Ofgem publishes 2020 Annual Iteration Process for the electricity distribution network price control

Ofgem has today published the results of the 2020 Annual Iteration Process (AIP) for electricity distribution network companies (1) 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 electricity distribution network companies to collect through the AIP. 

The AIP updates base revenues across Ofgem’s price controls for the next regulatory year (2021/22). 

This year’s AIP has reduced the allowed revenue that electricity distribution network companies will collect relative to the assumptions made at the start of the price control by around £256.6 million (2019/20 prices), saving consumers money on their bills. This reduction is driven by the following factors: 

  • Cost of Debt – Lower interest rates in debt markets have resulted in a lower cost of debt allowance compared to the level set at the start of the price controls. 
  • Allowed Expenditure – On the whole, network companies are spending less than the amounts assumed at the start of the price controls, therefore we make a proportionate reduction to their allowed revenue. 
  • Pensions reasonableness review –  Pension allowances have reduced following the triennial revaluation of the companies’ defined benefit pension schemes. This has led to networks having to pay lower costs to repair deficits that exist in their schemes. All these schemes are now closed to new members, but continue to accrue obligations in respect of pensionable service of remaining members. 
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We have published updated Electricity Distribution Price Control Financial Model (PCFM) for the Electricity Distribution 1 price control: RIIO-ED1 Financial Model following the Annual Iteration Process 2020.

Notes to editors 

(1) The final AIP for the RIIO-1 Gas Distribution and Transmission sector price controls was the November 2019 AIP. New RIIO-2 price controls for those sectors are due to begin in April 2021. Allowed revenues for 2021/22 Gas Distribution and Transmission will be published as part of our Final Determinations for the RIIO-2 price controls for these sectors.  

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