RIIO-2 Annual Iteration Process 2022 for Transmission and the Electricity System Operator
Reports, plans and updates
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Transmission Network
This page contains the results of the 2022 Annual Iteration Process (AIP) for the Electricity Transmission (ET), Electricity System Operator (ESO) and Gas Transmission (GT) licensees under the RIIO-2 network price controls.
The AIP updates Allowed Revenues across network price controls for the next regulatory year (2023/24). This page contains the results for ET2, GT2 and ESO price controls only. The results for GD have already been published on 30 November 2022.
Special Condition 8.2 in the ET and GT licences, and Special Condition 5.2 in the ESO’s licence provides for the Gas and Electricity Markets Authority (‘the Authority’) to do the following by 30 November or as soon as is reasonably practicable after 30 November:
(a) carry out the Annual Iteration Process for the ET2, GT2 and ESO Price Control Financial Models (PCFM) (as each of those terms are defined in Special Condition 1.1 of the special licence condition); and
(b) give licensees at least 14 days’ notice before it publishes the value of the following terms:
i. for ET, Adjusted Revenue term (ADJRt) and the Allowed Revenue Term (ARt) in accordance with the calculation set out in Special Condition 2.1 (Revenue restriction),
ii. for GT, Adjusted Revenue term (ADJRt) and the Allowed Revenue Term (ARt) in accordance with the calculation set out in Special Condition 2.1 (Transportation owner revenue restriction),
iii. for GT, System Operator Adjusted Revenue term (SOADJRt) and the System Operator Allowed Revenue term (SOARt) in accordance with the calculation set out in Special Condition 2.3 (System operator revenue restriction), and
iv. for ESO, Adjusted Revenue term (ADJRt) and the SO Internal Allowed Revenue term (SOIARt) in accordance with the calculation set out in Special Condition 4.1 (System Operator Internal Revenue Restriction).
The reason for the delay to the publication of this AIP beyond 30 November is to include the inflation data published by the Office for Budget Responsibility (OBR). The OBR typically publishes its autumn inflation forecast in early November, however this year the publication was delayed to 17 November to coincide with the autumn statement. The affected licensees have all agreed with our proposal to delay the AIP publication date such that we could reflect in it the latest inflation forecast.
The Authority gave the ET, GT and ESO licensees notice of the value of ADJRt, ARt, SOADJRt, SOARt and SOIARt on 23 November 2022.
We received two representations from ET licensees in response to the notice regarding an update to the Prescribed Rates pass-through values in the ET2 PCFM. This was following the licensees’ recent engagement with the Scottish Assessors Association as part of the review and periodic revaluation of the Prescribed Rates. We have reflected the updated Prescribed Rates values in the ET2 PCFM for these licensees.
NGET, NGGT and the ESO agreed with the notice, as issued.
The reason for and effect of this publication is to revise the PCFM Variable Values to re-calculate the values for the terms listed at paragraph (b) of this webpage.
The published values for ADJRt, ARt, SOADJRt, SOARt and SOIARt following the November 2022 AIP are shown within the ET2, GT2 and ESO Price Control Financial Models published on this page.
Real Price Effects model
The RIIO-2 Price Controls include an allowance for differences between the Price Index applied to Allowed Revenue and certain input price indices. We refer to these differences as Real Price Effects and these are reflected in the calculation of Allowed Revenue within the Price Control Financial Model through the term RPEt.
The model used to calculate the RPEt values that have been used for the 2022 Annual Iteration Process for the ET2 and GT2 Price Control Financial Models, is published on this page.
WACC allowance model
The RIIO-2 Price Controls include an allowance for the licensee’s estimated Weighted Average Cost of Capital (WACC), which is calculated in accordance with the provisions of the ET2, GT2, and ESO Price Control Financial Handbooks.
The model used to calculate the cost of debt and risk-free rate values that have been used for the 2022 Annual Iteration Process for the ET2, GT2 and ESO Price Control Financial Models, is published on this page.