CDCM Training Session

CDCM Training Session

Introduction to producing DUoS Tariffs using CDCM Models

Julia Haughey (EDF Energy)Binoy Dharsi (IPM Energy Retail Ltd)

20 December 20101 | Energy Networks Association

Agenda

Brief explanation of CDCM

Information now available to suppliers

Assumptions to consider

Overview of CDCM model

Annual review pack

EDCM what’s happening

How to get involved


CDCM

o Common Distribution charging methodology (CDCM)o In October 2008 Ofgem published proposals for common

distribution charging methodologyo Long Run Incremental Charge(LRIC) for EHV customerso Distribution reinforcement model (DRM) for LV/HV customerso Objections were raised by the two Scottish companies

o Ofgem decided not to go the competition commission but instead the two models became separate CDCM and EDCM

o DNOs published proposals for CDCM in August 2009 with a few amendments these were accepted and CDCM went live on 1st April 2010

CDCM objectives

o Cost reflective modelo Common model to calculate the charges but with DNO

specific inputs rather than 7 different methodologies that were already in place

o Common structure to the charges so all tariffs have the identical components whatever DNO they are in

o Common Licence condition 14 statements same structure tables called the same

o Consistent and simplified information for customers and suppliers

CDCM issues

o Main issues of the CDCMo Some customers saw huge changes in April 2010

increases of over 200%o Mainly in the HH marketo The trade off for cost reflective tariffs means that more

updates are likelyo For suppliers offering fixed term contracts this can prove to be

even more challenging

CDCM change to charges April 2010

Percentage increases from April 09 Published rates to April 10 final charges

Domestic Unrestricted

Domestic Two Rate

Domestic Off Peak (related MPAN)

Small Non Domestic Unrestricted

Small Non Domestic Two Rate

Small Non Domestic Off Peak (related MPAN)

LV Medium Non-Domestic

LV Sub Medium Non-Domestic

HV Medium Non-Domestic

LV HH Metered

LV Sub HH Metered

HV HH Metered

HV Sub HH Metered NHH UMS

LV UMS (Pseudo HH Metered)

1 2 3 4 5-8 5-8 5-8 0 0 0 0Eastern (GSP A ) 0% 0% -74% -11% 1% -74% -38% -56% -49% 7% 53% 51% 24% 24% -53%

East Midlands (GSP B ) 9% -2% 79% -20% -32% -18% -30% -52% -21% 31% 9% 26% 6% 2% 7%London (GSP C ) 6% 1% -39% -30% -47% -48% -38% -69% -67% 31% 25% 37% 12% -26% -60%Manweb (GSP D ) 23% 4% -72% 1% -12% -63% 6% 3% 20% 41% 41% 9% 30% -4% -15%Midlands (GSP E ) 17% 2% -51% -13% -24% -28% -24% -51% -21% 74% 40% 76% 81% 17% 24%Northern (GSP F ) 0% -3% -11% -1% 2% -25% 11% -9% 110% 104% 43% 160% 99% 94% 75%Norweb (GSP G ) 31% 29% 18% 1% 41% 18% 101% 88% -49% 31% 90% 75% 13% 185% 166%

Southern (GSP H ) 6% 3% -22% -11% -14% -26% 35% -9% -2% 48% 29% 41% -1% 45% 29%Seeboard (GSP J ) 17% -4% -32% -10% -14% -50% -49% -57% -54% 18% 13% 98% 65% -18% -47%Swalec (GSP K ) 11% -3% -55% 2% -6% -61% -44% -63% 23% 2% 75% 60% 120% 203%Sweb (GSP L ) 11% -1% -66% 18% -13% -58% -40% -42% -64% 13% 38% 46% -8% 74% 146%

Yorkshire (GSP M ) -4% -10% 98% -16% -20% 83% -5% -28% 103% 138% 131% 174% 168% 21% 10%Scottish Power (GSP N ) 6% -7% -84% -26% -39% -56% -35% -60% 23% 2% 36% 5% 4% -29%

