Incentive-Based Regulation (RIIO Model)--Great Britain

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Jan 12, 2016, 04:42 ET

NEW YORK, Jan. 12, 2016 /PRNewswire/ --
Introduction to Great Britain's Incentive-Based Regulation for Transmission and Distribution in the Gas and Electricity Market

The Office of Gas and Electricity Market (Ofgem) has implemented RIIO (setting Revenue using Incentives to deliver Innovations and Outputs) for the incentive-based regulation (IBR) covering the gas and electricity transmission and distribution network in Great Britain (England, Wales, and Scotland). The RIIO model puts the customer in the middle of the decision-making matrix. Targets are set on primary outputs covering customer satisfaction, safety, reliability, environmental connections, and social obligations. A second-level set of secondary outputs are subsequently incorporated in a detailed business plan to meet the primary output targets. The IBR period (price control period) is set for 8 years, which aligns with asset investment decisions better than the 5-year period. Wider industry participation is supported using innovation funds controlled by Ofgem.

Executive Summary
- The Office of Gas and Electricity Markets (Ofgem) regulates the transmission and distribution networks for gas and electricity in Great Britain (England, Wales, and Scotland).
- The price control regulation is referred to as RIIO and is similar in concept to the Incentive-Based Regulation (IBR) in Peninsular Malaysia.
- The price control is applied through an output-driven model that covers primary outputs as required by stakeholders (customers, regulators, etc.) and secondary outputs, which
enable the targets.
- Network companies submit an 8-year business plan for meeting the primary output targets and also cover the secondary outputs, which enable the primary targets.
- The RIIO price control also enables innovation fund development through a share from the revenue of the network companies.

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