On 12 September we held a workshop on the setting of charges following the 2014 price review. The note below outlines the key clarifications that we made in response to questions the companies raised during the meeting and addresses some outstanding queries that we agreed to respond to.
Following the workshop, some respondents asked us to clarify how the revenue baseline used for the wholesale revenue forecasting incentive mechanism (WRFIM) would be adjusted each year, when the final determination K factors and companies’ licences remain unchanged. Some companies assumed that actual allowed revenues would be adjusted annually (forcing charges to change each year), while others assumed that net adjustments would be made to allowed revenues for the 2020-25 control period, along with adjustments arising from the other (delivery and cost performance) incentives set at the 2014 price review.
We confirm that the allowance set by the RPI+K factor in the current licences will be unaffected by the WRFIM. The under- or over-recovery of revenue in charge year (t-2) will be reflected in charge year (t) through a ‘notional’ annual allowed revenue used as the WRFIM baseline, which is solely used in deriving the WRFIM incentive adjustments at the 2019 price review.