Reviewing the costs of utility companies digging up the roads
The Government Actuary’s Department (GAD) provided a quality assurance review of methodology used by the regulator Ofgem, the Office of Gas and Electricity Markets.
In the report Specified Street Works Costs Reopener assessment GAD examined how Ofgem planned to assess funding claims from utility companies which planned to carry out street works.
Ofgem assessed submissions in the Specified Street Works Costs reopener. 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.
After assessing applications Ofgem allowed £45m of funding requests by electricity distribution network companies to invest in street works projects.
Calculations and method
GAD’s quality assurance review focused on the calculations and method that Ofgem used when working out the level of funding requests.
As a result of GAD’s quality assurance analysis of Ofgem’s methodology, we made 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
Actuarial experts 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.
Published 14 January 2020