Ofgem launches major network regulation review


Alistair Buchanan,
Chief Executive,
London, U.K. — (METERING.COM) — March 2, 2009 – U.K. energy regulator Ofgem has launched a major review of the regulation of the country’s energy networks – the first in 20 years – that could re-shape the future of energy network regulation.

The current regulatory regime is based on pegging revenue growth to within a given percentage of the retail price index (RPI), with this percentage decided on a five-yearly basis. While this framework has served customers well, with network charges halved whilst investment has increased and quality of service improved, changes may be required to accommodate the substantial changes anticipated in the role of energy networks over the coming years.

Possible scenarios include big transmission and distribution networks, energy service company and distributor managed networks, as well as microgrids and multi-purpose networks with multiple development and management approaches. For example, much larger networks may be needed to transmit much more carbon-free renewable and conventional energy from large power stations to peoples’ homes with rising demand from electric vehicles. But smart grid technology, energy efficiency and more local generation could require much smaller networks.

The review will have two themes focusing on the needs of current consumers and those of future consumers and delivering a sustainable energy sector. The focus on customers will mean understanding better the needs of consumers, and ensuring that networks provide value for money. Sustainability in energy will include the delivery by regulated networks of targets for security of supply, climate change and social (particularly fuel poverty) targets.

The review will have two phases, the first a visionary phase in which the aim is to understand the issues affecting network regulation, identify areas where change may be needed to accommodate these, and identify possible regulatory models for the future. This will be followed with an options development phase, which will involve the narrowing of the scope of the project and a detailed working up of options identified as having high potential.

The first phase is due for completion by November 2009. The second phase will culminate in a set of conclusions and recommendations that will be consulted on in early 2010 before being delivered to the Authority in summer 2010.

Commenting on the review Ofgem chief executive Alistair Buchanan said it “provides us with the opportunity to step back and think hard about whether we have in place a regulatory framework that will continue to deliver for consumers, be flexible in the face of greater uncertainty, and facilitate the move to a low carbon economy.”

Network costs currently account for around 20 percent of consumer energy bills in the U.K.