The Government Actuary’s Department (GAD) has undertaken an
independent review of the methodology used in a report by
Ofgem, the Office of Gas and Electricity Markets.
In ‘Ofgem – Specified
Street Works Costs Reopener assessment’, GAD
specialists provided a quality] assurance review of the
methodology the regulator planned to use when assessing
funding claims from utility companies.
Street works costs
Ofgem was assessing submissions in the Specified Street
Works Costs (SSWC) reopener. This allows utility companies
to apply for expenditure allowances to cover the costs
associated with undertaking street works. The SSWC funding
requests are based on expenditure that utility companies
incur or expect to incur when they carry out road works
such as removing, repairing and replacing cables.
In the event, Ofgem allowed £45 million of funding requests
by electricity distribution network companies to invest in
street works projects. It refused around £68 million on
street works projects which it considered were not
justified, or poor value for money.
Methods and methodology
As part of our quality assurance work into the methodology
used, Ofgem agreed with our 5 recommendations which
included:
- retaining one source of data for benchmark calculations
- using a weighted average to calculate benchmarked
average unit costs
- splitting out component parts of costs
In assessing this methodology, the report’s author Nick
Clitheroe said: “GAD’s review focused on the calculations
and method that Ofgem used when working out the level of
funding requests.
“We considered permit fee costs, administrative costs and
permit condition costs. We also examined the material
provided as part of the consultation with the focus on the
calculations and method.”
