UK Utility Regulation: What is RIIO?
Presentation to MA Grid Modernization Steering Committee
December 17, 2012
Agenda
 Purpose of the Presentation
 Reasons for Change to RIIO
 Goals for RIIO
 RIIO Process
 Comparison to Regulation in MA
 Appendix
 OFGEM Organization
 OFGEM Duties
 Background on National Grid activities in the UK
Purpose
 The presentation outlines the goals and process in the
establishment of the RIIO regulatory structure in the United
Kingdom.
 This presentation does not cover the legal, political, social
and economic underpinnings of regulation in the United
Kingdom.
 National Grid is not proposing to implement RIIO in the US.
Reasons for Change to RIIO
Source: OFGEM, “RIIO: A new way to regulate energy networks”
Final Decision, Oct 2010, p. 9
Potentially, major network developments
Overview of RIIO
6
Source: OFGEM, “RIIO: A new way to regulate energy networks”
Final Decision, Oct 2010, p. 3
Considerations During RIIO Price Review
7
Source: OFGEM, “RIIO: A new way to regulate energy networks”
Final Decision, Oct 2010, p. 27
Timing of a RIIO Price Review
8
Source: OFGEM, “Handbook for implementing the RIIO model”
, Oct 2010, p. 8
Components of RIIO
9
Source: OFGEM, “Handbook for implementing the RIIO model”
, Oct 2010, p. 29
Outputs for Stakeholders are More Prominent
10
Source: OFGEM, “Handbook for implementing the RIIO model”
, Oct 2010, p. 31
Engagement with Stakeholders built into RIIO
11
Source: OFGEM, “Handbook for implementing the RIIO model”
, Oct 2010, p. 45
Comparison of RIIO to MA Regulation
RIIO
12
MA Regulation
8 year forward looking ratemaking
Historic test year ratemaking
Forward looking Capex based upon business
plans - to deliver outputs
After the fact prudence review during rate cases;
may be augmented by capital trackers with
spending caps
Uncertainty mechanisms to adjust allowed
revenues for changes in customer requirements or
the operating environment, for example
Uncertainty adjustments have been allowed for
legislative or regulatory changes (Exogenous
factors)
Incentives for efficiency and outputs
Penalties and offsets for Service Quality metrics
Output review mid-plan – to review outputs
needed
Nothing comparable
Price Review takes 24 months BUT provision for
Fast Track review based on (i) quality of business
plan and (ii) a company’s track record
Rate case takes 10 months by statute, all else
variable
Funding for Innovation used to deliver outputs
Innovation through Pilots and/or Cost/Benefit
review
Stakeholder engagement is much increased by
RIIO
Stakeholders have statutory rights to intervene
Appendix
13
14
Office of Gas and Electricity Markets (OFGEM) duties
as utility regulator
Principal objective is to protect the interests of (existing and future) consumers, wherever appropriate by promoting effective
competition, including their interests:
1. in the reduction of gas and electricity-supply emissions of targeted greenhouse gases; and
2. in the security of the supply of electricity and gas.
while ‘having regard to’:

the need to secure that all reasonable demands for electricity and gas conveyance are met;

the need to secure that licence holders can finance the obligations on them;

the need to contribute to the achievement of sustainable development;

the interests of individuals who are disabled, chronically sick, pensioners, low income, or residing in rural areas
and ‘in a manner which it considers is best calculated to’:

promote efficiency, protect the public from dangers, and secure diverse and viable long-term energy supplies
and subject to social and environmental guidance from Secretary of State, after taking into account any guidance on safety issues
from the Health and Safety Executive
In summary, Ofgem need to allow the right investment to provide sustainable networks at the lowest possible long-term cost to
consumers
(Ofgem’s duties are set out in full in the Electricity Act (1989) and the Gas Act (1986))
15
National Grid in the UK: Transmission Business
Transmission UK – electricity and gas
Electricity
transmission
owner
We own the electricity transmission system in England and Wales.
Our assets comprise ~7,200km of overhead line; ~1,350km of
underground cable; and 325 substations at 244 sites.
Gas
transmission
owner
We are the National Electricity Transmission System Operator,
responsible for managing the operations of both the England and
Wales transmission system that we own, and also the two
independently owned high-voltage electricity transmission
networks in Scotland.
We own the gas national transmission system in Great Britain.
Our assets comprise ~7,660km of high pressure gas pipe and 23
compressor stations, connecting to 8 regional distribution networks
and to third party independent systems.
Gas
system
operator
We are the gas national transmission system operator, responsible
for managing the operations of the Great Britain transmission
system that we own.
Electricity
interconnector
s
We own and operate the UK assets, and a portion of the sub sea
cables, that comprise the electricity interconnector between
England and France as part of a joint agreement with the French
transmission operator.
LNG
importation &
storage
We own and operate one liquefied natural gas (LNG) storage
facility in Great Britain and the importation terminal at Grain.
Electricity
system
operator
National Grid in the UK: Gas Distribution
Gas Distribution UK
Gas
Distribution UK
Comprises four of the eight regional gas distribution networks in
Great Britain
UK Networks
Comprise approximately 132,000 kilometres of gas distribution
pipelines.
UK Customers
We transport gas on behalf of approximately 26 active shippers
from the gas national transmission system to 10.8 million
consumers.
UK additional
services
In addition we also manage the national gas emergency number
for all the gas distribution networks and for other gas transporters
in the UK.