Condition44A.Regulatoryfinancialreporting
Introduction
44A.1 This condition requires the licenseeto prepareand publish RIIO Accountsin respect of each RegulatoryYearcommencingwith theRregulatoryYyear directed bytheAuthority and sets out:
(a)arrangements with respect to Standard Condition 44. RegulatoryAccounts,which will ceaseto have effecton the date directed bytheAuthoritypursuant to paragraph 44A.6 ofthis condition;
(b)arequirement for thelicensee’s RIIOAccounts tobeprepared under theOfgem RegulatoryFinancial ReportingStandard(“ORFRS”) issued bythe Authorityfor that purpose;
(c)arequirement for thelicenseesto include in theirRIIOAccountsaRegulatory Corporate GovernanceStatement (“RCGS”)basedon the principles issued bythe Authorityfor that purpose (the“RCGS Principles”);
(d)arequirement forthe licenseeto haveits RIIOAccounts audited; and
(e)the dates bywhich therequirements of this condition must be satisfied. 44A.2This condition also sets out the process under which the Authoritywill issueand
modifythe ORFRSand/or RCGS Principles.
44A.3This condition also makes provision forareview of and report on, in accordance with the Agreed Upon Procedures in relation to the prohibition of cross-subsidyand discrimination applicableto the licensee in accordance with the Agreed Upon Procedures.
44A.4Thepurposeof RIIO Accounts is to provide materiallyaccurate and meaningful information which is reflectiveof thelicensee’s performanceand regulatoryfinancial position, in respect of each reported RegulatoryYear, so as to promoteclear and transparentreportingof thelicensee’s financial and operationalperformanceunder the RIIOpricecontrolarrangements.
PartA:Commencementof the dutyto prepare RIIO Accounts
44A.5Subject to paragraph 44A.6 the licenseemust prepareRegulatoryAccounts in accordancewith therequirements provided forinStandard Condition 44.[MP1]
44A.6TheAuthoritymay, bydirection, requirethe licenseeto prepareRIIOAccountsin accordancewith this condition, in respect of RegulatoryYearscommencingwith the RegulatoryYear stated in that direction. From thedate thelicenseeis required to prepareRIIOAccounts,StandardCondition 44will ceaseto have effect inaccordance with paragraph44.1A of that condition.
44A.7A[MP2] direction issued bytheAuthorityunder paragraph 44A.6 will beof no effect unless:
(a)beforeissuingit the Authorityhas:
(i)given Noticeto all licensees in whose licencethiscondition has effect that it proposes to issue adirection requiringthelicenseeto prepareRIIO Accounts;
(ii)specified in the Noticereferred to in subparagraph(i)the period(which may not be less than 28 days from the date oftheNotice)within which the licenseemaymakerepresentations to the Authorityabout its proposal; and
(iii)consideredanyrepresentations dulyreceived in response to the Notice referred to in subparagraph (i); and
(b)the Authorityissues the direction on orbefore 31March[MP3] of theRegulatoryYear in respect ofwhich the licenseeis required topreparethefirst RIIO Accounts.[MP4]
44A.8Therequirements forthegivingof Noticeunder paragraph 44A.7(a)maybesatisfied byactions taken bythe Authoritybeforeaswell asafter the cominginto effect of this condition.
Part B: Licensee’sobligations under this condition
44A.9Subject to the arrangements set out in paragraphs44A.5 to 44A.8, unless and so far as the Authorityotherwise consents, thelicenseemust:
(a)prepareRIIOAccountsin accordancewiththis conditionin respect of each RegulatoryYear by30 September after the end ofthat RegulatoryYear;[MP5]
(b)arrangeforits RIIOAccounts to be audited in accordancewith theprovisions of Part Fof this condition;
(c)publish its audited RIIOAccounts on itsWebsiteby30 September followingthe end ofthe RegulatoryYear to which thoseRIIOAccounts relate;and
(d)keep acopyof its most recent RIIOAccounts at thedisposal of members of the public at its principal placeof business[MP6]and uponrequestprovideacopyfreeof charge.
Part C:Statements tobe included in RIIOAccounts
44A.10 Thelicenseemust include, as aminimum,in its RIIOAccounts:
(a)the statements specified in the ORFRS;
(b)a commentaryon the licensee’s operationalperformance andregulatoryfinancial performanceand position; and
(c)aRCGS.
Part D:Scope oftheOfgem RegulatoryFinancialReporting Standardand RegulatoryCorporate Governance Statement
44A.11 TheORFRScontains requirements for:
(a)the format andcontent ofthe statements set out inparagraph 44A.10(a);
(b)the basis forascertainingopeningbalancepositionsand relevant values referred to in the RegulatoryInstructions and Guidance that are applicable to the licensee;
(c)adjustments forthe purposeof fairlypresentingthelicensee’s regulatoryfinancial performanceand position, for usein thepreparation of thestatements set out in Part C; and
(d)additional statements and/or information.[MP7]
44A.12 Thelicenseemust set out its overall approach toits governance arrangementsin the RCGS and preparethe RCGS based on the RCGS Principlesissued bytheAuthority, as modified from timeto time, in accordancewith Part E ofthis condition.
Part E:Process to issue and modifythe Ofgem RegulatoryFinancial Reporting Standard and the RegulatoryCorporate Governance StatementPrinciples
44A.13 TheAuthoritywill issue the ORFRSand RCGS Principles, and maymodifyeither or both of them,byissuingadirection for that purposeto thelicenseein whoselicence this condition has effect.
