Reckon: paper for Ofgem on longer-term price controls

Paper prepared by Reckon LLP on the potential use of longer-term price controls in the regulation of Great Britain's gas and electricity networks (23 pages, PDF).

The paper was published as part of Ofgem's consultation on its emerging thinking from the RPI-X@20 review. Reckon is providing consultancy support to the review.

Ofgem's current price controls for energy networks have been set for five year periods. The paper identifies that a commitment to longer-term price controls would give network companies a clear financial stake in controlling their costs over a longer time horizon. This is likely to change the way that the companies plan their activities, anticipate customer needs and innovate. This, in turn, could help the companies to reduce and restrain their costs over the longer term and thereby improve value for money for consumers.

Longer-term price controls may also bring a number of drawbacks, such as a less adaptable regulatory regime and more uncertainty when price controls are set. The paper identifies options for "partial" longer-term price controls which might tackle the drawbacks, whilst still providing a longer-term commitment to the revenues that network companies are allowed to collect under their price controls.

For further information or advice please contact Nicholas Francis.

Filed under Electricity, Gas, Ofgem, Price controls, Reckon LLP.

Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.

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