current and future consumers.

The submissions to Ofgem contain sensitive information that cannot be placed in the public domain. The licensees have provided non-confidential submissions that are suitable for publication. Whilst the non-confidential versions provide useful background information, we do not consider that they contain sufficient information to allow stakeholders to review and provide meaningful feedback.

We are therefore publishing the non-confidential submissions for information only, and are not actively seeking stakeholder views at this time. We will consult stakeholders on our minded-to position in Phase 2.

Enhanced security costs (IT systems) (Gas Transmission and Electricity Transmission)

We have received a joint submission from National Grid Electricity Transmission (NGET) and National Grid Gas Transmission (NGGT) for additional allowances of £71.81m and £53.44m respectively (in 2009/10 prices) for enhanced security costs relating to IT systems.

The joint submission to Ofgem contains sensitive information that, in National Grid’s view, cannot be placed in the public domain.  National Grid have provided a non-confidential version of the submission that is suitable for publication. Whilst the non-confidential version provides useful background information, we do not consider that it contains sufficient information to allow stakeholders to review and provide meaningful feedback.

We are therefore publishing the non-confidential submission for information only, and are not actively seeking stakeholder views on this document. We will consult stakeholders on our minded-to position in Phase 2.

Street Works costs (Gas Distribution)

Consultation opened 06/06/2018   

Consultation closes 20/06/2018

The current price control for gas distribution network licensees (RIIO-GD1) includes a reopener provision for licensees to apply for an adjustment to their expenditure allowances in relation to specified street works costs. These include costs incurred in complying with their obligations under the Traffic Management Act 2004 (in England and Wales) and the Transport (Scotland) Act 2005 in Scotland.

In May 2015, we received an application from National Grid Gas Distribution, the licensee for East of England at the time, for an adjustment to its allowances relating to street works costs. We had rejected this application because our view of efficient costs fell below the materiality threshold set out in the licence.

We have now received a submission from Cadent Gas (the current licensee for the East of England area) for an increase of £21.26m (2009/10 prices) to its allowances for costs relating to street works costs. We will assess the submission the submission and determine the appropriate level of adjustment (if any) to Cadent Gas’ allowance.

Cadent Gas’ submission and supporting appendices are published below. Some appendices containing commercially sensitive information have not been published.  

Quarry and loss development claim costs (Gas Transmission)

Consultation opened 17/05/2018

Consultation closes 30/05/18

We have received a submission from National Grid Gas Transmission (NGGT) for additional allowances of £23.1m (2009/10 prices). The gas transmission licence defines Quarry and loss development costs as:

“costs incurred, or expected to be incurred, by the Licensee in relation to settling any claims which have been demonstrably challenged by the Licensee as far as is reasonable regarding both the basis of the claim and the quantum of the compensation sought. For avoidance of doubt the following claims under the terms of the Deed of Easement or Deed of Servitude are included:

  • loss of crop and drainage;
  • loss of land development (including in relation to housing and quarrying);
  • sterilised minerals;
  • landfill and tipping; and
  • power generation”

A non-confidential version of NGGT’s submission is published below.

Your views

We are particularly interested in your views on the following questions:

  1. Does the submission provide adequate evidence that the planned expenditure is necessary?
  2. Does the submission provide adequate evidence that the planned expenditure is efficient and proportionate?
  3. Is there any other relevant information we should consider before making our determination?

We ask that you provide your feedback as early as possible, ideally within two weeks of publication of submissions. This would allow us to take account of your responses in reaching our “minded-to” position.

Please contact gasnetworks@ofgem.gov.uk if you have any questions about the process or any of the submissions.