Citizens Advice response to Ofgem’s Statutory Consultation to modify the Price Control Financial Instruments and Licence conditions for Gas Transmission, Gas Distribution and Electricity Transmission
Citizens Advice welcomes the opportunity to respond to Ofgem’s Statutory Consultation to modify the Price Control Financial Instruments and Licence conditions for Gas Transmission, Gas Distribution and Electricity Transmission. We are responding as part of our statutory role to represent energy consumers in Great Britain and will be focusing our response on the proposed modifications to the Fuel Poor Network Extension Scheme (FPNES) volume driver and Vulnerability and Carbon Monoxide Allowance (VCMA) (special conditions 3.14 and 5.4 respectively).
We support the first decision to adjust the allowances available for the Fuel Poor Network Extension Scheme. Appropriate levels of funding should remain available for fuel poor households who could see lower bills from connecting to the gas grid. We agree that it is also in consumers interests to wind down the scheme due to the lower than expected demand and the conflict with low carbon policies.
Methodology
We recognise that reducing FPNES allowances prompts the question of what to do with the unused allowances. The primary option that we consider to be typical in price controls is to return all the funding back to customers in recognition that the allowances will no longer be spent in the way assumed in the business planning process and as specified in Ofgem’s Final Determinations.
Ofgem proposes to take a different option which is to amend the licence conditions to reduce the allowances for the FPNES and increase allowances for the VCMA by the same amount. We remain concerned that Ofgem’s methodology uses the maximum volume driver as a starting point for these calculations, which we do not believe is appropriate as we have raised previously with Ofgem. These were set at an average of three and a half times (254%) higher than the ODI-R targets which themselves are unachievable. At its most extreme, one licensee’s max volume driver target is more than 7 times their ODI-R target. We believe the targets and the size of the allowances to meet the maximum volume driver specified in Final Determinations have been demonstrated to be excessively high. They are therefore no longer relevant and are an arbitrary driver for repurposing allowances, other than to keep GDNs’ total allowances unchanged overall which Ofgem do not state is an explicit aim of this process.
Ofgem’s use of the maximum volume driver to allow for ‘flexibility in over-delivery’ amounts in an additional £111 million of available funding for the VCMA. This is a vast increase in funding, increasing from £60 million to £171 million. Assuming the money will no longer be available after the end of the GD2 price control in 2026, it may also need to be spent at pace. This sum of money has not been sized according to demand or specific business plan proposals, as would be more typical in a price control as demonstrated by ED2 where approximately £70 million of allowances have been agreed at Final Determinations based on a lengthy process of business planning and stakeholder engagement.
We believe a more transparent process is to size FPNES allowances according to what is anticipated to be needed per licence area and for remaining allowances to be pooled. Ofgem should then require GDNs to submit costed strategies and commitments for how any increased VCMA allowances would be spent with Ofgem taking decisions on the appropriate level of allowances to be provided, returning anything else to customers.