Loading...
Please wait, while we are loading the content...
Similar Documents
RIIO Economics: examining the economics underlying Ofgem’s new regulatory framework
| Content Provider | Semantic Scholar |
|---|---|
| Author | Jenkins, Cm |
| Copyright Year | 2011 |
| Abstract | In October 2010 Ofgem concluded its review of energy network regulation, RPIX@20, with a decision to implement a new regulatory framework. RIIO regulation is about using incentive mechanisms that enable network companies to raise revenue from consumers consistent with delivering outputs, innovation and associated efficiency savings over the longterm. This paper briefly describes the context of the RPI-X@20 review and explains how the RIIO model was designed to be consistent with a set of core economic principles for effective incentive regulation. Key words: regulation, energy, incentives, RPI-X. 1. Introduction In October 2010 Ofgem published its decision to introduce a new regulatory framework for GB energy network companies. This decision marked the conclusion of RPI-X@20, Ofgem’s two-year review of the RPI-X price control regime that was first implemented at privatization in 1990. RIIO, the new regulatory model, is an incentive-based framework that sets a constraint on the revenues that network companies can raise from customers during the price control period. The revenue that can be earned is linked to performance in playing a full role in delivery of a sustainable energy sector and delivering long-term value for money network services. Those that deliver outputs, innovation and associated lower costs have the potential to earn above normal returns and those that don’t deliver earn below normal returns. The RIIO model is being implemented for the first time in the current price control reviews for gas distribution and electricity and gas transmission. It will then be implemented in the 2015 electricity distribution price control review. This paper provides a brief background of the GB energy network sector and the associated context of the RPI-X@20 review. We set out three economic principles that influenced the design of the new incentive framework. These are that: • effective incentive regulation will strive to mimic the benefits of dynamic competition; • to be effective incentive mechanisms need to be clear and credible; and • appropriately designed incentive regulation can be used to deliver environmental objectives. 1 Dr Jenkins is a part-time Lecturer of Economics in Kingston University and is Director of an independent economic consultancy, CJ Economics. She was formerly Head of the Regulatory Review at Ofgem. She can be contacted at cloda.jenkins@virginmedia.com. 2 All views expressed are the opinions of the author and should not be taken to be the views of Ofgem or any of its employees. I would like to acknowledge very helpful comments from Phil Burns, Hannah Nixon and Steve Smith. I am also grateful for comments received on an earlier version of this paper at the Centre for Competition and Regulatory Policy Winter Workshop February 2011. 3 All papers relating to the RPI-X@20 review, including the final decision paper Ofgem (2010), RIIO: A new way to regulate energy networks: Final decision, Ref 128/10, can be found on Ofgem’s website at: http://www.ofgem.gov.uk/Networks/rpix20/Pages/RPIX20.aspx 4 These are the electricity and gas transmission and distribution companies operating in England, Wales and Scotland. 5 Eight-year price controls are due to be implemented from April 1 2013 for gas distribution, electricity transmission and gas transmission. Electricity distribution price controls are due to be implemented from April 1 2015. Working paper-‐June 2011 |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://www.city.ac.uk/__data/assets/pdf_file/0011/80939/Jenkins_RIIO-Economics_draft-paper-FINAL.pdf |
| Alternate Webpage(s) | http://www.rpieurope.org/publications/2011/Jenkins_RIIO%20Economics_FSR%20working%20paper_130611.pdf |
| Alternate Webpage(s) | http://www.cjeconomics.co.uk/uploads/6/8/2/9/6829918/jenkins_riio_economics_working_paper.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
