CMA partially upholds appeal on energy distribution licence changes

The Competition and Markets Authority (CMA) has ordered the Gas and Electricity Markets Authority (GEMA) to reconsider a part of its analysis and redetermine the outcome after an appeal brought by Northern Powergrid.

GEMA published its decision to modify Distribution Network Operators’ (DNO) licences in February 2023. DNOs are the companies that are responsible for the networks which transport electricity to people and businesses, and they need a distribution licence to do so.

GEMA’s decision was based on its RIIO-ED2 price control determination published in November 2022. Price controls are used by GEMA to set the revenues that DNOs are allowed to recover from energy generators and suppliers over the price control period – RIIO-ED2 covers the period 1 April 2023 to 31 March 2028.

The Northern Powergrid electricity distribution companies (Northeast and Yorkshire) brought an appeal in March 2023 against GEMA’s decision to make changes to their electricity distribution licences. The CMA granted permission to Northern Powergrid to appeal and also to Citizens Advice to intervene in the appeal.

Northern Powergrid submitted information that GEMA’s proposed licence modifications were wrong on the following appeal grounds:

• That GEMA had misallocated allowances between cost categories resulting, among other things, in Northern Powergrid’s Northeast and Yorkshire businesses being underfunded;

• That GEMA did not grant Northern Powergrid Yorkshire a business plan incentive stage 4 reward when it should have done.

Having considered the submissions and heard from Northern Powergrid, GEMA and Citizens Advice, an independent panel at the CMA has decided to uphold the appeal on the first ground, sending that part of GEMA’s decision back to GEMA for reconsideration and redetermination. Northern Powergrid’s second ground of appeal was dismissed.

GEMA will now have to reconsider a part of its analysis on the allocation of allowances and determine the outcome in relation to any changes to make to Northern Powergrid’s DNO licences.

The CMA’s full decision has been published on its website.

NOTES TO EDITORS

1. DNOs are the companies responsible for the networks of power lines, underground cables, substations etc. which transport electricity to people and businesses. They are separate from the electricity supply companies which people and businesses pay for their electricity.

2. The RIIO model (Revenue = Incentives + Innovation + Outputs) is an incentive-based model under which GEMA sets both the revenue that regulated companies can recover over the price control period and what the companies must deliver in return for those revenues. RIIO-ED2 covers the five-year control period from 1 April 2023 to 31 March 2028.

3. GEMA is the governing body of the Office of Gas and Electricity Markets (Ofgem).

4. In appeals of this type, the CMA acts as an appeal body, exercising quasi-judicial functions. In the present appeal, the CMA’s functions are governed by section 11 and Schedule 5A of the Electricity Act 1989, the Energy Licence Modification Appeals: Competition and Markets Authority Rules (CMA70) and the associated Energy Licence Modification Appeals: Competition and Markets Authority Guide (CMA71).

5. The CMA is yet to make a determination on the award of costs as part of this appeals process. This will take place in due course.

6. For media enquiries, contact the CMA press office on 020 3738 6460 or press@cma.gov.uk.