Ofgem ordered to review Northern Powergrid funding dispute

The Competition and Markets Authority has ordered Ofgem reevaluate Northern Powergrid’s business plan for the RIIO-ED2 price control, following an appeal by the distribution network operator

The Competition and Markets Authority (CMA) has issued a directive requiring Ofgem to reevaluate its decision regarding Northern Powergrid‘s business plan for the upcoming RIIO-ED2 price control period.

This directive follows an appeal made by Northern Powergrid, alleging a substantial financial misallocation by Ofgem, resulting in an alarming funding shortfall of £171 million for the company.

The CMA’s intervention partially upholds Northern Powergrid’s appeal against the Gas and Electricity Markets Authority (GEMA), responsible for modifying the licences of two electricity distribution network operators.

The core issue revolves around GEMA’s decision in February, to amend Distribution Network Operators’ (DNO) licences based on its RIIO-ED2 price control determination from November 2022.

This determination plays a pivotal role in defining the revenues that DNOs are permitted to recover from energy generators and suppliers during the forthcoming five-year price control period, spanning from 1st April 2023 to 31st March 2028.

Northern Powergrid, responsible for electricity distribution in the Northeast and Yorkshire regions, initiated its appeal against GEMA’s licence modifications in March 2023.

The CMA not only granted Northern Powergrid the authorisation to appeal but also permitted Citizens Advice to intervene in the proceedings.

Northern Powergrid’s appeal centred around two primary grievances – first, it contended that GEMA had committed a significant error in the distribution of allowances across various cost categories, leading to a considerable funding deficit for the Northeast and Yorkshire divisions.

Second, Northern Powergrid argued that GEMA had failed to award them a business plan incentive stage 4 reward, which they asserted they rightfully deserved.

Following an examination of the evidence and comprehensive hearings involving Northern Powergrid, GEMA and Citizens Advice, an independent panel at the CMA has issued its decision.

The panel upheld the appeal on the initial ground, compelling GEMA to review its allocation of allowances and make necessary adjustments to Northern Powergrid’s DNO licences.

However, the CMA dismissed Northern Powergrid’s second ground of appeal.

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