RIIO-ED2 PCFM Financial Model Audit

Tender description

This procurement is for financial model audit services to provide assurance on the RIIO-2 Electricity Distribution Price Control Financial Model (RIIO-ED2 PCFM). The model acts as the official license instrument for setting revenues for the Distribution Network Operators (DNOs). The audit is essential for providing external stakeholders with confidence in the model and will be an important mitigant against DNOs' appeals to the Competition and Markets Authority (CMA). Ofgem is in the process of setting the network price control framework for the Electricity Distribution sector. The RIIO-ED2 price control sets the outputs that the 14 electricity Distribution Network Operators (DNOs) need to deliver for their consumers and the associated revenues they are allowed to collect for the five-year period from 1 April 2023 to 31 March 2028. Programme overview The Price Control Financial Model (PCFM) (aka License Model (LiMo)) is the financial model that is used to calculate the DNOs' revenues during RIIO-ED2. As well as this key function, it is also used to carry out financeability analysis in the run-up to establishing RIIO-ED2. Financeability analysis allows us to determine the potential impact of RIIO-ED2 on the financeability of DNOs based on both notional financial parameters and actual company data. As part of the process of finalising the RIIO-ED2 price control, over the course of 2022, Ofgem will reduce the current 'internal' financial model (containing full financeability functionality) down to an official 'external' version which will be used throughout RIIO-ED2 to determine DNOs' revenue allowances. The key assurances that Ofgem require on these models are: 1. A full audit of the external version of the model, which will be in development up until late 2022/ early 2023. 2. Assurance of the financeability analysis elements of the internal version of the model, which will be relied upon for making key policy decisions up until Final Determinations. The audit process will need align with these model developments, in line with the programme milestones. Please see attached 2022-015 RIIO-ED2 PCFM Financial Model Audit ITT document for further information.