Ofgem gets CMA’s provisional backing on RIIO-2 cap


The Competitions and Markets Authority has issued an initial ruling broadly supporting Ofgem’s bid to peg suppliers’ profits back to their tightest levels ever on regulated investments.

Scottish Power and the National Grid ESO led industry-wide appeals this spring against Ofgem’s ruling in February on RIIO-2 returns to be made from new spending on transmission infrastructure in the five years to 2026.

The industry regulator had initially wanted returns capped at 3.95% over the period, but in consultation eased its curb to 4.3%.  National Grid had been wanted a 5.6% cap on regulated investments.

Wednesday’s CMA provisional ruling supports Ofgem in the technicalities of calculating of the suppliers’ cost of equity, in effect rejecting their appeals the regulator had set it too low.

The CMA’s final decision on RIIO-2 returns is due in October.

Ofgem chief executive Jonathan Brearley welcomed the rulings.  “The CMA has found in favour of Ofgem on most grounds of appeal, including the reduction in returns for investors.”

“We will continue to engage with the CMA to finalise these price controls, and look forward to working with the industry to deliver efficient investment which will benefit both consumers and the planet.”

For the network operators, Energy Networks Association chief executive David Smith said, These are provisional findings which we will now review in detail. “It is vital that the final settlement gives network companies a robust framework to invest in a sustainable, net zero energy system in the most efficient way possible for customers

National Grid was said it was disappointed. A spokesperson commented, “We will now review the detailed documents to determine the CMA’s rationale for this provisional determination and will be responding within the statutory timeline”.


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