44A.14 A direction issued bytheAuthorityunder paragraph 44A.13 will beof noeffect unless, beforeissuingit, the Authorityhas:
(a)byNoticeto all licenseesin whoselicencethis condition has effect, set out the form of or, asapplicable,the modifications to theORFRSand/or RCGS Principles;
(b)specified in theNoticethe reasonsforthe Authority's proposals;
(c)specified in theNoticethe date on which it proposes that theORFRSand/or RCGS Principlesor modifications to the ORFRSand/or RCGS Principlesshould takeeffect;
(d)specified in theNoticethe period (which maynotbeless than 28 daysfrom the date ofthe Notice) within which the licenseemaymakerepresentations tothe Authorityabout its proposals; and
(e)consideredanyrepresentations dulyreceived in response to theNotice.
44A.15 Therequirements forthegivingof Noticeunder paragraph 44A.14 maybesatisfied by actions taken bythe Authoritybeforeas well as after thecominginto effectof this condition.
44A.16 Nomodification to theORFRS and/or RCGS Principles mayhaveeffect with respect to RIIOAccounts foraRegulatoryYear unless thedirection givingeffect to the modification is issued before31 March of that RegulatoryYear.
Part F:Requirementfor audit ofRIIOAccounts
44A.17 Unless theAuthorityotherwise consents, thelicenseemust at its own expenseprocure an audit byan Appropriate Auditor ofits RIIOAccounts and areport bythe Appropriate Auditorforinclusion in thelicensee’spublished RIIOAccounts.
44A.18 Unless theAuthorityotherwise consents, theAuditor’s report under paragraph 44A.17 must statewhether, inthe Auditor’s opinion the licensee’s RIIO Accountsfairlypresent
its regulatoryfinancial performanceand position under theORFRS in respect of the RegulatoryYear underreport.
Part G:Agreed Upon Procedures in relation to the prohibition ofcross-subsidy and discriminationapplicable to the licensee[MP8]
44A.19 Thelicenseemust at its own expense appoint an Appropriate Auditorto conduct a review and prepare a report in respect of thelicensee's compliancewith its obligations in relation to the prohibition of cross-subsidyanddiscrimination generallyin accordancewith AgreedUpon Procedures. Thereport should specificallycomment on compliancewith:paragraph 9 ofStandardCondition 4 (No abuseof thelicensee’s special position); Standard Conditions 19 (Prohibition of discrimination underchapters 4 and 5); and Standard Condition39 (Prohibitionof discrimination under chapter9).
44A.20 Thecontract of appointmentwith theAppropriateAuditor must requirethatareview and report under paragraph 44A.19 prepared in accordancewith Agreed Upon Procedures is completedeach RegulatoryYearand that the Appropriate Auditor addressesareport to theAuthorityby31 Julyfollowingtheend ofeach Regulatory Year that:
(a)states that hehas, in a manner consistent with the relevant auditingstandards, completed thereview and prepared the report in accordancewith theAgreed Upon Procedures issued bythe Authorityin respect of theRegulatoryYearunder report; and
(b)sets out his findings.
44A.21 Ifthe Authorityis satisfied that the report referredto in paragraph 44A.20demonstrates that the licenseehas complied with theobligation to avoid discrimination and cross- subsidies that is specified in Article 31 ofDirective2009/72/EC of theEuropean Parliament and ofthe European Council of 13July2009 and is imposed on thelicensee bythe standard conditions of this licencereferred to in paragraph 44A.19, thereport will bedeemed to represent theresults of anaudit of that obligation, as required bythe Article.
Part H:Interpretation
44A.22 For thepurposes of this condition:
Ofgem Regulatory Financial Reporting Standard / means thedocument of that nameissued bythe Authority, as modifiedfrom timeto time, in accordancewith this condition.RegulatoryCorporate GovernanceStatement / means thestatement of that namewhich the licenseeis required to include in its RIIO Accountsin accordancewith therequirements of this condition.[MP9]
RegulatoryCorporate GovernanceStatement Principles / means thedocument ofthat name issued bythe Authority, as modifiedfrom timetotime, in accordancewith this condition.
RIIOAccounts / means the accounts prepared bythe licenseein accordancewith therequirements of this condition.
[MP1]Delete as creates double jeopardy with LC44 and doesn’t add anything
[MP2]Missing standard wording – see 44A.14 as an example or LC45 for the DNO which is the DAG condition. Missing paras including reasons and dates (former is more important as dates for RIIO Accounts are set out on the face of the condition)
[MP3]This needs amending to ensure that the direction is issued in the year prior to the obligation coming into force e.g. issued 31/03/17, RIIO Accounts are required to be submitted in Sept [Oct] 2018 following a full regulatory year.
As worded this is not the case and would not give licensees enough time to ensure all systems and processes were in place to meet deadline
[MP4]As per our response to the informal review of this condition, to ensure licensees are able to comply with the ORFRS and therefore the RIIO Accounts we believe that the ORFRS must be formally issued prior to Ofgem being able to issue the RIIO Accounts Direction.
Furthermore directions to revise the ORFRS must be required to be made by 31 March, to take effect the following regulatory year for the same reason.
We seek clarity on when the ORFRS will be formally issued.
[MP5]As discussed in the working group, the end of September is unlikely to be feasible. It doesn’t take into account the inputs to the RIIO Accounts which will not be finalised until the end of July and then the time required to finalise the RIIO Accounts, audit them and process them through governance and sign off. All this work comes back to back with the RRP submission for the staff involved and also crosses the summer holiday period. An end of October date is therefore more realistic.
[MP6]Is this relevant? In the days of internet access and the documents being published this is superfluous. Obligation to issue on request to ensure those without internet access can obtain a copy is enough and in line with other licence conditions
[MP7]Too vague – allows the ORFRS to contain almost anything. It should be removed.
[MP8]The existing wording in LC44 has not been used – added review and prepare a report…why is standard wording not being used?
[MP9]Does this definition add anything?