Proposed closeout methodology for Network Asset Risk Metric and RIGs: RIIO2
Summary
Ofgem consults on how it will close out the Network Asset Risk Metric (NARM) at the end of RIIO-2, covering electricity transmission, gas transmission and gas distribution. NARM funds companies to deliver a baseline quantum of asset risk reduction; close-out assesses what was actually delivered against what allowances paid for and adjusts the money. The consultation runs the methodology with the RIGs and Year 5 reporting templates so companies can see the assessment logic before they file close-out reports by 31 October 2026.
Why it matters
The headline mechanism is clean (deliver less than funded, return the money), but the contested ground is the carve-outs: the 'clearly identifiable' elements and risk changes 'outside companies' control' that the companies themselves report and that get excluded from the delivery assessment. The breadth of those exclusions, not the formula, decides how much funded-but-undelivered risk reduction is clawed back.
Key facts
- •RIIO-2 ended 31 March 2026
- •Covers electricity transmission, gas transmission, gas distribution
- •NARM close-out reports due under SLC 3.1 by 31 October 2026
- •Read alongside NARM Handbook v4.0
Areas affected
Related programmes
Memo
What this is about
Ofgem is setting the rules for how it will settle up with network companies on the Network Asset Risk Metric (NARM) at the end of RIIO-2. RIIO-2 ended 31 March 2026, and this covers electricity transmission, gas transmission and gas distribution. NARM is the framework under which companies are funded to deliver a baseline quantum of asset risk reduction over the price control. Close-out is the moment of reckoning: Ofgem assesses what risk reduction was actually delivered against what the allowances paid for, then adjusts the money. The consultation runs the methodology with the Regulatory Instructions and Guidance (RIGs) and Year 5 reporting templates together, so companies can see how the assessment logic and the reporting obligations line up before they file close-out reports under Special Licence Condition 3.1 by 31 October 2026.
Why it matters
This is one of the few points in the RIIO cycle where the regulator can claw back money for outputs that were funded but not delivered. The headline mechanism is clean: deliver less risk reduction than you were paid for, return the money. That is the kind of ex-post discipline that incentive regulation usually lacks, because most of RIIO pays for inputs and forecasts rather than verified delivery.
The contested ground is everything that sits outside the comparison. The methodology carves out "clearly identifiable" elements and changes in asset risk "outside companies' control", both of which the companies themselves report and which are then excluded from the delivery assessment. The breadth of those carve-outs, not the headline formula, decides how much funded-but-undelivered risk reduction is actually returned to consumers. A narrow definition disciplines the companies; a generous one lets underdelivery escape through the exclusions. Because the companies self-report the carve-outs, the assessment is only as good as Ofgem's willingness to challenge them.
Who pays
NARM allowances are recovered through network charges (TNUoS on the electricity side, the gas transmission and distribution equivalents) and sit on consumer bills. Close-out decides whether consumers get money back for risk reduction they funded but did not receive. A weak close-out leaves the overpayment with the companies.
What to watch
Watch the definitions of the excluded categories in the final methodology, because that is where the money is. Watch how Ofgem treats self-reported "outside companies' control" adjustments: whether it audits them or accepts them. The methodology is meant to be read alongside the NARM Handbook v4.0 and the RIIO-2 licence conditions, and it must be fixed before the 31 October 2026 close-out filing deadline, so the timetable is tight.
Source text
Proposed closeout methodology for Network Asset Risk Metric and RIGs: RIIO2 | Ofgem Please enable JavaScript in your web browser to get the best experience. BETA This site is currently in BETA. Help us improve by giving us your feedback . Close alert: Proposed closeout methodology for Network Asset Risk Metric and RIGs: RIIO2 Publication type: Consultation Publication date: 22 May 2026 Closing date: 24 June 2026 Status: Open Topic: Energy network price controls, Electricity transmission, Gas transmission, Gas distribution Get emails about this page Print this page Share the page Share on Facebook Share on Twitter Share on LinkedIn We want views on the methodology and Regulatory Instructions and Guidance to assess how companies perform under the RIIO-2 network price control period (31 March 2026). Consultation description We are consulting on our proposed methodology to make sure it is clear, proportionate and can be applied consistently across electricity transmission, gas transmission and gas distribution. The methodology explains how we will: assess delivery against baseline risk outputs determine funding adjustments apply penalties where delivery is below expectations treat clearly identifiable elements, changes in risk outside companies’ control, and projects that extend into RIIO‑3 price controls We are also consulting on proposed modifications to the NARM Regulatory Instructions and Guidance (RIGs) and reporting templates. These templates will form the basis for companies’ NARM closeout submissions. We are consulting on the methodology and the RIGs together so companies can see how the closeout assessment process and the reporting requirements fit together. Network companies can use the methodology, RIGs and reporting templates to prepare their NARM closeout reports. Companies must submit their NARM closeout reports under Special Licence Condition 3.1 by 31 October 2026. The methodology should be read alongside: the NARM Handbook v4.0 relevant RIIO‑2 licence conditions Regulatory Instructions and Guidance (RIGs) Who should respond We would like views from: electricity transmission licensees gas transmission and gas distribution networks anyone with an interest in network asset risk, regulation, and RIIO price controls anyone involved in regulatory price control closeout, asset management, regulatory reporting and NARM How to respond Submit your response by 24 June 2026 by emailing assetriskresilience@ofgem.gov.uk . Please include ‘NARM RIIO‑2 close‑out methodology consultation’ in the subject line. Note: Some documents listed below are not fully accessible. If you require an alternative format, please contact assetriskresilience@ofgem.gov.uk . Consultation documents Consultation on Proposed Guidance for the NARM RIIO-2 Close-out Methodology [PDF, 509.67KB] Notice under SC B15 (Regulatory Instructions and Guidance) Electricity Transmission Licence [PDF, 194.06KB] Notice under SSC A40 (Regulatory Instructions and Guidance) Gas Transporter Licence [PDF, 188.23KB] RIIO-2 NARM RIGs Draft (Year 5) [PDF, 490.26KB] RIIO-2 NARM RRP Draft (Year 5) [XLSX, 3.19MB] Get emails about this page Print this page Share the page Share on Facebook Share on Twitter Share on LinkedIn Close Notify me Would you like to be kept up to date with Proposed closeout methodology for Network Asset Risk Metric and RIGs: RIIO2 ? subscribe to notifications: Email Submit Close