RIIO-2 Final Determinations – Electricity System Operator ...

RIIO-2 Final Determinations ? Electricity System Operator (REVISED)

Publication date

03 February 2021 Contact: RIIO Team

Team:

Network Price Controls

Tel:

020 7901 7000

Email:

RIIO2@.uk

Our aim for the RIIO-2 price controls is to ensure energy consumers across Great Britain (GB) get better value for money, better quality of service and environmentally sustainable outcomes from their networks.

In 2019, we set out the framework for the price controls in our Sector Specific Methodology Decisions. In December 2019, transmission and gas distribution network companies and the electricity system operator (ESO) submitted their business plans to Ofgem setting out proposed expenditure for RIIO-2. We assessed these plans and published our consultation on Draft Determinations for company allowances under the RIIO-2 price controls in July 2020.

This document and others published alongside it, set out our Final Determinations for company allowances under the RIIO-2 price control, which will commence on 1 April 2021.

Decision - RIIO-2 Final Determinations ? Electricity System Operator (REVISED)

? Crown copyright 2020 The text of this document may be reproduced (excluding logos) under and in accordance with the terms of the Open Government Licence. Without prejudice to the generality of the terms of the Open Government Licence the material that is reproduced must be acknowledged as Crown copyright and the document title of this document must be specified in that acknowledgement. Any enquiries related to the text of this publication should be sent to Ofgem at: 10 South Colonnade, Canary Wharf, London, E14 4PU. Alternatively, please call Ofgem on 0207 901 7000. This publication is available at .uk. Any enquiries regarding the use and re-use of this information resource should be sent to: psi@nationalarchives..uk

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Decision - RIIO-2 Final Determinations ? Electricity System Operator (REVISED)

Contents

1. Introduction and overall package

5

Purpose of this document

5

What do we expect the ESO's RIIO-2 price control to deliver for consumers?

5

An overview of the ESO's RIIO-2 price control

7

Next steps and further work

9

2. Incentives framework

10

Introduction

10

Sector specific approach to ESO incentives

10

Scheme scope

11

Scheme design

13

Scheme value

26

3. Outputs

30

Introduction

30

Licence obligations

31

ESO Roles Guidance

32

ESO Delivery Schedule

33

Performance Metrics

37

Stakeholder satisfaction surveys

40

Regularly Reported Evidence

41

4. Internal costs

45

Introduction

45

Sector specific approach to ESO cost regulation

46

Cost benchmark

47

Demonstrably inefficient or wasteful expenditure

58

Rules for shared costs allocations

62

5. Finance

65

Introduction

65

Debt financing of the RAV

66

Equity financing of the RAV

67

WACC allowance

72

Additional funding (including the Working Capital Facility)

73

Financeability

79

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Decision - RIIO-2 Final Determinations ? Electricity System Operator (REVISED)

6. Innovation

82

Network Innovation Allowance

82

7. Uncertainty

84

Sector specific approach to ESO price control uncertainty

84

8. Other cross-cutting issues

88

Introduction

88

Governance of ESO IT

88

EMR ring fence

91

Cost recovery

93

Regulatory reporting

95

Future business plans

96

Requirement on the ESO to support TO incentives

97

Appendices

99

Appendix 1 ? Grading of the ESO's Delivery Schedule

100

Appendix 2 ? Further detail on performance measures

118

Appendix 3 ? Ofgem views on stakeholder satisfaction survey design

147

Appendix 4 ? Updated IT RAG assessment

149

Appendix 5 ? Glossary of ESO-specific framework terms

152

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Decision - RIIO-2 Final Determinations ? Electricity System Operator (REVISED)

1. Introduction and overall package Purpose of this document

1.1 This document sets out our Final Determinations for the electricity system operator (ESO) RIIO-2 price control. This price control will cover the five-year period from 1 April 2021 to 31 March 2026.1 All figures in this document are in 2018/19 prices except where otherwise stated.

1.2 This document should be read alongside the RIIO-2 Final Determinations Core Document (the Core Document) and the RIIO-2 Final Determinations Finance Annex (Finance Annex). Figure 1 sets out where you can find information about other areas of our RIIO-2 Final Determinations.

Figure 1: RIIO-2 Final Determinations documents map

What do we expect the ESO's RIIO-2 price control to deliver for consumers?

1.3 The ESO has a central role in our energy system. It performs several important functions from the real time operation of the system, through to market development, managing connections, and advising on network investment. On 1 April 2019, the ESO separated from National Grid Electricity Transmission (NGET) and became a legally distinct company within the National Grid Group. This

1 For certain elements, such costs and outputs, our decisions are applicable for the ESO's two-year Business Plan period from 1 April 2020 to 31 March 2023. This is explained throughout the document.

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