The CMA has published its final determinations in 2 appeals against Ofgem’s price control decision for electricity distribution network operators.
In March, the Competition and Markets Authority (CMA) announced that it had granted permission to (i) Northern Powergrid (Northeast) Limited and Northern Powergrid (Yorkshire) plc (together ‘NPg’) to appeal against Ofgem’s decision to modify its 2 licences; and (ii) British Gas Trading Limited (BGT) to appeal against Ofgem’s decision to modify the licences of 10 distribution network operators (DNOs).
In its determination on NPg’s appeal, the CMA dismissed 2 of the 3 grounds of appeal. It upheld one ground in relation to Ofgem’s adjustments to reflect potential savings available from the introduction of smart grids and other technological innovations. The CMA’s determination will increase NPg’s allowable revenue over the price control period by around £11 million.
In its determination on the BGT appeal, the CMA dismissed 4 of the 5 grounds of appeal. The CMA upheld, in part, one ground which sought to challenge the adjustment that Ofgem made to the up-front rewards and penalties for DNOs in its Information Quality Incentive scheme. The CMA’s determination increases the net penalty across the 10 ‘slow-track’ DNOs (those which did not reach an early settlement with Ofgem). After taking into account tax, the effect of the increase in the penalty is to reduce the amount of revenue DNOs are allowed to recover through charges by around £105 million over the price control period.
The appeals were made under section 11C of the Electricity Act 1989 and relate to price controls made for the 8-year period from 1 April 2015 to 31 March 2023. NPg is an electricity DNO. BGT is an electricity supplier which pays charges to each of the DNOs for use of their respective electricity distribution networks. Ofgem announced the details of the price controls in November 2014 and published its final decision on 3 February 2015.
The appeals are separate from the CMA’s ongoing investigation into the retail energy market.
Notes for editors
- The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. For more information see the CMA’s homepage on GOV.UK.
- The CMA’s group of panel members determining both appeals has been: John Wotton (Chair), Graham Sharp and Jon Stern.
- As well as the 2 appealing parties, the Group also received and considered submissions from Ofgem and other interested parties, which have been published on the case pages.
- The 10 ‘slow-track’ DNOs are: Electricity North West Limited; Northern Powergrid (Northeast); Northern Powergrid (Yorkshire); UK Power Networks (London Power Networks); UK Power Networks (South East Power Network); UK Power Networks (Eastern Power Networks); SP Energy Networks (SP Distribution); SP Energy Networks (SP Manweb); Scottish and Southern Energy Power Distribution (Scottish Hydro Electric Power Distribution); and Scottish and Southern Energy Power Distribution (Southern Electric Power Distribution).
- The direct effect of the CMA’s decision on NPg is to increase its expenditure (totex allowance) by £31.5 million. Under Ofgem’s RIIO-ED1 approach, this results in an £11 million increase in allowed revenue in the period 2015 to 2023. The remainder of the increase in the totex allowance will be reflected in future price control periods.
- The appeals have been conducted according to the rules and guidance published on the GOV.UK website.
- For CMA updates, follow us on Twitter @CMAgovuk, Flickr and LinkedIn.
- Enquiries should be directed to Rory Taylor (firstname.lastname@example.org,020 3738 6798).