Northern Powergrid appeals price determination, says necessary ‘fast electrification’ costs will not be recovered

Northern Powergrid has sought permission to appeal its price determination, saying that ‘material errors’ in regulator Ofgem’s assessment will have an adverse effect on its networks’ income totalling £171 million – largely because it will be under funded for work required to strengthen the grid for electrification of heat and transport.
Northern Powergrid operates two electricity distribution networks, Northern Powergrid (Northeast) Plc for the North East of England and Northern Powergrid (Yorkshire) Plc for Yorkshire and Northern Lincolnshire. It says the determination will under-recover £53 million of costs for NPgN and £118 million for NPgY.
The network is appealing two decisions.
First the DNO is challenging the way Ofgem has categorised costs that will be recovered by the company over the period. It says that matters because some allowances cannot be transferred from one category to another and some of the DNOs’ total costs will be irrecoverable in practice (even though they would be regarded by the regulator as ‘efficient’). Networks were able to make different assumptions on the need for network development to support decarbonisation. NPG says it is hardest hit by the decision, compared with other networks, because it is “an efficient DNO whose business plan was premised on a relatively fast pace of electrification and the accompanying relatively high network challenge” so it allocated a higher proportion of its total costs to that work.
NPG says its key consideration in its planning was ensuring that it was consistent with the UK Government’s Ten Point Plan for a Green Industrial Revolution. So it assumed that electricity, rather than hydrogen, would lead the drive towards decarbonisation and that there would be rapid uptake of electric vehicles and heat pumps during the RIIO-ED2 price control period. The company “developed its planning scenario with the objective that NPg would be able to keep pace with any decarbonisation scenario that occurred and would not become a blocker to decarbonisation if rapid electrification takes place.”
But Ofgem’s cost allocatiion means the overall effect is that its networks are “under-funded across the totality of its licensed activities, compared to the funding that was assessed to be efficient”. The adverse impact is £53 million for NPgN and £104 million for NPgY, it claims.
Secondly, the network said the regulator had “failed to compare costs on a rational and consistent basis” when determining eligibility for a Business Plan Incentive reward. That had an adverse impact of £15 million for NPgY.

Leave a Reply

Your email address will not be published. Required fields are marked *