We seek your views on whether there may be a more appropriate approach to accounting for real price effects (RPEs) in the revenue allowances we have proposed for slow-track electricity distribution network operators (DNOs).
RPEs represent the expected change in the prices of inputs that DNOs purchase relative to economy-wide inflation, as measured by the Retail Prices Index (RPI). The revenue allowances proposed in our draft determinations for the slow-track DNOs included the expected impact of RPEs.
We noted in our draft determinations, published in July 2014, that there may be increased uncertainty in the future path of input prices. This casts doubt over the use of an ex ante forecast for this area of costs in an eight-year price control.