• Practical Law

Ofgem consultation on changes to ESO Business Plan Guidance

Practical law uk legal update w-032-4979  (approx. 3 pages).

  • The dates for the submission of and determinations for the business plan. The ESO's RIIO-2 price control runs from 1 April 2021 to 31 March 2026. Ofgem will continue with the default two-year business plan cycle for the ESO, with the ESO's second business plan cycle (BP2) covering the period between 1 April 2023 to 31 March 2025. The ESO should engage with stakeholders to inform and publish a draft version of the business plan by 30 April 2022. The draft plan will be reviewed by the Performance Panel and the ESO must publish a final version of its business plan by 31 August 2022. Ofgem will provide a draft determination on the final business plan by November 2022 and a final determination by March 2023.
  • The contents of the business plan. Ofgem does not prescribe a particular structure that the business plan must follow, but the plan should outline the details of the ESO's outputs, costs, activities, finance, innovation and deliverables for delivering its RIIO-2 strategy over BP2. Chapter 3 of the Guidance sets out the changes to Ofgem's content expectations for BP2.
  • How Ofgem will assess the plan. Ofgem will grade against its expectations the ESO's two-year delivery schedule, proposed performance measures, and the value for money assessment and cost benchmark. The ESO's performance will be measured following the evaluation processes described in the Electricity System Operator Reporting and Incentives (ESORI) Guidance (see Legal updte, Ofgem decisions on ESO guidance documents for 2021-23 ).
  • The duration of the business plan cycle. Ofgem expects to make a decision about the time period and regulatory arrangements for the third and final business plan cycle under RIIO-2 by Q3 2023.
  • Special Sectors and Utilities - Regulation
  • Energy networks and interconnectors
  • Supplying energy
  • United Kingdom

Ofgem publishes RIIO-ED2 Business Plan Guidance

LNB News 01/10/2021

Document Information

Issue Date: 01 October 2021

Published Date: 01 October 2021

Jurisdiction(s): England, Northern Ireland, Scotland and Wales

Ofgem has published guidance on what it expects to...

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ofgem business plan guidance ed2

  • Housing, local and community
  • Household energy
  • CFP Response to OFGEM affordability and debt call for input 2024
  • Committee on Fuel Poverty

Ofgem’s Affordability and debt in the domestic retail market – call for input CFP response

Published 16 May 2024

ofgem business plan guidance ed2

© Crown copyright 2024

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected] .

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/publications/cfp-response-to-ofgem-affordability-and-debt-call-for-input-2024/ofgems-affordability-and-debt-in-the-domestic-retail-market-call-for-input-cfp-response

Introduction

The Committee on Fuel Poverty ( CFP ) is an advisory Non-Departmental Public Body sponsored by the Department for Energy Security and Net Zero ( DESNZ ). We monitor and provide independent, expert advice on Government’s strategy to improve the energy efficiency of the 3.17 million homes of the fuel poor in England to make them more affordable to heat.

The Committee on Fuel Poverty welcomes this call for input to address affordability and debt in the domestic retail market. The paper brings together the challenges, risks and complexities across legal requirements and policies, as well as potential for new approaches and learning. Our comments are mainly focused on fuel poor households and the questions arising from Chapters 1 and 3.

Response and comments

This is an opportunity to affirm and develop Ofgem’s pro-active role in considering and identifying the risks for those in and liable to fall in debt in the net zero transition and to develop a more holistic approach across the work on standing charges, vulnerability and affordability. It also enables stakeholders to look more broadly at the policies and behaviours which impact on bills and bill payers.

In our comments to Ofgem’s Additional Debt-Related Costs Allowance consultation we recognised that if customers default on their energy bills, the supplier does not get paid for energy it has provided to that customer and, in the context of a price cap based on efficiently-incurred costs, there is a role for allowing suppliers to recoup at least some of those costs. However, that should not involve paying suppliers for failing to satisfy the regulator and their customers, which is why the Committee did not support the suppliers’ costs arising from the moratorium on involuntary PPM installation being included in the adjustment to the price cap.

In the Committee’s response to Ofgem’s Call for Input on Standing Charges we sought more discussion on potential emerging risks which would increase bills. Among them, identified in this paper, are unprecedented levels of investment to decarbonize our homes, the grid and accelerate progress in the transition to net zero.

Further investigation on the impact of standing charges and other additional costs on low-income households, before they even consume any energy (looking at annual costs to demonstrate the extent of impact on low- income households), is key to a fair transition to net zero.

The Committee also directs Ofgem to our responses to Ofgem’s Forward Work 2024/25 and the Department for Business and Trade’s ( DBAT ) consultation on Smarter regulation: strengthening the economic regulation of the energy, water and telecoms sectors for which we commented on matters pertaining to reducing fuel poverty and support for vulnerable customers.

