Gas and electricity network companies are required to provide safe, secure, reliable and efficient energy network services. They are funded to carry out activities such as the replacement or refurbishment of assets in order to ensure that the risks to consumers associated with network failure are maintained within reasonable bounds.
The mechanism by which network companies are held to account for their Baseline Network Risk Outputs (BNRO) delivery during RIIO-2 is known as the Network Asset Risk Metric (NARM) Funding Adjustment and Penalty Mechanism. Under this mechanism, some financial adjustments and penalties are applied automatically depending on the network company’s delivery versus their BNRO and the extent to which any over-delivery or under-delivery is deemed to be justified.
We are consulting on our proposed upper and lower threshold values for the Unit Cost of Risk (UCR) in determining whether a delivery element qualifies as a Clearly Identifiable Over or Under Delivery under the NARM Funding Adjustment and Penalty Mechanism. We are also consulting on a small number of other proposed amendments to the NARM Handbook, which describes the methodology for the NARM Funding Adjustment and Penalty Mechanism.