Ofgem publishes 2022 Annual Iteration Process for Gas Distribution network price controls

30 Nov 2022 01:57 PM

Ofgem has today published the results of the 2022 Annual Iteration Process (AIP) for Gas Distribution (GD2) energy network companies under its network price controls.  

As part of the ‘Revenue = Incentives + Innovation + Outputs’ (RIIO) price controls for network companies, we make annual adjustments to the revenue that we allow 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 GD2 network companies, this year’s AIP has increased the allowed revenue that companies will collect relative to the values published at the last AIP by approximately £599 million, in nominal prices.

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 allowed revenue. 
• Increased returns – An increase in the cost of debt and equity has resulted in a higher cost of capital allowance. 
• Supplier of Last Resort (SoLR) – this AIP includes an estimate of SoLR costs, which results in higher allowed revenue. 
• Allowed expenditure - networks are generally forecasting more expenditure than the amounts assumed at the start of the price controls. 

We have published the updated GD2 Price Control Financial Model (PCFM) following this year’s AIP, here: RIIO-2 Annual Iteration Process 2022 for Gas Distribution