Ofgem consults on the way forward for Transmission Price Control Review 5

Ofgem is consulting on the procedures for the next Transmission price control (20 pages, PDF) which will start on 1 April 2013. Responses by Thursday 30 September 2010.

In this document, Ofgem sets out the proposed process for setting gas and electricity transmission prices for Transmission Price Control Review 5 (TPCR5) following the recent RPI-X@20 (HTML) project's paper. At is stands, the price control will be an eight year period over which companies will be set various outputs within the context of a longer planning horizon of 25 years. Some indicative primary outputs are set out in Annex A of the consultation document.

The paper sets out some key issues for the review. For electricity these issues are network investment and asset replacement and how these issues will create uncertainty with defining outputs and appropriate revenues. In particular, the price control process requires companies to justify the revenue needed to achieve their outputs, which will prove a difficult task for network investment in electricity transmission given the high level of uncertainty associated with volumes, timing and location. Similarly, two issues have been identified for gas transmission. These are liquefied natural gas, relating to potential increased import capacity, and how revenue drivers for incremental investment will function in the next price control.

As well as these specific issues for gas and electricity, four common issues are raised:

As well as setting out the above issues, Ofgem also provides some details on the proposed steps for enhanced stakeholder engagement. This includes the opening of forums to a wider selection of stakeholders as well as creating and expanding several stakeholder groups, such as the new Consumer Challenge Group comprised of consumer experts, although there is no indication where these experts will be found. A Price Control Review Forum (PCRF) will also allow for stakeholder engagement and details are set out in Annex B of the document, although Ofgem will be under no obligation to accept views raised in the forum.

Ofgem's RPI-X@20 recommendations (76 pages, PDF) propose a move to output based price controls. The consultation letter provides some detail on the practicalities of this approach:

Ofgem obviously requires business plans to be well justified and proportionate, with more evidence required for areas with higher expenditure or uncertainty, although few details are given into the practical implementation of this in this document. More details are provided in Ofgem's supporting paper for the RPI-X@20 project's recommendations (163 pages, PDF): pages 60-68.

For further information or advice please contact Richard May.

Filed under Electricity, Gas, Ofgem, Price controls.

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