How we're regulated
We’re regulated by the energy regulator, Ofgem. Here, you can find out about Ofgem’s performance-based framework RIIO, how it applies to us, and how regulation affects our business planning.
How we're regulated by Ofgem
As the owner of the national gas transmission network in Great Britain, we’re classed as a ‘natural monopoly’.
We’re regulated by the energy regulator, Ofgem which simulates the effects of competition by setting price controls – a ceiling on the amount we can earn from charges to use our network. Regulation also allows us to invest in the transmission networks and run them properly.
Ofgem’s regulatory framework is known as RIIO (Revenue = Incentives + Innovation + Outputs).
The RIIO model offers network companies incentives for innovation and securing investment, so they can develop sustainable energy networks at the lowest cost for current and future customers.
RIIO and our business plans
We submit our future business plans to Ofgem. The regulator reviews and assesses the business plans for the regulatory period, known as a ‘price control’ period.
We are currently in the RIIO-T1 period, which began on 1 April 2013 and runs through 31 March 2021. You can find out more about the background of this price control on the Ofgem website.
We are now starting to build our plans for the next regulatory period, RIIO-2, which will start on 1 April 2021. You can find out more about the background of this price control on the Ofgem website. We need to submit our RIIO-2 plans to Ofgem in 2019, so we are currently building an engagement programme based on stakeholder priorities.
To encourage us to provide additional benefits for consumers, Ofgem uses financial incentives. These can either be penalties or additional revenue (funded by our customers), depending on whether or not we meet Ofgem’s targets.
Ofgem incentivises us to find more efficient ways to work. If we can find cheaper solutions the benefit is shared between consumers and National Grid.
As part of the RIIO framework, there are two funding mechanisms that encourage innovation across the energy industry. These funding mechanisms aim to help make the energy networks smarter, accelerate the development of a low carbon energy sector, and deliver financial benefits to consumers.
The Network Innovation Allowance (NIA) provides an annual allowance to fund smaller scale projects.
The Network Innovation Competition (NIC) is an annual competition to secure funding for large-scale demonstration projects aimed at building a lower carbon future for the UK.
Under RIIO the outputs we deliver are clearly articulated and are linked to the calculation of our allowed revenue. These outputs have been determined through an extensive consultation process, which has given stakeholders a greater opportunity to influence the decisions.
The output categories are:
Safety: ensuring the provision of a safe energy network.
- Reliability (and availability): promoting networks capable of delivering long-term reliability, minimising the number and duration of interruptions experienced over the price control period, and ensuring adaptation to climate change.
- Environmental impact: encouraging companies to play their role in achieving broader environmental objectives–specifically, facilitating the reduction of carbon emissions–as well as minimising their own carbon footprint.
- Customer and stakeholder satisfaction: maintaining high levels of customer satisfaction and stakeholder engagement, and improving service levels.
- Customer connections: encouraging networks to connect customers quickly and efficiently.