For fuel poor households and those vulnerable to debt, there is a need to be more effective and smarter in preventing people getting into debt, and deepening debt, followed by a way out that both customers and suppliers can realise. We welcome this bigger picture approach to tackling debt.

Energy affordability and impacts on consumers

The Committee on Fuel Poverty recognises, as outlined in the report, the contributing factors to the cost of energy and that upward pressure on bills is likely to continue for some time.

Chart 1.1 shows historical energy prices under the price cap in real terms (adjusting for inflation). The price cap from April 2024 is still 28% higher than pre-crisis (Period 1 in 2019 when the price cap was introduced to Period 7 between October 2021 and March 2022) driven largely by wholesale cost increases. There has been an increase in non-wholesale costs since the introduction of the price cap. This is linked to network costs increases tied to network investment levels and inflation. Policy costs have also increased as the government has supported schemes to drive energy efficiency improvements. Operating costs remain flat but are due to be reviewed this year.

We have reflected on this with regard to the numbers in fuel poverty in England and what this means for the Government’s Fuel Poverty Target in 2030.

In 2010, 22.1% of households in England were deemed to be in fuel poverty. By 2020, this had fallen to 13.2% - 3.16 million households. This shows, there was a steady reduction in official fuel poverty levels – a 40% reduction over a decade.

This clearly shows the capacity of Government-led programmes to make substantial inroads to reduce fuel poverty, even during periods of financial restraint. However, a decade of steady progress has been followed by a virtual flatlining in the levels of fuel poverty.

The current numbers of households in fuel poverty are virtually identical to the figure achieved in 2020 – some 3.17million in 2023. But the depth of fuel poverty – the gap between the household income and what would be required to move out of fuel poverty - has grown.

Ofgem has noted that, during 2023, total energy debt had risen from £2 billion to £3 billion, and those in debt or arrears has climbed from 1.9 to 2.3million households. This is not to take anything away from the critical role of Government during the worst of the energy price crisis. At its peak, without Government intervention, households would have faced average energy bills of over £4,000 per annum.

But the Government fuel poverty statistics reveal that in England, in 2023 the average fuel poverty gap has risen by 20% to £417, up from £348 in 2022. Between 2020 and 2023, there was an increase from 18.0 percent to 36.4 per cent in households required to spend more than 10 per cent of their income on energy after housing costs. Fuel costs have a had a large impact on affordability generally, way beyond the 3.17million designated as in fuel poverty by the LILEE metric. An increase of £100 in energy bills would require a £1,000 increase in income (after housing costs) to offset the effect of the increased price.

There remain far too many fuel poor households still living in homes with EPC ratings below C. However, it is an anomaly that a band C rating, automatically excludes a household from being considered as at risk of fuel poverty, regardless of the price of energy, according to the Government’s preferred measure. The Committee’s conclusion is that the English LILEE measure of fuel poverty needs to be addressed thoroughly in the upcoming review of the Government’s 2021 Fuel Poverty Strategy. Ofgem explains in the paper that low-income consumers spend proportionally more on energy than those on high incomes; more bill-payers are getting into debt without a repayment plan; and acknowledges the health harms associated with being unable to afford energy and being in debt. These factors align with the need for a step change in reducing the numbers of households in fuel poverty, as a contribution to reducing debt and improving affordability.

To tackle energy affordability the Committee would suggest the following:

  • improvements in targeting and delivery of energy efficiency programmes
  • further modelling to understand, not only the impact of the financial cost of standing charges but, also other consumer behaviour to offset bills
  • consider mandating provision of a variety of tariffs and obliging suppliers to use data on energy use to put their customers on the best combination of unit rate and standing charge for their energy usage
  • further develop discussion amongst stakeholders about the options for payment-support for those low incomes and/or vulnerable households
  • best practice expectations for supplier engagement and pathways for customers vulnerable to, or in, debt
  • consider the impacts on fuel poor/low-income households, in advance of introducing policies which add to bills
  • consider spreading the costs of, for example, new energy investment, to bill payers over longer periods of time
  • assess the stark variations, between regions, to evaluate the validity of maintaining differential regional costs
  • influence where cost collection through bills should fall, such as through different tariffs/levies for different consumer households
  • engage with the Department of Health and Social Care, DWP and NHS on how to support bill payers where energy usage is linked to health needs

Addressing the affordability and debt challenge

The best practice in our view, is for suppliers to do everything they can to avoid customers getting into debt and moving them on to a repayment plan promptly. To that end, suppliers need to know their customers, get support to them quickly and find a repayment plan that works. The rising level of customers in debt, and not on a repayment plan, serves to entrench the problem, leading to redistributing costs through the price cap to tackle bad debt.