SSE (GSP P ) 11% 31% 43% -34% -14% 26% 120% 42% 264% 28% 13% 49% 12% 83% -32%

CDCM changes

Open LLFCs PCsUnit rate 1

p/kWhUnit rate 2

p/kWhUnit rate 3

p/kWhFixed charge p/MPAN/day

Capacity charge

p/kVA/day

Reactive power charge p/kVArh

Domestic Unrestricted 1 1 1.746 . . 2.80 . .Domestic Two Rate 2 2 1.973 0.303 . 2.80 . .Domestic Off Peak (related MPAN) 12 2 0.390 . . . . .Small Non Domestic Unrestricted 203 3 2.042 . . 4.50 . .Small Non Domestic Two Rate 204 4 2.498 0.624 . 4.50 . .Small Non Domestic Off Peak (related MPAN) 205 4 0.409 . . . . .LV Medium Non-Domestic 257 5-8 1.941 0.364 . 26.49 . .LV Sub Medium Non-Domestic 265 5-8 1.309 0.227 . 64.16 . .HV Medium Non-Domestic 304 5-8 1.244 0.130 . 197.81 . .LV HH Metered 251 0 5.320 1.240 0.227 15.54 1.34 0.270LV Sub HH Metered 293 0 3.519 0.712 0.115 45.74 1.97 0.216HV HH Metered 301 0 3.753 0.662 0.091 103.59 1.77 0.156HV Sub HH Metered 294 0 2.816 0.362 0.024 155.39 2.49 0.111NHH UMS 504 & 505 1&8 1.688 . . . . .

LV UMS (Pseudo HH Metered) 554 & 555 0 9.184 2.355 0.463 . . .

CDCM timebands

New Time period

Eastern (GSP A )

East Midlands (GSP B )

London (GSP C )

Manweb (GSP D )

Midlands (GSP E )

Northern (GSP F )

Norweb (GSP G )

Southern (GSP H )

Seeboard (GSP J )

Swalec (GSP K )

Sweb (GSP L )

Yorkshire (GSP M )

Scottish Power (GSP N )

SSE (GSP P )

Red 16.00-19.00 Monday to Friday inc BH

16.00-19.00 Monday to Friday inc BH

10.00-13.00 16.00-19.00 Monday to Fridays inc BH











12.30-14.30 16.30-21.00 Monday to Friday inc BH

Amber 07.00-16.00 19.00-23.00 Monday to Friday inc BH


07.00-10.00 13.00-16.00 19.00-23.00 Monday to Friday inc BH

08.00-16.30 19.30-22.30 Monday to Friday inc BH 16.00-20.00 Saturday and Sunday






07.30-17.00 19.30-22.00 Monday to Friday inc BH 12.00-13.00 16.00 -21.00 Saturday and Sunday

07.30-17.00 19.00-21.30 Monday to Friday inc BH 16.30 -19.30 Saturday and Sunday



07.00-12.30 14.30-16.30 Monday to Friday inc BH 12.30-14.00 17.30 -20.30 Saturday and Sunday

Green All other times

00.00-07.30 21.00-24.00 Monday to Friday inc BH and all day Sat and Sun

All other times

0.00-08.00 22.30-00.00 Monday to Friday inc BH 00.00-16.00 20.00-00.00 Saturday and Sunday

00.00-07.30 21.00-24.00 Monday to Friday inc BH and all day Sat and Sun

All other times



All other times

00.00-07.30 22.00-24.00 Monday to Friday inc BH 00.00-12.00 13.00-16.00 21.00-24.00 Saturday and Sunday


All other times


00.00-07.00 21.00-24.00 Monday to Friday inc BH 00.00-12.30 14.00-17.30 20.30-24.00 Saturday and Sunday

Notes Currently in GMT derogation in place until 27th March 2011

All times are in Clock time

Currently in GMT derogation in place until 27th March 2011






Currently in GMT derogation in place until 27th March 2011






Process involved in creating tariffs


Price Control Review (DCPR5)

Revenue derived for each DNO for five years

Revenue entered into CDCM model

DUoS tariffs produced

RPI, Low Carbon Networks, Under/Over -Recovery

Repeat for each year

Possible parameter changes in the future (e.g. time bands)

