Regulatory reporting – spend and allowance

The following graphic shows the five-year forecast and demonstrates how the price control mechanisms operate to adjust allowances from Final Determinations as requirements change. The graphic also demonstrates the corresponding impact on the overall difference between spend and allowance. NB this waterfall excludes agreed funding for ASTI projects to align with the submitted Cost & Volume tables.

Spotlight on five-year and 2025/26 views of performance

Load-Related 5-year view 

The Load-Related plan, that is the work to connect customers to the network and make wider network reinforcements, totalled £2.04bn of direct capital expenditure, £0.18bn less than the allowances of £2.22bn after the adjustments to allowances have been factored in.

In the Load-Related portfolio, we have analysed the differences between spend and allowance to categorise it as either:

• Efficiency or inefficiency - includes projects with specific examples where costs increased or decreased as a direct result of our action.
• External factors outside of our control - will include projects where changes have resulted due to changing customer or ESO requirements.
• Assumptions made within the price control settlement that have varied against the actual position - will include cost changes resulting from changes in scope that has not been subject to a change in customer or ESO requirements, or where the allowance mechanism has changed.

Based on the above methodology, the £182.3m difference between cost and allowances has been allocated in the following manner.

Load-Related 2025/26 Performance

In 2025/26, direct capital expenditure on the Load-Related portfolio was £520m which is above adjusted allowances of £373m. Differences between within year expenditure and allowance for each investment category are driven by misalignment between the phasing of expenditure and allowance within the period including the movement of a number of allowances into the RIIO-T3 period.  
 

Asset Health Related 5-year view

The 2025/26 asset health related plan, which is our work to replace or refurbish existing equipment on the transmission network, totalled £1.7bn of direct capex over the RIIO-T2 period, which is £152m more than adjusted allowances of £1.5bn. The adjusted allowances reflect our latest view of allowances, a £0.29bn reduction since the start of RIIO-T2 reflecting reductions for work not now forecast to be completed, balanced with additional allowances agreed through re-openers. The net £152m overspend has been predominantly driven by:  

• £131m spend on delivery of outputs outside the RIIO-T2 submission.  These are not RIIO-T2 regulatory outputs and have no baseline allowances and therefore appear as overspend.
• £15m overspend on Dinorwig-Pentir cable and Dinorwig substation. This has resulted due to delays to delivery driven by bat licence restrictions and delays in GIS commissioning in addition to compensation payments to the Heritage Lake Railway due to a realignment of dates impacting their revenue
• There is also a £48m overspend associated with the replacement of assets like Transformers, Reactors, Circuit breakers, Overhead line fittings and Cables. This is mainly occurring in the circuit breaker category and London Power Tunnel phase 2 (LPT2) project where programme and scope changes have increased costs in RIIO-T2.  

The above overspends are offset by an underspend of £28m on our RIIO-T2 mechanistic Price Control Deliverables (PCD) categories for assets that have an agreed volume of replacements and refurbishments to carry out in RIIO-T2 and £14m for Condition Monitoring and Static Compensation Transformers. Specifically, savings within Protection & Control and Overhead Line Conductor were achieved where we have implemented initiatives like bulk procurement frameworks, self-delivery models and scope standardisation. The table below reports the £152m overspend against allowance by the performance drivers of Efficiency, External Factors and Change in Assumptions: 

Asset Health 2025/26 Performance

In 2025/26, direct capex expenditure on the Asset Health Related portfolio was £273m which is £2m more than adjusted allowances of £274m. This difference between spend and allowance is predominantly driven by the following: 

The misalignment and incomplete allowance adjustments within year which makes any comparison misleading; at the end of the price control period, the framework will adjust allowances for any volumes not delivered.

Underspend is predominantly driven by the mechanistic PCD portfolio (Protection & Control and OHL conductor) due to lower delivery of volumes than forecast. This will result in a downwards allowance adjustment to reflect this lower volume level, but this adjustment is not phased by year and therefore shows an apparent underspend in 2025/26.  

Non-Operational Capex 5-year and 2025/26 view.

Our Non-Operational capex is spend on IT, Property and Fleet. The Non-Operational spend for the RIIO-T2 period is £466m against allowances of £445m.  The overspend reflects additional investment in IT capabilities to support the delivery of the significant portfolio of ASTI investments, together with some carry-over of IT costs from RIIO-T1.  

Non-Operational Capex spend in 2025/26 was £156m, £51m above adjusted allowances of £105m, which include £65m of additional allowances for the ETCC second Control Room re-opener. The overspend reflects a difference in the profile of allowances and actual expenditure, particularly for SCADA and core IT, where spend has remained broadly consistent throughout RIIO-T2 and the allowance profile has been front-loaded. 

Network Operating and Indirect Costs 5-year and 2025/26 view.

Network Operating Costs (NOC) are the total spend on faults, inspections, repairs and maintenance, vegetation management and legal and safety.  We spent £755m2, which is £103m higher than the adjusted allowance position of £652m for the RIIO-T2 period. The main drivers for this difference between spend and allowance are £47.9m overspend on legal and safety (predominantly flood defence work), a £33.5m overspend on own-use electricity at substations and a £44.8m overspend on Repairs. This is partly offset by underspend in vegetation management and inspections.  

In 2025/26, the total spend was £171m which is £47m more than allowances; The majority of overspend is within the Legal & Safety excluding Electricity (£24.5m) and Repairs (£22.2m) categories.

Across RIIO-T2, Indirect and Closely Associated Indirect (CAI) costs (collectively ‘Indirects’) our expenditure was £1.55bn against total allowances of £1.6bn. Total adjusted allowances include £0.3bn resulting from the adjustments relating to the LOTI Hinkley Connection and LOTI Harker Energy Enablement Projects along with the consequential costs of the NESO separating from the National Grid Group allowances in Business Support. The resulting underspend of £59m (3.7% variance to allowances) is split between CAI underspend of £75m and Business Support overspend of £16m. 

Impact on domestic consumer bills

Our revenues are recovered through the NESO charging our customers for the services we provide. Network costs for both transmission and distribution are reported to make up around 24% of the domestic electricity bill.  Of this total bill, £24.20 is attributable to National Grid’s Transmission Owner costs which equates to 2.2% of the average annual domestic electricity bill3.  

Ofgem’s RIIO-T2 framework ensures that two-thirds of any efficiency savings that we have delivered are passed onto customers resulting in lower network charges, and therefore lower electricity bills for the end consumer.  In addition, consumers are benefiting from the wider value that investment in our network supports in terms of facilitating an energy sector which is less reliant on imported fossil fuels, which will in turn lead to lower and less volatile end-consumer prices.