The UK and international examples in the paper highlight a range of approaches which might be used in common across the energy sector. A recurrent thread is proactive behaviour by suppliers towards customers including, initiating payment support offers; automatic receipt of any concessions; transferring onto support programmes; and early involvement of community partners to engage with customers locally. Another feature is incentives for customers to engage consistently to repay some of the debt, in order to have past debt bills forgiven.

In principle, the Committee on Fuel Poverty supports the better use of data across regulated services if this leads to improved identification and support for vulnerable customers. However, adding customers to a single multi-sector Priority Services Register must be done with their agreement.

Customers must see a benefit in being on a shared PSR and confident that shared data will be utilised in ways that are beneficial, not punitive. A well-designed PSR could assist in better targeting to tackle the low take up of existing support for energy efficiency schemes; debt management; and income support payments for fuel poor households.

We have commissioned research into understanding the barriers to, and the enablers which, support the fuel poor to make a fair and equitable transition to net zero. This will include consideration of the customer journey and the drivers to engage with programmes. The publication of this research is imminent, but we expect the research findings to assist in understanding how existing affordability and debt support can also be better communicated.

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ESO Business Plan Guidance

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Publication date

Industry sector, decision for.

As part of the RIIO-2 price control, the Electricity System Operator (ESO) will need to submit a second Business Plan for its second Business Plan period, commencing on 1 April 2023. The Business Plan Guidance aims to provide an update on the information that should be included in the Business Plan. We consulted on the content of the ESO Business Plan Guidance in accordance with Special Condition 4.3 (Electricity System Operator Reporting and Incentive Arrangements) of the ESO's licence. We are still currently consulting on the IT Guidance. We received one response to our consultation which largely supported our Guidance document. We therefore have not made any changes in response to the views stakeholders shared with us through our recent consultation. We have provided further clarification around our intention to require the ESO to include an indicative plan for the transformational activities it would have to undertake should there be a decision to change its governance arrangements. This is in relation to the Future of the System Operator (FSO) work that is ongoing. This addition to the guidance has not changed our requirements but has clarified our reasoning and intention. The ESO’s Business Plan Guidance, including the BP2 Delivery Schedule template and BP2 Business Plan Data Template (BPDT), will go live from 29 November 2021.

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COMMENTS

  1. RIIO-ED2 Business Plan Guidance

    This guidance document is directed at electricity distribution network companies and their stakeholders. It sets out the information we expect to see in companies' business plans for RIIO-ED2 and how we will assess those plans. The main document below was published on 30 September 2021. Contained underneath the 'Subsidiary documents ...

  2. PDF RIIO-ED2 Business Plan Guidance

    This is an updated guidance document which sets out the information that should be included in electricity distribution network operators' RIIO-ED2 Business Plans and how we will assess those plans. This replaces the previous version of the RIIO-ED2 Business Plan Guidance published on 22 April 2021. 1.

  3. What is the RIIO-ED2 price control and why are the draft business plans

    Britain's electricity distribution network companies have just submitted their draft business plans to the energy regulator, outlining what they plan to deliver between 2023 and 2028. This five year period is known as RIIO-ED2 and is part of the framework in which network companies are regulated by the government's regulator, Ofgem.

  4. PDF Draft RIIO-ED2 Business Plan Data Template Commentary

    Guidance - Draft RIIO-ED2 Business Plan Data Template Commentary data is the previous year's data and is the baseline for the calculation of the LI data for each substation/group. LI data and calculations covering the period from 2021 to 2028 are based on the ENWL Central Outlook forecast for the region.

  5. RIIO-ED2 Sector Specific Methodology Decision: on track to net zero?

    As the next step of the RIIO-ED2 price control review process, the DNOs will prepare their business plans, based on Ofgem's SSMD, discussed in this article, and the business plan guidance. 13 1 Ofgem (2019), 'RIIO-ED2 Framework Decision', 17 December .

  6. Our RIIO-2 business plan (2021-2026)

    We're pleased to publish the final business plan for the period 2021-2026, which has been submitted to Ofgem on Monday 9 December 2019. We want to be as transparent as possible, so in addition to publishing the business plan, we'll also be publishing supporting evidence that underpins the plan to help you. You can watch our presentation about ...

  7. NGED Your Power Future

    This year, WPD is submitting its RIIO-ED2 Business Plan for the five year period from April 2023 - March 2028. The period aligns with Ofgem's regulatory price control review period; the second for electricity distribution to be determined using the Revenue=Incentives, Innovation and Outputs framework. Our Business Plan sets out how we will ...

