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CMA grants permission for RIIO-T2 appeal

Image: Getty.

Image: Getty.

Permission to appeal modifications to the electricity and gas transmission and gas distribution licences has been granted to nine energy companies by the Competition and Markets Authority (CMA).

These modifications set out how much energy companies can charge their customers and are a result of the RIIO-2 price control decision issued in December 2020 by Ofgem.

The appeals largely focus on the allowed return on investment and the way Ofgem calculated the costs the companies would spend on maintaining and investing in their networks over the next 5 years

It was announced on 3 March that the price control was to be appealed, with the nine companies lodging complaints with the CMA being:

  • Cadent Gas
  • National Grid Electricity Transmission
  • National Grid Gas
  • Northern Gas Networks
  • Southern Gas Networks and Scotland Gas Networks
  • Scottish Hydro Electric Transmission
  • SP Transmission
  • Wales & West Utilities

Scottish and Southern Electricity Networks (SSEN) - which operates as Scottish Hydro Electric Transmission plc under licence - said in its announcement of the appeal that it specifically concerned about the cost of equity, which it argued doesn’t reflect market conditions, the loss of appeals right for additional TOTEX released through uncertainty mechanisms and the outperformance wedge, which it claimed also goes against established regulatory practice by assuming rather than incentivising outperformance.

Prior to the publication of Ofgem's Final Determinations for RIIO-2, SSEN was also heavily critical of its Draft Determinations, in which it identified £172 million of calculation and methodological errors in cuts made by Ofgem, which it said would result in investments not being fully covered by allowances and therefore risking financial losses.

Some of the criticism levied against Ofgem was addressed in its Final Determinations, with the regulator upping the funding available to £30 billion of upfront funding and increasing network companies’ rate of returns.

Following the approval of the appeals, the CMA now has 6 months to come to a final view.

This comes after SSE lost an appeal last month to the CMA relating to modifications to Transmission Network Use of System charges, with the energy company arguing these could have led to transmission charges being outside the range allowed under the relevant law.

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