RPI-X@20 - Ofgem’s Emerging Thinking

On 20th January, Ofgem published a consultation paper setting out its emerging thinking on its RPI-X@20 project. This review started at the end of 2008 and considers whether the RPI-X regulatory framework, which has been in place since privatisation in 1990, remains appropriate for the regulation of energy networks, particularly in light of the need for the networks to facilitate the delivery of a sustainable energy sector.

Ofgem’s proposal is that the new regulatory framework would continue to be an ex-ante price control framework but, rather than focusing primarily on inputs (i.e. the costs of providing network services), would be much more focused on the outcomes achieved by network companies. This outcome-led approach is reflected in the proposal to require network companies to achieve output targets relating to reliability, safety, environmental targets, conditions for connecting to network services, customer satisfaction and network-related social obligations.

Ofgem also proposes a number of other changes to the regulatory framework, including:

• encouraging a longer-term approach to be taken, including by providing for certain aspects of the price control to be reviewed less frequently than in the current five-year model
• introducing a time-limited innovation stimulus, building on the Low Carbon Networks Fund introduced in the recent electricity price control review
• introducing greater competition through tendering and
• facilitating the development of viable energy service companies, including by introducing the possibility of network companies being required to lease or sell assets if they fail to offer fair and timely network access terms.

Ofgem is also considering the case for providing third parties with a route to challenge Ofgem’s price control decisions at the Competition Commission.

The deadline for responding to the consultation is 9th April 2010. Ofgem is expected to take a final decision on the new regulatory framework in the summer of 2010. The new framework would first be applied in the transmission price control periods commencing in 2013.

Further information

• To view the consultation paper, please click here