Cost Assessment in PR19: What Are the Main Lessons for RIIO-2?
One of the main challenges Ofgem faces in setting price controls is to evaluate the efficiency of the cost levels proposed by the companies it regulates. When developing methodology to assess these costs, Ofgem has an opportunity to benefit from the recent experience of other regulators.
In this paper, I have identified lessons coming from Ofwat’s PR19 methodology that could inform Ofgem and the energy companies during the process of developing cost assessment models in RIIO-2. These lessons cover not only the actual approach to the modelling but a broader picture that considers the whole process of assessing the proposed costs.