RIIO-2 Annual Iteration Process 2022 for Gas Distribution
Reports, plans and updates
- Publication date
- Industry sector
- Distribution Network
This page contains the results of the 2022 Annual Iteration Process (AIP) for the Gas Distribution (GD) licensees under the RIIO-2 network price controls (GD2 price control).
The AIP updates Allowed Revenues across the network price controls for the next regulatory year (2023/24). This page contains the results for the GD2 price control only. Results for the other sectors will be published in December 2022.
Special Condition 8.2 in the GD licences, provides for the Gas and Electricity Markets Authority (‘the Authority’) to do the following by 30 November prior to each Regulatory Year:
(a) carry out the Annual Iteration Process for the GD2 Price Control Financial Model (as each of those terms are defined in Special Condition 1.1); and
(b) give licensees at least 14 days’ notice before it publishes the value of the Adjusted Revenue term (ADJRt) and the Allowed Revenue term (ARt) in accordance with the calculation set out in Special Condition 2.1 (Revenue restriction).
The Authority gave the GD licensees notice of the value of ADJRt and ARt on 04 November 2022.
The Authority received two representations from GD licensees in response to the notice regarding minor numerical errors within the WACC Allowance Model and GD2 Price Control Financial Model (PCFM), which have been corrected.
We received two representations from GD licensees raising discrepancies between the SoLR costs reflected in the PCFM and the costs based on Ofgem’s Last resort levy true-up claim minded-to position. The values in the PCFM were provisional at the time of the notice and have now been updated to align with the values in the minded-to publication.
There were other concerns raised around the lack of inflation updates in this AIP, the impact of further changes to SoLR costs and the uncertainty impacting wholesale gas prices. The Office for Budget Responsibility (OBR) usually publishes an autumn forecast in early November, which we reflect in each AIP. This year however the publication was delayed to coincide with the Autumn statement and as such has not been reflected in this AIP but will be reflected in the GD2 PCFM at the next available opportunity.
We have assured networks that in the event of any changes, which will have or are estimated to have a material effect on the value of ADJRt, they may notify the Authority to request a re-publication of the PCFM in time for tariff setting. This will enable material shocks that take place between the date of this publication and the date of tariff-setting, to be reflected in Allowed Revenues.
One network raised a concern around discrepancies between the non-variant allowances and variant allowances within the PCFM and requested that we modify the non-variant allowances in time for this year’s publication. We have agreed to review the non-variant allowances and make a modification in due course, however we note that this cannot be done in time for this AIP as updates to non-variant allowances require a separate consultation.
The reason for and effect of this publication is to revise the PCFM Variable Values to re-calculate the values for the terms ADJRt and ARt.
The published values for ADJRt and ARt following the November 2022 AIP are shown within the GD2 Price Control Financial Model published on this page.
Real Price Effects model
The RIIO-2 Price Controls include an allowance for differences between the Price Index applied to Allowed Revenue and certain input price indices. We refer to these differences as Real Price Effects and these are reflected in the calculation of Allowed Revenue within the Price Control Financial Model through the term RPEt.
The model used to calculate the RPEt values that have been used for the 2022 Annual Iteration Process for the GD2 Price Control Financial Model, is published on this page.
WACC allowance model
The RIIO-2 Price Controls include an allowance for the licensee’s estimated Weighted Average Cost of Capital (WACC), which is calculated in accordance with the provisions of the GD2 Price Control Financial Handbook.
The model used to calculate the cost of debt and risk-free rate values that have been used for the 2022 Annual Iteration Process for the GD2 Price Control Financial Model, is published on this page.