Price Control Review

http://www.ofgem.gov.uk/Networks/ElecDist/PriceCntrls/DPCR5/Documents1/Appendix%201%20Feb%2023%20signed.pdf (page 24)


Allowed Revenue as published by Ofgem in February 2010

The allowed revenue does not account for inflation, so this (at the very least) would need to be accounted for

Updated Revenue Information


The most up-to-date view of DNO’s revenue can be gained from the quarterly DCP 030 teleconference calls

The CDCM Model

o The CDCM model is a standardised methodology that apportions allowed revenue (set by Ofgem) and translates this into tariffs for HH, HH and Unmetered supply pointso The model has been developed to represent a more unit driven tariff to firstly provide a cost signal to customers to reduce usage and also replicate the system peaks by loading costs into the day unit and/or red/peak for HH tariffso Each DNO essentially has the same CDCM model with variations to represent regional differenceso To use the model at its most basic level it requires the input of only 1-5 data fields

o The model also have several other more sensitive elements which can be changed as part of a DCUSA change and this will not be covered in this training session


Assumptions

o The revenue that feeds into the CDCM model for April each year needs to be scaled by RPI

o RPI for Distribution Revenue is set as the average of the last six months of the year (July to December)

o DNO’s have incentives in place to ensure that they do not Under/Over Recovery revenue by a set percentage in any given year. If they are close to breaching these limits they will consider a mid-year tariff release

o The sensitivity of the model, through demand usage and the weighting of revenue collection through unit rates means that forecasting tariffs become harder

o Low Carbon Network (LCN) Schemes and other re-openers are not always accounted for by DNO’s so it is worthwhile understanding the big drivers that need to be factored in

o Some DNO’s account for LCN funding however some only apply a small proportion of this


Inputs required to create tariffs


Direct, Indirect and Network costs can be inflated by RPI although DNO’s will update this for the next tariffs for 2011/12.Transmission Exit charges are supplied to each DNO by National Grid



This is the main driver in terms of setting tariffs

This input is the amount of revenue that is collected through EHV / Site Specific customersThere is uncertainty of what this figure is likely to be so taking a 10-20% variance can make £1mn difference

Tariffs Produced




Increasing the revenue figure by £20mn

Tariffs Produced – Revenue increase


Unit rate have increased through the £20mn revenue increase although Fixed and Capacity Charges have remained the same

Worked Examples of Tariffs

The NEDL CDCM Model increases the Unrestricted NHH unit rate by 9.4% for a £20mn revenue increase

For a LV HH customer you will note that the Red rate increases by 17.4% with little change for the Amber and Green rates

It is worth noting that the Red (Peak) rate for HH tariffs are significantly higher than the other (Amber and Green) rates:The Maximum Peak value is in SWEB at approximately 21p/kWhThe Lowest Peak value is in London at approximately 2p/kWh

Allowed RevenueAllowed Revenue + £20mn Difference % Change

Unresticted Rate 1.84 2.013 0.173 9.4%

Revenue £ 238,200,000 £ 258,000,000 £ 19,800,000 8.3%

LV HH Allowed RevenueAllowed Revenue+£20mn Difference % Change

Red 5.731 6.726 0.995 17.4%Amber 1.281 1.323 0.042 3.3%Green 0.233 0.233 0 0.0%

Revenue £ 238,200,000 £ 258,000,000 £ 19,800,000 8.3%

Annual review pack

o CDCM Annual Review Packo Produce 5 year of CDCM inputso DNOs to provide commentary and assumptions

behind the CDCM inputso To highlight any changes timebandso Suppliers to produce tariffso To be issued in December 2010

Annual review pack contents

Sheet 1 - CommentaryThis sheet contains the DNO's commentary on the forecast input CDCM data for the base forecast over the 5 year period and the high and low scenarios.

Sheet 2 - CDCM Inputs Forecast Data

This sheet contains historical and forecast data for all CDCM inputs except for volume data (table 1053).The RPI forecast is seperated out and listed as a standalone assumption. Any forecasts that relate to RPI will be linked to this row.Comments are provided alongside each forecast explaining any assumptions made by the DNO.

