Utilities group National Grid said on Thursday that it has agreed all of the UK RIIO price-control arrangements proposed by gas and electricity regulator Ofgem, which it hopes will deliver further shareholder value.
The RIIO model, which stands for Revenue = Incentives+Innovation+Outputs, was designed to promote smart gas and electricity networks for a low-carbon future.
It places more emphasis on incentives than the past regime "to drive the innovation needed to deliver a sustainable energy network at value for money to existing and future consumers", according to Ofgem.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The RIIO-T1 and RIIO-GD1 price controls cover all of National Grid's transmission and gas distribution owner and system operator businesses in the UK, with a current regulated asset value of over £22bn. Ofgem predicts this asset value will increase by 80% over the eight years of the price control which starts on April 1st.
National Grid said that the combination of revenue allowances and incentive mechanisms provides a "good opportunity to earn appropriate returns for investors". The price controls will also allow it to deliver essential infrastructure investment for the benefit of consumers and the UK economy, the company said.
"I am pleased to confirm agreement of the RIIO price controls for our UK businesses. This is the culmination of a new process that started over three years ago, and represents another opportunity for National Grid to deliver further shareholder value," said Chief Executive Steve Holliday.
"These arrangements give our UK businesses their longest ever period of regulatory clarity. This enables us to focus on drivingefficiency across our operations while building the infrastructure that the country needs and at the same time realise the benefits of excellent performance for both customers and investors."
National Grid said it is in the latter stages of evaluating a long-term outlook for the company and will announce a new dividend policy for the new financial year, starting on April 1st. Full-year results for the current year will be released in May.
Shares were up 1.04% at 729p in early trading on Thursday.
-
How much gold is in the world?Have you ever wondered how much gold is in the world and who holds it? We take a look at the top countries with the most gold reserves.
-
UK interest rate cut “seems like a certainty” this weekMarkets and economists are confident that the Bank of England will cut interest rates by at least 25 basis points tomorrow, as growth fears ramp up
