Office of Gas and Electricity Markets 107
RIIO-T1 and GD1 Financial Issues March 2011
Table A6.4: Deficits fluctuate at each valuation, all costs efficient
Table A6.5 illustrates the possible outcome if the company has a shorter funding
period (which is retained at subsequent reviews) and at subsequent triennial
valuations the deficits vary; and each efficiency review triggers a second stage in-
depth review and we deem different amounts to be inefficient. If deemed efficient
the funding would continue as shown. If judged inefficient there would be a reduction
in the funding at the reset as shown. In this example, we consider £40m as
inefficient at the first reset, £10m at the second and £5m at the third. Each
inefficient amount is clawed back over three years until the next reset when the
inefficient amount is amended. Over the 15 years it is the £20m of inefficient costs
that shareholders bear and also receive a net recovery of £3.7m more than the
opening established deficit from increases in, for example longevity, less the
inefficient costs .
Table A6.5: Shorter funding period and deficit initially increases and then
decrease and some costs are considered inefficient
Table A6.6 illustrates the possible outcome if the company has the same 15-year
funding period (which is retained at subsequent reviews) and at subsequent triennial
valuations the deficits vary, including a surplus at the first reset. Inefficiency has
been considered the reductions in funding at each reset are as shown. In this
example, we consider £20m as inefficient at the second reset (being the increase
over the surplus), £40m at the third (being £20m for the first reset and £20m
additional at the third); the £32.6m at the fourth being the residual inefficient costs.
Each inefficient amount is clawed back over three years until the next reset when the
RIIO period 1 (2013-21) RIIO period 2 (2021-29)
Total
PCR start (1 Apr) & end date (31 Mar) 2013
Reset dates 1 April 2015 2018 2021 2024 2027
Movements in year ended 31 March 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Opening established defict to be funded (600.0) (560.0) (470.0) (433.8) (397.7) (391.5) (352.4) (313.2) (254.1) (217.8) (181.5) (135.2) (101.4) (67.6) (36.8) 0.0
Actual repair payments over (+)
15 40.0 40.0 36.2 36.2 36.2 39.2 39.2 39.2 36.3 36.3 36.3 33.8 33.8 33.8 36.8 0.0 (553.0)
Revised opening deficit to be funded (560.0) (520.0) (433.8) (397.7) (361.5) (352.4) (313.2) (274.1) (217.8) (181.5) (145.2) (101.4) (67.6) (33.8) 0.0 0.0
Change in deficit at end of year(+) 0.0 50.0 0.0 0.0 (30.0) 0.0 0.0 20.0 0.0 0.0 10.0 0.0 0.0 (3.0) 0.0 0.0 (553.0)
Actual deficit at end of year
(560.0) (470.0) (433.8) (397.7) (391.5) (352.4) (313.2) (254.1) (217.8) (181.5) (135.2) (101.4) (67.6) (36.8) 0.0 0.0
Inefficient deficit not funded (+) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Reverse inefficiency when deficit revised 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Year opening efficient costs to be funded (600.0) (560.0) (470.0) (433.8) (397.7) (391.5) (352.4) (313.2) (254.1) (217.8) (181.5) (135.2) (101.4) (67.6) (36.8) 0.0
Future regulatory funding over 15 0.0
Notional Deficit allowance 40.0 40.0 40.0 36.2 36.2 36.2 39.2 39.2 39.2 36.3 36.3 36.3 33.8 33.8 33.8 36.8 0.0 553.0
Inefficiency not funded (-) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cumulative underfunding at year end 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Balance of underfunding at previous reset 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Funding over remaining notional years 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total regulatory funding 40.0 40.0 36.2 36.2 36.2 39.2 39.2 39.2 36.3 36.3 36.3 33.8 33.8 33.8 36.8 0.0 553.0
Inefficiency borne by shareholders 0.0
RIIO period 1 (2013-21) RIIO period 2 (2021-29)
Total
PCR start (1 Apr) & end date (31 Mar) 2013
Reset dates 1 April 2015 2018 2021 2024 2027
Movements in year ended 31 March 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Opening established defict to be funded (600.0) (540.0) (530.0) (465.0) (400.0) (315.0) (252.0) (189.0) (116.0) (54.0) 0.0 0.0 0.0 0.0 0.0 0.0
Actual repair payments over (+)
10 60.0 60.0 65.0 65.0 65.0 63.0 63.0 63.0 62.0 54.0 0.0 0.0 0.0 0.0 0.0 0.0 (620.0)
Revised opening deficit to be funded (540.0) (480.0) (465.0) (400.0) (335.0) (252.0) (189.0) (126.0) (54.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Change in deficit at end of year(+) 0.0 (50.0) 0.0 0.0 20.0 0.0 0.0 10.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (620.0)
Actual deficit at end of year
(540.0) (530.0) (465.0) (400.0) (315.0) (252.0) (189.0) (116.0) (54.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Inefficient deficit not funded (+) 0.0 40.0 0.0 0.0 10.0 0.0 0.0 5.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Reverse inefficiency when deficit revised 0.0 0.0 0.0 0.0 (40.0) 0.0 0.0 (10.0) 0.0 0.0 (5.0) 0.0 0.0 0.0 0.0 0.0
Year opening efficient costs to be funded (600.0) (500.0) (490.0) (425.0) (350.0) (305.0) (242.0) (174.0) (111.0) (49.0) 5.0 0.0 0.0 0.0 0.0 0.0
Future regulatory funding over 15 0.0
Notional Deficit allowance 40.0 40.0 40.0 40.8 40.8 40.8 31.5 31.5 31.5 16.6 16.6 16.6 0.0 0.0 0.0 0.0 0.0 346.5
Inefficiency not funded (-) 0.0 (2.9) (2.9) (2.9) (0.9) (0.9) (0.9) (0.6) (0.6) (0.6) 0.0 0.0 0.0 0.0 0.0 0.0 (13.2)
Cumulative underfunding at year end 20.0 40.0 64.2 88.5 112.7 132.9 153.2 173.4 194.0 206.7 165.4 124.0 82.7 41.3 0.0 0.0
Balance of underfunding at previous reset 0.0 0.0 0.0 0.0 112.7 0.0 0.0 173.4 0.0 0.0 165.4 0.0 0.0 41.3 0.0 0.0
Funding over remaining notional years 0.0 0.0 0.0 0.0 11.3 11.3 11.3 24.8 24.8 24.8 41.3 41.3 41.3 41.3 0.0 273.5
Total regulatory funding 40.0 37.1 37.9 37.9 39.9 41.9 41.9 42.1 40.7 40.7 41.3 41.3 41.3 41.3 41.3 0.0 603.7
Inefficiency borne by shareholders (16.3)