We are consulting on our initial views on six reopeners. This consultation will remain open for 21 days, closing on 29 August 2018. The shorter period is driven by the licence requirement to determine any relevant adjustments to the licensee’s allowed expenditure by the end of September and the time we need to take into account responses to consultation, engage with interested stakeholders and revise our analysis, if necessary.
We welcome engagement from interested stakeholders during the consultation period. Please contact gasnetworks@ofgem.gov.uk if you have any questions about the documents, process, or if you would like to discuss any of the issues raised in our consultation documents before submitting your response.
Overview
The current RIIO price controls for electricity transmission and gas transmission (RIIO-T1) and gas distribution (RIIO-GD1) run from 1 April 2013 to 31 March 2021. For some of the cost categories where there was uncertainty about expenditure requirements at the time of setting allowances, the price controls include a “reopener” mechanism. The mechanism allows network companies to propose adjustments to baseline expenditure allowances for these costs when there is more certainty. The reopener mechanism specifies two windows during which adjustments to allowances may be proposed – one in May 2015 and the other in May 2018.
We received submissions from four network companies during the May 2018 window. These are National Grid Electricity Transmission, National Grid Gas Transmission, Cadent Gas and Wales and West Utilities.
We published non-confidential versions of the network companies’ submissions, and sought early feedback from stakeholders as phase 1 of the consultation process. We received one response in Quarry and Loss of Development costs, which is published below.
We have assessed the network companies’ submissions in line with the criteria set out in the their licences, taking account of a range of factors, including the need for the proposed expenditure, our assessment of efficient costs, and any allowances that have been previously included in baseline allowances. In this phase 2 of the consultation process we present our initial views on all submissions. We are required to determine all submissions by 30 September 2018. We welcome your views on each submission.
We have received a submission from National Grid Gas Transmission (NGGT) for additional allowances of £139.9m (2009/10 prices) under the “One-off asset health costs” category.
NGGT’s submission relates to the cost of building a new high-pressure gas transmission pipeline under the Humber Estuary through a tunnel, to replace part of an existing gas pipeline called Feeder 9. Feeder 9 transports gas primarily from the Easington gas terminal to the rest of the National Transmission System. A section of this pipeline crosses the Humber Estuary through a trench. NGGT has identified a risk that the underwater section of Feeder 9 could become exposed to damage as a result of erosion and movement of the river bed. Since the risk was first identified in 2009, NGGT has undertaken several rounds of mitigation measures involving the placement of concrete frond mattresses and gravel bags.
In its 2012 Business Plan submission for RIIO T1, NGGT had requested funding for replacing the underwater section of Feeder 9 with a new pipeline through a tunnel at a cost of approximately £100m-£150m. In our RIIO-T1 price control decision, we said that there was uncertainty about costs and timing, and we decided to include an uncertainty mechanism (the reopener) for any costs related to Feeder 9. We said that NGGT obtaining planning permission would be the trigger for the reopener. In August 2016, NGGT secured planning permission for a new tunnelled pipeline to replace the affected section of the Feeder 9 pipeline, and has now submitted an application for funding under the reopener mechanism.
We have assessed NGGT’s submission to determine whether the costs are appropriate and are in the interests of existing and future consumers. We welcome views on our initial views in the document at the end of this page.
We have received a submission from National Grid Gas Transmission (NGGT) that seeks a reduction to its allowances for costs relating to industrial emissions costs. In our Final Proposals for the RIIO-T1 price control for NGGT, we included a baseline allowance of £288m (2009/10 prices) for work on compressor sites to comply with relevant industrial emissions legislation. This was based on information provided by NGGT in its business plan at the time. We recognised that there was uncertainty about these costs, and created an output for NGGT to develop an integrated plan for compliance with emissions legislation, which should consider all feasible options and select the most efficient option for each site. We said that if, following the development of the integrated plan, NGGT’s planned expenditure is different to the baseline allowance, we will adjust this allowance up or down.
