Ofgem has rubber stamped National Grid’s proposals for legal separation of its system operator role from its wider business.
National Grid earns returns by operating and balancing the transmission system network and has an interconnector business. It also has a key role is delivering government policy, particularly the capacity market, and advises on the level of network investment required.
National Grid’s roles and influence on the market was therefore seen as potentially conflicted. So the government mulled whether to implement a fully independent system operator, as is the US model. In the end it decided to let National Grid keep the role but to create more formal boundaries within its business units.
National Grid will now create an Electricity System Operator business within the wider National Grid Group, with staff in different offices, a separate board and different branding. The regulator has agreed costs broadly in line with National Grid’s estimates. National Grid will be allowed to claim £49.5m in one off costs and £9.1m a year in enduring costs to fund the split.
CEO John Pettigrew reiterated his view of the decision made in January:
“We are pleased the government and Ofgem have recognised our vast experience and expertise in balancing the electricity system and ensuring the market runs efficiently,” he said.