UK UTILITIES : Ofgem ED3 SSMD investor call feedback

Research evidence excerpt

UK UTILITIES : Ofgem ED3 SSMD investor call feedback

EQUITIES

UTILITIES & CLEAN ENERGY

UK UTILITIES

FLASH NOTE

Ofgem ED3 SSMD investor call feedback

21 MAY 2026 Securities Research Report Production time: 14:48* (London time)

Research Analyst & Publishing Entities

Joy Xu BNP Paribas London Branch (+44) 207 039 9438 joy.x.xu@uk.bnpparibas.com

What happened?

Ofgem just held an investor call following the publication of the ED3 Sector Specific Methodology Decision (SSMD) this

morning. Most of the discussion focused on financeability and the methodology framework which is expected to follow

the approach in RIIO-3, however there wasn’t a lot of detail given that the process is still in early stages.

Based on this morning’s documentation, Ofgem’s early view of the allowed RoE at 60% gearing is 5.10%-7.05%, with

a midpoint of 6.08%. For comparison, ET3’s allowed RoE was 5.70% at 55% gearing, which translates to ~6.2% at 60%

gearing, slightly above the early view for ED3 published today.

The ED3 period will run from 1 April 2028 to 31 March 2033. Companies have to submit their business plans to Ofgem

by December this year. Ofgem's draft determinations will be made in the summer of 2027 with the final determinations

made by the end of 2027.

Key points from the conference call:

– Gearing – Looks to be lowered from 60% to 55%, driven by higher anticipated inflation levels through ED2 and

want to ensure that customers can benefit from the impact. Natural degearing would also improve financeability

of companies. Still modelling out degearing assumptions.

– Heat pumps – Most sensitive and uncertain in terms of projections, quite a significant impact on network

capacities as a single technology. Less clear beyond Warm Homes Plan as to what policy will drive a sharper

uptake.