We are licensed to distribute electricity in the North West of England, providing services to electricity supply companies. Around 17p from every pound that you pay your electricity supplier comes to Electricity North West to enable us to manage and maintain the network.
The price that we charge for distributing electricity is regulated by the Gas and Electricity Markets Authority (GEMA), which operates through the Office of Gas and Electricity Markets (Ofgem).
The prices we can charge are reviewd ever five years, and we are currently in the the period 2010-2015. From 2015 the prices will be reviewed every eight years.
Since privatisation in 1990, distribution companies have been subject to an 'RPI-X' form of regulation, designed to encourage efficiency.
The amount of revenue that companies are allowed to collect is increased by RPI less an efficiency factor (X) each year, encouraging them to reduce costs.
Ofgem has since launched a comprehensive review of this framework and in 2010 commented:
“The ‘RPI-X’ method has served consumers well delivering lower network prices, £35 billion of increased investment and significant improvements in network reliability since the companies were privatised 20 years ago. However, there are real risks that the approach will not be able to cope with the nature and pace of change needed in energy networks if Britain is to make the transition to a low-carbon economy.”
2015 onwards: RIIO
The new approach for sustainable network regulation from 2015 will be delivered by the RIIO model where: Revenue = Incentives + Innovation + Outputs.
Under the RIIO model there is a much greater emphasis on companies to:
- develop a more sustainable energy sector
- deliver value-for-money network services for customers today and in the future.
A key change under the RIIO model is a move to setting the outputs that network companies are expected to deliver. These outputs act as a contract between the network companies and their customers.
Under the 'RPI-X' formula, network companies face some financial rewards or penalties relating to some aspects of their performance, for example restoring supplies following power cuts. This system will become much more extensive under the RIIO model and will be central to regulatory framework.
Next price review
Our next price review, under the new RIIO model, starts in 2015 and will run until 2023.
We aim to continue to play a leading role in developing both our plans and the RIIO framework within which these plans will be assessed.