RIIO-3 draft determinations offer a higher return than PR24

Ofgem’s draft determinations for the RIIO-3 price control will see investment in the electricity transmission grid rise to around four times the current spending levels by 2031. Bills will increase by around £24 a year to 2031, compared to £31 for water. As with water, the regulator has not allowed all the requested totex, reducing the allowances by 26% on average but has been more generous in terms of allowed return than Ofwat.

The assumed notional gearing for the electricity transmission networks is similar to Ofwat at 55%. Ofgem has however allowed a cost of equity of 5.64% compared to 5.1% by Ofwat, and its assumed cost of debt range is 3.55% for National Grid Electricity Transmission, 3.77% for SP Transmission and 3.93% for Scottish Hydro Electric Transmission – all higher than Ofwat’s assumption of 3.15%. These discrepancies are partly explained by the fact that Ofgem has used more recent market data than that used by Ofwat in its Final Determinations in December 2024.

This will provide grist to the mill for the water companies challenging Ofwat’s allowed return assumptions, and will be duly noted by the Competition and Markets Authority in its deliberations on any redeterminations.