1. RIIO-GD1:network charging volatility
DNCMF, 23 October 2012
Joanna Campbell

2. We have recently published our decision on network charging volatility
Stakeholders raised concerns about the impact of network charging volatility. We published a consultation setting out options for mitigating network charging volatility arising from the price control settlement earlier this year.
5 options to mitigate risk, primarily aimed at improving predictability
We published our decision last week, confirming our initial assessment. We will informally consult on revised licence conditions at the end of the month as part of the RIIO licence drafting process.
We continue to engage with industry on modifications to the charging methodologies through open governance arrangements
Modifications raised that specifically look to address volatility in charges and the transfer of information

3. We will implement change for 4 out of 5 proposed options
Option
Assessment against criteria
Decision 1
Improved information
Reduces overall risk
Limited additional cost
Implementing 2
Restricting intra-year charge changes
Improved balance of risk
Simplifies arrangements 3
Lagging incentive rewards / penalties networks recover via allowed revenues
Framework not materially weakened 4
Lagging adjustments to allowed revenues from uncertainty mechanisms
Improved balance of risk for some mechanisms
May weaken signals to investors
Implementing for some types of uncertainty mechanism 5
Cap and collar on allowed revenue changes
Does not improve balance of risk
Adds complexity
Not implementing