What returns should a well-designed price control offer? A discussion paper

What returns should a well-designed price control offer? A discussion paper 862 KB

It is unclear to Citizens Advice, as the statutory advocate for energy consumers, what Ofgem would deem as success from one of their electricity or gas network price controls. Ofgem must seize the opportunity, ahead of finalising ED3 for electricity distribution networks at the end of 2027, to clarify its objective for price controls by setting out what returns a well-designed price control should (and should not) offer network companies. This includes setting out what returns a well-designed price control should offer the worst, average, and best-performing company. This clarity on objectives is critical to develop effective regulation of privately owned network monopolies and ensure consumers receive value for money. 

To start the discussion, we set out in this paper what returns we think an electricity or gas network price control should offer which would provide value for money for consumers. We also set out what design options can help ensure price controls offer those returns, including relative metrics for incentives, and an outturn adjustment mechanism.  Finally, we consider how to apply these options in ED3, and discuss how Ofgem’s own principles for incentive design might apply in ED3. 

Alongside this discussion paper, we are also publishing a report 1000 KB which we commissioned CEPA to carry out. Completed in April 2026, this assesses the potential and practicalities of using relative and zero-sum incentives for the ED3 price control.