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RIIO-ED2 - delivering business plan submissions that meet Ofgem's expectations

RIIO-ED2 - delivering business plan submissions that meet Ofgem's expectations

Ofgem's Open Letter Consultation on the RIIO-ED2 Price Control closed on the 15th October. What we do know so far is that Ofgem will be tougher on network companies to deliver innovation, reliability and investment at the least cost to consumers.

Reviewing Ofgem's approach to RIIO-GD2 / T2 and ED2 it is clear that consultation and engagement is required to construct well considered outputs and evidence-based business plans which meet Ofgem's objectives.

With these business plans expected to be submitted in early 2020 we turn our focus to the current consultation on the electricity distribution price control (RIIO-ED2).

The electricity distribution network carries electricity from the high voltage transmission network to industrial, commercial, and domestic users. In Great Britain there are fourteen electricity distribution network operators (DNOs), managed by six companies. 

Ofgem have stated in their open letter consultation[1] that they believe that in this period consumers should expect to be served by a local grid that:

  1. is amongst the safest and most reliable in the world;
  2. keeps network charges on bills as low as possible;
  3. supports the target of net-zero carbon emissions for 2050 by enabling the rapid rollout of low carbon technologies, including electric vehicles, and the development of a charging network to support them;
  4. supports new customers in getting connected to the grid quickly, efficiently and at least cost;
  5. enables people to produce their own energy and sell it easily;
  6. delivers great customer service; and
  7. helps fuel-poor households, and those that are most vulnerable from a loss of supply, by understanding their needs and tailoring their services in response.

In their open letter, Ofgem propose that their overarching objective for RIIO-ED2 is to ensure that the DNOs deliver the value for money services that both existing and future consumers need. In recognition of this, we believe that ED2 will be driven by effective consumer engagement to deliver outputs. Alongside this there are three main priorities:

  1. Decarbonising to fight climate change at the lowest cost to consumers;
  2. Enabling competition and innovation, to help increase efficiency; and
  3. Protecting consumers, especially the vulnerable.

In our experience, Ofgem will be expecting the electricity distribution companies to illustrate a well thought through and transparent business plan which delivers value to the end consumer. As we are in the early stages of consultation the exact focus for the price control is yet to be decided, however, we believe that to support the business planning process companies will need to ensure that they have meaningfully engaged with consumers and stakeholders and are delivering insight in line with Ofgems key objectives and priorities.

Explain Market Research specialises in delivering research to support regulatory business planning. We have worked within the utilities sector for two decades, working in contracted partnerships with several of the UK’s biggest and most respected suppliers and distributors. These relationships have allowed Explain to develop an in-depth understanding of the importance of consumer and stakeholder consultation and research, ensuring we engage with the end user to deliver insights that support and are aligned to business planning.

Unpicking the regulatory framework - why Explain?

  1. Independent: You can be confident that our advice will be impartial, open and focused on delivering robust insight to support business planning throughout RIIO-ED2
  2. Bespoke solutions: Offering a range of research methodologies from the traditional to the innovative, always focussing on the best approach to deliver robust insights ensuring we engage with the end user  
  3. Business planning experience: With experience of customer and stakeholder engagement in the water and utility sector through RIIO-1, PR09, PR14, and most recently PR19 we are adept at engaging with customer and challenger groups, alongside core customer research to ensure we deliver representative results
  4. Research that unlocks insight: Delivering a range of research solutions through a mix of methodologies to deliver insights including: business planning strategic reviews, stakeholder research, customer research, vulnerable customer research, brand awareness and perceptions and public consultation.

We will continue to share our experience and best practice, throughout the RIIO-ED2 consultation and business planning process. For further information on how we can support you, please contact Kim Davis.

[1] https://www.ofgem.gov.uk/system/files/docs/2019/08/open_letter_consultation_on_the_riio-ed2_price_control.pdf