Framework decision: electricity distribution price control (ED3)

What changed

Ofgem has finalised the Framework for the next electricity distribution price control (ED3), confirming the design choices that will govern the six Distribution Network Operators from 1 April 2028 to 31 March 2033. The decision follows the November 2024 Framework consultation and locks in the high-level architecture before Ofgem moves to the Sector Specific Methodology stage. The Sector Specific Methodology consultation is scheduled for summer 2025, with final determinations due in 2027 ahead of the April 2028 start.

The headline signal is asymmetric. Ofgem is making material changes to how network investment is planned and approved, pushing for a "longer-term, more consistent and holistic approach to network planning" that breaks from the five-year cycle of RIIO-ED2. On everything else, the framework stays close to RIIO-ED2: the same incentive architecture, the same approach to output measurement, the same customer engagement machinery, the same totex/IQI mechanics. Read together, the message to DNOs is that the capital programme is being rebuilt to accommodate electrification load growth, but the operating discipline of ED2 stays in place.

What this means in practice

The decision affects the six DNO groups (UKPN, SSEN Distribution, NGED, NPg, ENWL, SPEN) covering 14 licence areas, and through them every domestic and non-domestic electricity consumer in Great Britain. DUoS charges recover DNO allowed revenues, so the framework choices made now feed directly into the bill stack from April 2028. ED2 set baseline totex of around £22bn across the five DNOs and £30.7bn including SSEN. ED3 will be materially larger: Ofgem's own framing of "investing ahead of the curve" for electrification commits to volumes well beyond the ED2 envelope, and the network companies have signalled investment ambitions in the £60-90bn range across the period.

The structural change worth watching is the shift to longer-term, holistic network planning. In ED2, capex was largely justified through company-specific business plans assessed against historic delivery and benchmarked unit costs. ED3 points towards plans anchored in the Regional Energy Strategic Plans (RESPs) that NESO is now producing as the Strategic Spatial Energy Plan beds in. That changes the question from "is this DNO's forecast load growth reasonable" to "does this DNO's investment programme match the RESP for its region". DNOs that align early will find their plans easier to justify; those that diverge will carry the burden of proof.

What is not changing matters as much. Retaining the ED2 incentive structure means the Customer Service, Connections, Interruptions, and Environmental incentives carry over in broad shape, with the same RoRE upside skew that the 2026 RoRE returns showed: subjective scoring on customer satisfaction and stakeholder engagement remains net-rewarding while hard reliability metrics remain net-penalising. The capex/opex split, totex sharing factors, and the cost of capital methodology all stay in the RIIO family. For investors, that means ED3 is a continuity regime on returns, with the growth story coming from the volume of allowed investment rather than from a step-change in allowed returns.

For connections customers, the framework decision is one half of the picture. The other half is the connections reform process running in parallel through NESO and the TMO4+ work. ED3 sets the envelope DNOs can spend on reinforcement; the connections reforms determine which projects get to draw on that envelope and on what terms. The two need to land coherently. They are being decided on different tracks.

What happens next

The Sector Specific Methodology consultation lands later this summer (2025) and will translate the Framework into the detailed mechanics: cost assessment methodology, output incentive parameters, uncertainty mechanisms, treatment of strategic investment, totex sharing factors, and the cost of capital approach. Decision on the methodology follows in late 2025 or early 2026. DNO business plan submissions are due in 2026, with draft determinations in early 2027 and final determinations by late 2027 ahead of the 1 April 2028 start.

Two parallel workstreams will shape how ED3 lands. First, the RIIO-ET3 process for the electricity transmission sector is running ahead of ED3 on the same RIIO-3 timetable; design choices Ofgem makes on ET3 (particularly on Advanced Procurement, strategic investment treatment, and the cost of capital) will set precedents that flow into the ED3 methodology. Second, the Regional Energy Strategic Plans that NESO is producing will become the anchor for DNO investment justification. The first full set of RESPs needs to be usable as a planning input by the time DNOs submit business plans in 2026.

Consultation responses on the Sector Specific Methodology are where the substantive levers are pulled. The cost of capital, the treatment of strategic anticipatory investment, the uncertainty mechanisms for load growth, and the design of output incentives are all live. The Framework decision has closed the question of whether ED3 will look like ED2 with bigger numbers (broadly yes) or a rebuild of the regulatory model (no). It has left open how much bigger, and on what terms.