Our report to Ofgem regarding National Grid Electricity Distribution's ED2 Business Plan
Following the acquisition of the WPD group by National Grid in June 2021, registered company legal names have changed at Companies House. The naming in the below letter was correct at the time of writing.
From Western Power Distribution’s Customer Engagement Group
17th January 2022
The Customer Engagement Group (CEG) at Western Power Distibution (WPD) was set up in March 2019 to provide independent scrutiny of the business plan produced by Western Power Distribution during the RIIO-ED2 regulatory price control process. Stakeholder engagement is a core element of RIIO-ED2. By stakeholders we mean individuals, organisations or communities that are impacted by the activities of the network companies. This includes existing and future consumers. We want the company to respond to changes in how its network is used and this requires an understanding of stakeholder needs to be at the heart of the way WPD runs its business.
This report is the culmination of that scrutiny, challenge and close inspection of the elements required by Ofgem of both the company’s final business plan and, crucially, the make-up and evolution of the evidence, consideration, ambition and decisions to get to the final plan.
The CEG is independent from both WPD and from Ofgem and provided robust challenge to WPD’s proposals, helping those who rely on the service provided by the company, specifically the company’s bill paying customers and stakeholders, understand the extent to which its plans reflect and will meet their current and future needs in a rapidly evolving sector. We aim to ensure WPD’s proposals have been carefully considered, are well-justified, deliver the required impacts and represent fair value for customers.
RIIO-ED2 comes at a critical time for the energy sector. The distribution companies have a key role to play in supporting the transition to net zero, which must be significantly progressed during ED2. At the same time, affordability challenges have come to the fore, with huge increases in customer bills expected as a result of wholesale market impacts and retail supplier failures. Making the necessary investments on the path to net zero and remaining resilient in keeping the lights on, whilst delivering value for money through ongoing efficiency improvements, is a formidable challenge that ED2 must meet.
The CEG’s report is aligned with a consistent format agreed with Ofgem, to support a transparent and robust consideration of our findings against the extensive documentation submitted by WPD. The report clarity is supported by the factual approach, setting out where we agreed with the proposals and where we believe gaps remain. Our opinions and findings have evolved over 34 months as we have reviewed the information provided; sought to navigate the ‘golden thread’ of research findings through to the proposed outputs; raised clarifications and challenges where required and explored the ambition of the company. We have not always agreed, but an approach of openness with the business has ensured our position has been clear and unambiguous throughout, and WPD has always responded positively and consistently to our need for more detail or information.
Other CEGs will have taken their own approach, and we note this may mean different distribution network operators (DNOs) are assessed differently by their CEGs; we have not considered the plans of other companies, or the methodologies used by other CEGs, though we have engaged with the other CEG Chairs on our approach.
We represent a cross-section of the energy industry and beyond, bringing individual expertise and experience across a broad range of energy and customer issues, including energy system transition, price controls, local government, regulation, vulnerable customers, the environment and traditional and nontraditional business models. WPD established the group’s membership carefully, to ensure appropriate coverage of all the topics within the plan, and ensuring each member represented more than one key area of expertise, allowing diversity of thought and ensuring robust and considered challenges were raised.
With the wealth of experience and coverage, the CEG set out to ensure the governance adopted in both the main CEG meetings and the subject specific subgroups focussed on the work undertaken by WPD: the methodology was sound: the data and evidence was rigorously gathered: it was credibly interpreted and then positively assured.
We have developed our own criteria for what constitutes ‘well-justified’ and have applied these standards in our assessment of WPD’s plan. This has supported an alignment with Ofgem’s RIIO-ED2 Business Plan Guidance.
WPD has made noteworthy progress in its approach to the creation of its final business plan since the CEG was created in March 2019. We have seen the company evolve its process of capturing customer and stakeholder input to better reflect their needs and expectations. During this period, we have also been clear about our position on the draft plans the company has published, both with the company and through our website more publicly (See our open letter 22 February 2021 and open letter 24 May 2021 for evidence of how we have publicly sought to influence WPD, you can also view our report to the RIIO-ED2 Challenge Group).
We have taken the role as CEG members seriously and through the feedback we have received to date from WPD, the Challenge Group and Ofgem, our activity has resulted in a better final business plan.
In Spring 2022, the CEG will participate in the RIIO-ED2 Open Hearings hosted by Ofgem, to give evidence on various aspects of WPD’s business plan.
Chair of the Customer Engagement Group at Western Power Distribution
Who we are, what we do and how to contact us
The Customer Engagement Group (CEG) provides independent scrutiny of, and challenge to, NGED's business planning and decision-making process for RIIO-ED2, reflecting the needs and preferences of existing and future consumers and promoting good value customer outcomes. We focus on affordability and the protection of consumers in vulnerable circumstances, the environment, sustainability and the transition to a low carbon energy system.
For more information and to meet our members, please click here.
To contact us click here.
How to contact National Grid Electricity Distribution (NGED)
To view their business plan or to engage with NGED regarding their ED2 business plan, please click here.