Ofgem has published the results of the 2022 Annual Iteration Process (AIP) for Gas Transmission (GT2), Electricity Transmission (ET2) and the Electricity System Operator (ESO) network companies under its network price controls.
As part of the ‘Revenue = Incentives + Innovation + Outputs’ (RIIO) price controls for network companies, Ofgem makes annual adjustments to the revenue that it allows the energy network companies to collect through the AIP.
The AIP updates allowed revenues for the next regulatory year (April 2023 - March 2024) based on the submission of actual expenditure and performance data for the regulatory year ending in March 2022 and updated forecasts for the remainder of the price control period.
For GT2, ET2 and ESO, this year’s AIP has increased the allowed revenue that companies will collect relative to the values published at the last AIP123 by approximately £1,145 million, £544 million and £119 million in nominal prices for GT2, ET2 and the ESO price controls, respectively. This is driven by:?
• Gas prices – forecast gas prices have increased significantly over the past year, which results in an increase in costs and therefore revenues.
• Inflation – higher actual and forecast inflation rates resulting in higher allowed revenue.
• Increased returns – An increase in the inputs used to calculate the cost of debt and equity has resulted in a higher cost of capital allowance.
• Allowed expenditure – networks are generally forecasting more expenditure and higher allowances than the amounts assumed at the start of the price controls.
