Ofgem's conclusions on financing structures

Ofgem letter (5 pages, PDF) concluding the "Financing Networks" consultation process. The most tangible outcomes are a promise to hold a City briefing in 2007/2008, and a plan to consider whether it might be appropriate in the future to transfer interest rate risks by linking revenues to average out-turn bond (gilt or corporate) yields.

The question of whether Ofgem should be making backwards-looking adjustments to the regulatory capital value is addressed as follows:

"However, we accept that the lack of clear incentives from previous price reviews has led to more uncertainty in rolling forward the RAV for historical investments than we would have liked. This has been a necessary transition — in the light of previous price control settlements, we had to protect consumers' interests by applying a reasonable interpretation of what was intended. Going forward, we agree with respondents to the discussion paper that we can best protect consumers' interests by providing clarity about the basis of RAV calculations and the mechanics of incentives at the outset of each price review (while retaining such discretion as is necessary, e.g. to avoid gaming of detailed rules)."

For further information or advice please contact Franck Latrémolière.

Filed under Electricity, Ofgem, Price controls.

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