  8. Our business plan- National Grid Electricity Transmission

    Ofgem announced its final determinations of our Electricity Transmission business plan for the RIIO-2 regulatory period covering 2021 to 2026. Ofgem's regulatory framework is known as RIIO (Revenue = Incentives + Innovation + Outputs). The RIIO model offers network companies incentives for innovation and securing investment, so they can ...

  9. PDF Greening electricity distribution networks: How green are the RIIO-ED2

    biodiversity. Stronger Ofgem Guidance would help in raising the bar in these crucial areas. This is a fast-evolving landscape and it is important that Ofgem's Guidance and the company plans are able to adapt to take account of new evidence and poli cy thinking. Since the ED2 Business Plan Guidance was published in February. 1

  10. Our RIIO-2 Business Plan

    Our RIIO-2 Business Plan. Since the start of RIIO-2 in April 2021, we have been evolving to meet the changing needs of the energy industry. And we are on track to make sure that the electricity system can support 100% zero carbon power as soon as 2025. If you have any questions, related queries or would like to discuss our plan in more detail ...

  11. NGED Your Power Future

    A transformed energy network to drive net zero by as early as 2028 across our region. This is what NGED's highly ambitious Business Plan for 2023-2028 (RIIO-ED2) will deliver. It has been co-created with more than 25,000 stakeholders and future customers and has received significant levels of acceptability from wider consumers.

  12. PDF RIIO-ED2 Sector Specific Methodology Decision: on track to net ...

    assumptions as part of the business plan. Allowed return on capital In the RIIO-ED2 SSMD, Ofgem set a working assumption for the allowed return on capital at 3.01% (CPIH-real), so that DNOs could use it for their business plans. However, Ofgem will recalibrate the estimate at the DDs stage. The allowed return on capital was one of

  13. PDF Ofgem's approach and regulatory priorities

    Ofgem's ED2 business plan guidance must confirm an industry baseline of what DSO functions will be performed by the network operator. This should be completed by mid‐2020 to enable stakeholder dialogue. This baseline could be built through a combination of industry proposed definition and

  14. Future business plan

    Ofgem is now deciding on new rules and what we can charge customers from 2023-2028. Our current price control review period, RIIO-ED1, ends on 31 March 2023. Work is already underway to set the framework for our next price control review period, RIIO-ED2. Ofgem is consulting on how we should serve our customers, including new obligations ...

  15. RIIO-ED2 Data Templates and Associated Instructions and Guidance

    RIIO-ED2 Sector Specific Methodology Consultation. On 31 March 2021, we published draft versions of our Business Plan Data Templates (BPDTs), Cost Benefit Analysis (CBA) templates, and all associated instructions and guidance for the RIIO Electricity Distribution (ED) 2 price control which will run from April 2023 until March 2028.

  16. Our RIIO-2 business plan (2021-2026)

    Find out more about how you shaped our business plan. We're pleased to publish the final business plan for the period 2021-2026, which has been submitted to Ofgem on Monday 9 December 2019. Engagement with you doesn't end here. We want to continue to hear your views on our plans and answer any questions you have, please feel free to get in touch.

  17. Ofgem consultation on changes to ESO Business Plan Guidance

    by Practical Law Competition Opens in a new window. On 3 September 2021, Ofgem issued a consultation on the content of the Electricity System Operator (ESO) Business Plan Guidance for the ESO when submitting a business plan for its second business plan period, commencing on 1 April 2023, as part of the RIIO-2 price control.

  18. Ofgem publishes RIIO-ED2 Business Plan Guidance

    Published on: 01 October 2021. Published by LNB News. LNB News 01/10/2021. Document Information. Issue Date: 01 October 2021. Published Date: 01 October 2021. Source: The Law Society. Jurisdiction (s): England, Northern Ireland, Scotland and Wales. Ofgem has published guidance on what it expects to...

  19. Ofgem's Affordability and debt in the domestic retail market

    The Committee also directs Ofgem to our responses to Ofgem's Forward Work 2024/25 and the Department for Business and ... Ofgem has noted that, during 2023, total energy debt had risen from £2 ...

  20. Call for Evidence on Electricity Distribution Business Plans ...

    Distribution Network. This call for evidence seeks stakeholder views on any aspect of Electricity Distribution Network Operators' Business Plans for RIIO-2, and provides a structure respondents should follow. It also provides information about the RIIO-ED2 Open Hearings in March 2022, including a link under which stakeholders can register to ...

  21. ESO Business Plan Guidance

    Consultation on ESO Business Plan Guidance. As part of the RIIO-2 price control, the Electricity System Operator (ESO) will need to submit a second Business Plan for its second Business Plan period, commencing on 1 April 2023. The Business Plan Guidance aims to provide an update on the information that should be included in the Business Plan.