NGGT’s submission under the 2018 reopener asks for the baseline allowance to be reduced to £123.4m, which represents a reduction of £164.6m compared to the baseline. This reflects NGGT’s updated view of the work required during the current price control period to comply with relevant industrial emissions legislation.
We have assessed NGGT’s submission to determine whether its revised view of costs is appropriate and is in the interests of existing and future consumers. We welcome views on our initial view in the document at the end of this page.
We have received submissions from three licensees - National Grid Electricity Transmission (NGET), National Grid Gas Transmission (NGGT) and Wales and West Utilities (WWU) – for costs relating to work to upgrade physical security for sites and assets operated by these licensees and designated by Government as requiring enhanced physical security.
In our Final Proposals for the RIIO T1 (for NGET and NGGT) and RIIO GD1 (for gas distribution companies including WWU) price controls we said that the costs relating to enhanced physical security were uncertain and therefore included provisions for price control reopeners with two application windows (May 2015 and May 2018).
In 2015, following applications from NGET and NGGT, we allowed costs of £342.5m (2009/10 prices) for NGET and £190.4m for NGGT. WWU did not submit an application in 2015.
NGET’s May 2018 submission seeks a reduction of £74.5m for sites that no longer need to be protected, and an additional £9.2m for new sites identified since the 2015 reopener.
NGGT’s May 2018 submission seeks a reduction of £18.11m for sites that no longer need to be protected, and an additional £41.9m for new sites identified since the 2015 reopener.
WWU’s May 2018 submission seeks an additional allowance of £15.4m to protect sites that are shared with NGGT, for which responsibility for protection lies with WWU.
We have assessed all three submissions to determine whether the applications for funding reductions and increases are appropriate and are in the interests of existing and future consumers. We welcome views on our initial view, presented in the document at the end of this page.
We have received a joint submission from National Grid Electricity Transmission (NGET) and National Grid Gas Transmission (NGGT) for additional allowances of £71.81m and £53.44m respectively (2009/10 prices) for enhanced security costs relating to IT systems.
We initially published the non-confidential submissions for information only.
We have assessed the submission from NGET and NGGT to determine whether the proposed investments are necessary and proportionate given both the level of risk and the recommendations from Government.
We welcome views on our initial view, presented in the document at the end of this page. Due to the sensitive nature of the material being assessed, our consultation documents only provide a high-level summary of our initial view.
The current price control for gas distribution network licensees (RIIO-GD1) includes a reopener provision for licensees to apply for an adjustment to their expenditure allowances in relation to specified street works costs. These include costs incurred in complying with their obligations under the Traffic Management Act 2004 (in England and Wales) and the Transport (Scotland) Act 2005 in Scotland.
In May 2015, we received an application from National Grid Gas Distribution, the licensee for the East of England area at the time, for an adjustment to its allowances for street works costs. We rejected this application because our view of efficient costs fell below the materiality threshold set out in the licence. We have now received a submission from Cadent Gas (the current licensee for the East of England area) for an increase of £21.26m (2009/10 prices) to its allowances for costs relating to street works. We have assessed the submission to determine whether the application for funding is appropriate and is in the interests of existing and future consumers. We welcome views on our initial view, presented in the document at the end of this page.
We have received a submission from National Grid Gas Transmission (NGGT) for additional allowances of £23.1m (2009/10 prices) to cover the cost of settling valid claims for compensation from land owners under specified categories.
We have assessed the submission to determine whether the application for funding is appropriate and is in the interests of existing and future consumers and welcome views on our initial view, presented in the document at the end of this page.
Your Views
We are particularly interested in your views on the following questions in respect of each submission:
Do you have any views on our assessment methodology?
Do you have any views on the outcome of our assessment?
We ask that you provide your feedback as early as possible. This would allow us to take account of your responses in reaching our final decision.
Please contact gasnetworks@ofgem.gov.uk if you have any questions about the process or any of the submissions.
