How we are regulated
The ESO is currently integrated with the England and Wales Electricity Transmission business as National Grid Electricity Transmission (NGET). We are currently regulated through the RIIO-T1 price control.
From April 2019, the ESO will become a legally separate part of the National Grid group. We will still be financed through RIIO-T1 until RIIO 2 begins in 2021. In April 2018 Ofgem introduced a revised incentive scheme under this framework. The ESO has produced its first Forward Plan to set out how we will deliver against an expanded set of roles and principles.
For RIIO 2 the ESO will, for the first time, have its own entirely separate price control. This includes a bespoke funding model and outputs.
We published a detailed plan, which outlined three main ambitions, at the start of RIIO-T1. Below we set out a summary of how we performed against each ambition. We have also published more detail on our performance here.
How we performed against our RIIO-1 ambitions
Where we need to improve
Data plays a critical role in our operations. It is vital to efficiency, productivity and robust decision-making. We are building the right capabilities to manage our data better. This will help us to meet the needs of our customers and regulators. We are 18 months into a 3.5-year programme to embed the National Grid Group Data Management Principles and Minimum Standards. The aim is to ensure confidence in data, based on improved data quality and controls.
Under RIIO-T1, Ofgem sets the amount the ESO can recover from our customers to fund our internal activities. This is our allowed revenue. This revenue is levied via the Balancing Use of System (BSUoS) charge on generators and suppliers. Ultimately, it is added to consumers’ bills. The cost of the Electricity System Operator is approximately £1 on average for each householder. In addition, the cost of balancing the system, which we manage and pass through to our customers, is £7 on average per household. Any overspend or under spend is split between the ESO and consumers through BSUoS charges. We under spent against our allowances over the first four years of RIIO-T1. This equates to around £10m of consumer savings.
Revised incentives regime and Forward Plan
Ofgem introduced an updated incentives regime for the ESO from April 2018. In the Forward Plan we set out how we will deliver against these requirements. We will monitor how the scheme is working and how we are delivering against the plan as we develop our RIIO 2 business plans.
Value for consumers
The ESO has a part to play in ensuring consumers receive value for money. By efficient system balancing and accurate forecasting, we can reduce day-to-day balancing costs passed onto consumers.
We are also taking steps to bring down whole system costs. This work includes removing barriers to entry and creating a level playing field so that new players and technologies can enter the market.
Building on the work we’ve done to date, we are committed to deliver consumer value in RIIO 2.