Why are we regulated?
Gas networks are natural monopolies; consumers can't choose which network they want to use to transport gas to their homes and businesses.
To make sure that we and other gas networks don't exploit this and charge customers unfairly, we are regulated by Ofgem under a price control framework called RIIO.
What is RIIO?
RIIO stands for: Revenue = Incentives + Innovation + Outputs
This framework came into effect in April 2013 and lasts for eight years through to March 2021.
In setting the control Ofgem:
- Assessed workloads and outputs needed to maintain the system, preserving the safety and reliability of the gas distribution network into the future.
- Analysed cost efficiency, including comparable studies with other companies, in order to set cost allowances at an efficient level.
- Set gas networks expenditure (Totex) at a level that sought cost improvements for all networks.
- Set output targets and incentives to improve our standards of service and environmental performance.
- Determined allowed revenues including mechanisms to:
- ensure cost movements such as lower interest rates are passed fully on to customers, and
- share any cost savings through efficiencies with customers, while ensuring outputs are delivered.
Our performance so far
Since 2013 we have delivered improved safety, reliability, environmental and standards of service outputs as well as cost efficiency improvements, as summarised in our 2016/17 performance report to Ofgem.
Supporting this report are the summary spreadsheets for our four networks; East of England, North London, North West, and West Midlands.
These provide data on our performance across the eight years on
- reliability and
- environmental outputs.
During the last year we led on the development of a common performance snapshot and customer bill which will enable customers to be able to view high level information in a common format across the eight GDNs.
We recognise there are more improvements to be made and we are challenging ourselves to deliver them. These include further improvements in our customer service around new connections and planned replacement works.
At the same time we believe we can deliver further cost efficiencies that will help to enable customer charges for our service to reduce 9% against inflation over the eight years.
The RIIO model also encourages us to focus on innovation to improve performance in this control period and the longer term.
During the last year we have been looking into the future role of gas and how gas networks can help the United Kingdom with the longer term decarbonisation challenge we all face.