We’re aware that the Ofgem sector-specific decision on the framework for RIIO2 only came out a month before the plan had to be submitted. This decision included, for example, a much stronger emphasis on environmental issues – requiring a separate Environmental Action Plan. While this was welcome, and responded to feedback the CEG had given Ofgem, we recognised that SGN then had little time to update their plan to meet the new requirements
Our main message to the SGN Board has been to emphasise how much still needs to be done in a relatively short amount of time. I mentioned in my April report there was a huge amount to do but that is even more stark now we have seen the Ofgem decision and the first cut of the plan, which has to cover an awful lot of ground.
We’ve highlighted three key areas:
- The need for more work on the environmental front. While SGN has a clear vision about how the network can be repurposed to carry hydrogen and are investing to provide the evidence to help policymakers, we have been saying for some time that we would like to see more being done to reduce carbon in the RIIO2 period through a stronger focus on biomethane injection and maintaining the progress made on leakage. Ofgem are now clear that this is something they are looking for too, alongside detailed plans to tackle SGN’s own carbon footprint and address wider environmental issues.
- The need for more detail around some of the specific incentive mechanisms and outputs that SGN put forward in its plan. To include bespoke incentives, Ofgem has set a high bar in terms of the evidence and detail that companies will need to provide (and which we are expected to comment on). We have not yet seen that detail and SGN have work to do to bring that together and determine which outputs it expects to include in its final plan. SGN has identified a number of additional projects that it could undertake to improve safety and reliability. However, customers have said that while they value safety and reliability highly, they do not expect SGN to spend more on this aspect as they already perform well. SGN are experts in terms of understanding where investment is needed on safety or reliability grounds and we expect to see more evidence on the analysis they have done to justify any additional investment in this space.
- We also want to see more in-depth exploration with customers around some of the difficult decisions that SGN is facing. We know SGN has a good sense of customer broad priorities but we have highlighted the danger in asking customers for their views on specific projects without giving them the detailed information they need to reach an informed view. Inevitably this sort of in-depth deliberative research can only involve a relatively small sample of customers, but we maintain that it’s vital in what is a complex area. While there can be a temptation to put more weight on what is seen as statistically significant results from a large survey of thousands of customers if customers don’t really understand what they are being asked those results can be meaningless. This is difficult stuff – and some members of the CEG who were involved in the water price controls have debated with passion the relative merits of getting informed versus uninformed customers’ views. We hope the opportunity to work through some of these tensions with an expert group of CEG members has helped SGN develop a much better programme of research to test its current plan.
Reflecting on this list and the range of other issues where we feel more work is needed (from handling of the SIUs to development of a people plan and more focus on large gas users) there is a significant mountain to be climbed. Moreover, the timings are critical – you can’t really get customer input until you have narrowed down the options a bit and put more flesh on the bones of some of the proposals. However, you need to get customer input while there is still time for that input to shape the plan.
SGN’s next deadline to provide a second draft of the plan is on 1 October. That’s less than two months away, with a huge amount still to do. However, we have seen really good progress through the first part of this year and we are happy they are heading in the right direction, with a strong emphasis on the customer. While no-one under-estimates the scale of the task ahead we are hopeful that they can get there.