Ofgem has published an open letter with a warning to potential buyers of gas distribution network assets.
The sale include a majority stake in National Grid’s four gas distribution networks and part of SSE’s equity stake in SGN, which distributes gas across Scotland and the south of England.
Ofgem regulates these businesses under the RIIO-GD1 price control (2013-2021) for gas distribution.
The price control sets out the outputs the eight Gas Distribution Networks need to deliver for their consumers and the associated revenues they are allowed to collected for the eight-year period from 1st April 2013 to 31st March 2021.
The regulator is reminding bidders that decisions have not yet been made about RIIO-GD2, i.e. the price control period after 2021.
Therefore, it warns that if they buy these businesses at a premium above the Regulatory Asset Values (RAVs), they will not be compensated for the premium and Ofgem does not need to provide consent for the sale of shares in either transaction.
CEO Dermot Nolan said: “To ensure consumers get what they pay for, we will make adjustments for any outputs that have not been delivered in the RIIO-GD1 control period. We will calibrate expenditure and output incentives to encourage better outcomes for consumers so that companies earn returns in line with their performance.
“We have not made any firm decisions about RIIO-GD2. Therefore, any assumptions that bidders make about future regulatory behaviour are at their own risk. Bidders should be clear that we will not provide compensation for any premium paid over the RAVs nor will we take into account any particular financing arrangements that might be adopted when setting future price controls.”