Citizens Advice response to the Ofgem call for input on the impact of high inflation on the network price control operation
We believe that regulatory intervention is required to protect consumers’ interests. The additional returns driven by high inflation are not justified and the potential scale of detriment is too large for no action to be taken. A regulated asset value (RAV) inflated by up to £3.4bn would result in consumers paying more for the full 45-year asset life, meaning consumers paying an extra amount that is a multiple of the increase in RAV.
Intervention is also required because we believe the current approach, in practice, is asymmetric in favour of the network companies and so against consumers. This is because, as outlined in the consultation, Ofgem are likely to have felt compelled to intervene had inflation fallen significantly below long-term expectations.
We are mindful of the importance to regulatory stability and predictability to the long-term interests of consumers. As long as interventions are well-designed, and target returns that are beyond legitimate and reasonable expectations, we believe taking action is consistent with regulatory stability and predictability.