How we're regulated by Ofgem
As the owner of the national gas transmission network in Great Britain, we’re classed as a ‘natural monopoly’.
We’re regulated by the energy regulator, Ofgem which simulates the effects of competition by setting price controls – a ceiling on the amount we can earn from charges to use our network. Regulation also allows us to invest in the transmission networks and run them properly.
Ofgem’s regulatory framework is known as RIIO (Revenue = Incentives + Innovation + Outputs).
The RIIO model offers network companies incentives for innovation and securing investment, so they can develop sustainable energy networks at the lowest cost for current and future customers.
RIIO and our business plan
The regulator reviews and assesses the business plan for the regulatory period, known as a ‘price control’ period.
We have completed the RIIO-T1 price control period, which began on 1 April 2013 and ran through through 31 March 2021. You can find out more about the background of this price control on the Ofgem website.
We have now begun the RIIO-2 control period, which started on 1 April 2021 and will run through until 31 March 2026. You can find out more about the background of this price control on the Ofgem website.
Over the past few years, we've carried out our most extensive ever engagement exercise to understand the priorities and future requirements of our stakeholders to shape our business plan.
You can find information about how we're consulting with our stakeholders on our business plan by visiting "How you shaped our business plan". You can also find out about our RIIO-2 business plan along with supporting information and an executive summary by visiting our business plan pages or supporting videos.
Please let us know what you think because this plan has been built with our stakeholders, for our stakeholders.
To encourage us to provide additional benefits for consumers, Ofgem uses financial incentives. These can either be penalties or additional revenue (funded by our customers), depending on whether or not we meet Ofgem’s targets.
Ofgem incentivises us to find more efficient ways to work. If we can find cheaper solutions the benefit is shared between consumers and National Grid.
As part of the RIIO framework, there are two funding mechanisms that encourage innovation across the energy industry. These funding mechanisms aim to help make the energy networks smarter, accelerate the development of a low carbon energy sector, and deliver financial benefits to consumers.
The Network Innovation Allowance (NIA) provides an annual allowance to fund smaller scale projects.
The Network Innovation Competition (NIC) is an annual competition to secure funding for large-scale demonstration projects aimed at building a lower carbon future for the UK.
Under RIIO-T1 the outputs we deliver are clearly articulated and are linked to the calculation of our allowed revenue. These outputs have been determined through an extensive consultation process, which has given stakeholders a greater opportunity to influence the decisions.
The output categories are:
Safety: ensuring the provision of a safe energy network.
- Reliability (and availability): promoting networks capable of delivering long-term reliability, minimising the number and duration of interruptions experienced over the price control period, and ensuring adaptation to climate change.
- Environmental impact: encouraging companies to play their role in achieving broader environmental objectives–specifically, facilitating the reduction of carbon emissions–as well as minimising their own carbon footprint.
- Customer and stakeholder satisfaction: maintaining high levels of customer satisfaction and stakeholder engagement, and improving service levels.
- Customer connections: encouraging networks to connect customers quickly and efficiently.