EDCM update

Andrew NevesCMG Chair

2 June 20111 | Energy Networks Association - DCMF

Current position

2 June 20112 | Energy Networks Association – DCMF

• The EHV distribution charging methodology (EDCM) submitted to Ofgem and published on 1 April, see:

http://2010.energynetworks.org/edcm-file-storage/7-edcm-deliverables

• 2011/12 Illustrative tariffs based on the EDCM submitted to Ofgem

• Customer total charges not provided due to legal constraints

• Ofgem consultation on the EDCM published on 20 May 2011, see: http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=687&refer=Networks/ElecDist/Policy/DistChrgs

EDCM submission workshop

2 June 20113 | Energy Networks Association – DCMF

• Post-submission workshop held on 12 May 2011– Overview of the EDCM submission

– Results of the volatility analysis

– Managing your charges

– Feedback and Q&A

• Lively discussion on many aspects of the EDCM– Generation charges and credits

– Interaction with connection charges for pre-2005 DG

– Volatility of charges

– How customers can reduce their charges

Ofgem consultation on the EDCM

2 June 20114 | Energy Networks Association – DCMF

• Ofgem consultation document contains Ofgem’s initial views on the DNOs’ proposed EDCM:– “2.20. Our initial assessment is that it is a substantial improvement

on the DNOs’ current methodologies and it largely meets the objectives set out for the project…”

• Detailed comments are provided on a number of methodological aspects:– “2.24. While our initial assessment of the DNOs’ proposed EDCM is

broadly positive, we think that there are some areas where changes to the methodology might help the EDCM to better achieve the Relevant Objectives”

Ofgem consultation

Issues relating to demand tariffs

2 June 20115 | Energy Networks Association - DCMF

Ofgem’s views – Demand issues

2 June 20116 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 1 Calculation of the revenue target from demand customers

The method is reasonable

Issue 2 Use of capacity at the voltage level of connection and super-red demand at higher levels as “cost drivers”

This is a reasonable principle, however Ofgem seeks views on the use of capacity at the voltage level of connection.

Issue 3 Indirect costs and 20 per cent of demand scaling allocated on the basis of capacity and super-red consumption

Ofgem are “broadly comfortable”. They seek views on whether super-red demand should incorporate reactive power flows.

Ofgem’s views – Demand issues

2 June 20117 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 4 Direct costs, network rates and 80 per cent of demand scaling allocated on the basis of site-specific notional assets

The method is reasonable, on balance.

Issue 5 Calculation of network use factors

- Reasonable to assume normal running conditions- Possible condition 1: Change the treatment of spare capacity in the network

Issue 6 The 80-20 split of residual revenue to be allocated using different drivers

Reasonable. DNOs to keep the split under review

Ofgem’s views – Demand issues

2 June 20118 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 7 The use of 15 demand customer categories

-Ofgem is not convinced these categories are required - DNOs to explain apparent inconsistencies between NUF values and categories

Ofgem consultation

Issues relating to generation tariffs

2 June 20119 | Energy Networks Association - DCMF

Ofgem’s views – DG issues

2 June 201110 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 8 Calculation of the revenue target from generators

- Possible condition 2: To change the application of the “sole use factor”.- Otherwise reasonable.

Issue 9 The generation scaling methodology

- Use of the fixed adder is a “positive attribute of a scaling method”- Ofgem seeks views on the general approach to generation scaling

Issue 10 Generation credits only applied to units exported during the super-red time band

On balance, this is appropriate

Ofgem’s views – DG issues

2 June 201111 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 11 No FCP/LRIC credits to intermittent generation

Possible condition 3: To allow some credit to intermittent generation. Suggested method to split the FCP/LRIC credit into local and remote elements – intermittent generation could be paid on the basis of the remote element only

Issue 12 Import charges for generation-dominated mixed import-export sites

- DNOs to provide an explanation for setting the NUFs to the collar for import tariffs of such sites-Seek stakeholder views on treating “generation-dominated assets” differently for calculating NUFs

Ofgem consultation

Issues relating to LDNO tariffs

2 June 201112 | Energy Networks Association - DCMF

Ofgem’s views – LDNO issues

2 June 201113 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 13 The CDCM/EDCM boundary as applied to LDNO distribution systems

This is the subject of a separate Ofgem consultation and is not addressed in this consultation.

Issue 14 Charges for EDCM-like end users

Possible condition 4: Indirect cost discount of 50 per cent should be extended to all capacity-based charge elements (i.e. 20 per cent scaling)

Issue 15 Number of boundary categories for CDCM portfolio tariffs

Possible condition 5: Reduce the number of boundaries so that discounts only vary with the voltage level of the boundary

Ofgem’s views – LDNO issues

2 June 201114 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 16 Capping of LDNO discounts on CDCM tariffs to 100 per cent

This may not be appropriate – but not an issue at the moment or in the future.DNOs to keep this under review

Ofgem consultation

Other issues

2 June 201115 | Energy Networks Association - DCMF

Ofgem’s views – Other issues

2 June 201116 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 17 Sole use asset charges - Concerned that demand scaling is not applied to sole use assets- No change proposed for now. DNOs to re-evaluate and address under open governance, if necessary

Issue 18 DSM/GSM proposals - Proposals are “sensible” and provide an appropriate signal- DNOs to provide more information on the precise arrangements

Issue 19 Excess reactive power charges

Current proposal is more appropriate than the December 2010 proposal

Ofgem’s views – Other issues

2 June 201117 | Energy Networks Association – DCMF

Issue Ofgem’s initial assessment

Issue 20 Sense checking of branch incremental costs in LRIC

Possible condition 6: To modify the approach to sense-checking LRIC charges

Issue 21 Volatility Ofgem considering a requirement on the DNOs to deliver measures to address inherent volatility, and to offer long term products to customers

Comment on Excel model Suggestions for improving presentation and transparency

EDCM – Next steps

2 June 201118 | Energy Networks Association – DCMF

• Ofgem holding stakeholder workshops– Demand workshop: 6 June 2011

– Generation workshop: 9 June 2011

– IDNO workshop: Date to be confirmed

• Joint Ofgem DNO meeting to discuss areas of potential improvements to the EDCM

• Need to resurrect workstreams, if necessary