Sheet 3 - CDCM Volume Forecasts

This sheet contains forecast CDCM volume data (table 1053). The matrix at the top can be used to apply different growth rates to groups of customers.

Sheet 4 - CDCM Input Sheet (Y)

This sheet contains the CDCM input sheet for base year 0 (Y) in a format that can be copy and pasted (paste-value) into the CDCM spreadsheet model.

Sheet 5 - CDCM Input Sheet (Y + 1)

This sheet contains the CDCM input sheet for base year +1 (Y+1) in a format that can be copy and pasted (paste-value) into the CDCM spreadsheet model.







Sheet 9 - TariffsThis sheet contains the CDCM tariffs that are produced from the CDCM input data, after the Macro on this sheet has been run. It contains the tariffs for each of the 5 years.

Sheet 10 (CDCM Timebands)

Contains the time bands that the DNO plans to use for the coming year and advance warning of any changes.

Annual review pack contents

Indicative CDCM Values

Year Ref Y-2 Y-1 Y Y+1 Y+2 Y+3 Y+4

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

RPI Forecast: 3% 3% 3% 3%

1000 Company name, charging year and model versionCompany ENWL ENWL ENWL ENWL ENWL ENWL ENWLYear 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16Version v1 v1 v1 v1 v1 v1 v1

1010 Financial and general assumptionsRate of return 6.90% 6.90% 6.90% 5.70% 5.70% 5.70% 5.70%Annualisation period (years) 40.00 40.00 40.00 40.00 40.00 40.00 40.00Power factor 0.95 0.95 0.95 0.95 0.95 0.95 0.95Days in the charging period 365.00 365.00 366.00 365.00 365.00 365.00 365.00

1017 Diversity allowance between top and bottom of network levelGSPs 0.03 0.03 0.03 0.03 0.03 0.03132kV 0.08 0.08 0.08 0.08 0.08 0.08EHV 0.14 0.14 0.14 0.14 0.14 0.14HV 0.38 0.38 0.38 0.38 0.38 0.38

1018 Proportion of relevant load going through 132kV/HV direct transformation 0.00 0.00 0.00 0.00 0.00 0.001019 Network model GSP demand (MW) 500.00 500.00 500.00 500.00 500.00 500.00 500.001020 Gross asset cost by network level (£)

132kV 38,287,511 39,436,136.33 40,619,220.42 41,837,797.03 43,092,930.94 44,385,718.87132kV/EHV 32,477,662 33,451,991.86 34,455,551.62 35,489,218.16 36,553,894.71 37,650,511.55EHV 52,292,106 53,860,869.18 55,476,695.26 57,140,996.11 58,855,226.00 60,620,882.78EHV/HV 56,048,156 57,729,600.68 59,461,488.70 61,245,333.36 63,082,693.36 64,975,174.16132kV/HVHV 95,088,790 97,941,453.70 100,879,697.31 103,906,088.23 107,023,270.88 110,233,969.00HV/LV 85,194,032 87,749,852.96 90,382,348.55 93,093,819.01 95,886,633.58 98,763,232.58LV circuits 68,524,016 70,579,736.48 72,697,128.57 74,878,042.43 77,124,383.70 79,438,115.22

Forecast CDCM Values

Charging Year

CDCM Input data table: .

Historical CDCM Input Data (Actuals)

EDCM what’s happening

o EDCM was due to be implemented 1st April 2011o Ofgem decision to delay until 1st April 2012

o wanted more justificationo More stakeholder involvement

o Impacts all customers on site specific tariffs o Plus with the boundary change all HVS customers will

move onto the EDCM model- more changeo All customers will see a change o Allowed revenue to be split between CDCM and EDCM

final decision will impact CDCM customers as well o Consultation due out imminently

How to get involved

o DCMF- ENA offices every two months next one 6th January 2011

o EDCM Consultation responses due 1st February 2011o Workstream C main suppliers participateo CDCM governance 28 changes to the current model

proposedo DCP030 tele-conference

calls quarterly

Thank you