Decision on the enduring regulatory framework for NESO

What changed

Ofgem has set NESO's enduring regulatory framework, the financial and performance regime that replaces the transitional arrangements and takes effect from the business plan cycle starting 1 April 2026. This is the third and final stage of a phased approach. Stage one set the "Day 1" essentials when NESO took over from National Grid ESO. Stage two ran NESO through BP3 (1 April 2025 to 31 March 2026), the last cycle bolted onto the legacy RIIO-2 framework built for asset-owning network companies. Stage three cuts NESO loose from RIIO-2 and gives it a regime designed for what it actually is: a system operator and planner that owns almost no assets and earns no return on a regulated asset base.

That distinction is the substance of the decision. RIIO regulation is built around totex, an allowed return on a RAV, and incentives calibrated to stop a monopoly under- or over-investing in its own infrastructure. None of that machinery fits NESO, whose costs are overwhelmingly people, systems, and the activities it commissions rather than capital it sinks into the ground. The enduring framework therefore rests on cost control over NESO's internal budget plus a performance incentive scheme tied to outputs and roles, rather than on a return on capital. The decision document sits alongside the Business Plan Guidance decision and the associated-documents decision, which together specify how NESO must build, justify, and report its plan from 1 April 2026 onward.

What this means in practice

The framework decides the question that matters for everyone downstream of NESO: is it disciplined to facilitate markets, or funded to plan them. NESO sits at the chokepoint of the connections queue, the Centralised Strategic Network Plan, the Strategic Spatial Energy Plan, and the operation of the balancing mechanism. Its incentive structure determines whether it treats those functions as market-enabling or as a remit to expand. A regime that rewards delivered outputs and constrains internal cost pushes toward facilitation. A regime that funds activity and headcount with weak output discipline rewards the planning bureaucracy. Generators, network companies, and developers stuck behind Gate 2 and the queue reform are the parties who bear the consequences of which way that tips.

The concrete mechanisms: NESO submits a business plan for the period from 1 April 2026 under the new Business Plan Guidance rather than RIIO-2 templates. Ofgem assesses and sets an allowance for NESO's internal costs, with a performance incentive scheme attached, financial reward and penalty calibrated to defined roles and outputs rather than to capital efficiency. Funding flows through network charges, so the cost ultimately reaches consumers through transmission and distribution charges, but the sums are an order of magnitude below the network companies NESO oversees. The financial materiality here is not NESO's own budget. It is the leverage NESO's incentives exert over the connections queue, network build, and the multi-billion-pound investment decisions routed through the CSNP and SSEP. A weak output regime on a small budget can wave through very large costs elsewhere.

The hard limit on the decision is what the source material confirms. The published page states the framework commences with the 1 April 2026 cycle and that it follows the May 2025 consultation; the detail of the cost-control formula, the specific incentive metrics, the penalty caps, and the governance and stakeholder-engagement obligations sit in the 632KB main PDF, which is not in the supplied text. The structural reading above is inferred from the regime's design logic and NESO's role, not verified line by line against the decision document. Anyone relying on the precise incentive parameters should go to the PDF.

What happens next

The operative date is 1 April 2026: NESO's first business plan under the enduring framework runs from then. Expect NESO to publish a draft business plan ahead of that date, built to the new Business Plan Guidance, followed by Ofgem's assessment and a determination setting the cost allowance and incentive targets for the period. That assessment cycle is where the framework's design is tested against a real plan and real numbers, and where the facilitation-versus-planning question gets answered in practice rather than in principle.

Read this decision alongside its companions: the NESO Business Plan Guidance decision, the associated-documents decision for the BP3 period, and the BP3 performance incentives decision, which together form the full regulatory stack NESO carries into April 2026. The framework is not a one-off settlement. Like RIIO it will run on periodic review, so the first determination sets a baseline that subsequent cycles adjust. The early signals to watch are which outputs Ofgem makes financially material and how tightly it caps NESO's internal cost growth, because those two parameters decide whether the enduring framework disciplines NESO toward the market or funds it toward the bureaucracy.