The EDCM proposalsA summary of Ofgem’s consultation

Ynon Gablinger2 June 2011

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The EDCM objective

The objective of the EDCM is to introduce a common charging methodology across the country which is cost reflective and which accounts for key developments in the DNO networks (such as the emergence of DGs and IDNOs).

Where are we in the process?

• 1 April 2011: The DNOs submitted their EDCM proposal to Ofgem

• 20 May 2011: Ofgem published a consultation on the EDCM proposals

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Consultation overview• Our consultation highlights 21 issues

- core principles- issues where the DNOs have moved since their last consultation- issues where we consider that conditions may be necessary for us to

approve the methodology

• Issues are classified as “demand”, “generation”, “IDNO” or “common”

• In addition we discuss implementation issues (ie phasing/delay)

• We provide an overview of the methodology for demand, generation and IDNOs and a more high level overview in chapter 2

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Demand issues

Issue 1: the demand revenue target

Issue 2: principles guiding the use of capacity as a cost driver

Issue 3: allocation of indirects and a portion of the residual based on capacity

Issue 4: allocation of direct operating costs, network rates and a proportion of the residual based on notional shared asset value

Issue 5: calculation of network use factors

Issue 6: allocation of the residual

Issue 7: customer categories

EDCM consultation issues

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Generation issues

Issue 8: the generation revenue target

Issue 9: scaling

Issue 10: application of generation credits to units exported during super-red

Issue 11: no credit for intermittent generation

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

EDCM consultation issues

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LDNO issues

Issue 13: CDCM/EDCM boundary

Issue 14: components of location specific charge paid by the LDNO

Issue 15: number of discount tariffs (connection types) applicable to LDNOs

Issue 16: capping discount percentages to 100 per cent

EDCM consultation issues

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Common issues

Issue 17: sole use asset charge

Issue 18: demand/generation side management

Issue 19: reactive power charges

Issue 20: sense checking of branch incremental costs in LRIC

Issue 21: volatility

EDCM consultation issues

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Volatility

We are considering placing a requirement on DNOs to deliver a package of measures to help customers deal with uncertainty around EDCM charges. Measures would aim to

– mitigate inherent year on year volatility – provide optional access to a “long term product”

Separately, we are considering a new requirement on DNOs to provide assistance to companies most affected by the step change in tariffs

We invite stakeholders’ views

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For AgainstFull implementation by 1 April 2012

• benefits realised asap• substantial notice already given

• significant impact on some customers• difficult economic climate

Delayed implementation• easy to implement• provides time to adjust to new methodology

• defers realisation of benefits• disadvantages customers with decreasing charges• cost-reflectivity diluted

Phased implementation• provides time to adjust to new methodology • difficult to implement

• could involve cross subsidy during transition• makes mods difficult during transition

Phased implementation only for customers with a “large” charge increase• mitigation given to those most affected • where to draw the line?

EDCM Implementation

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Next steps

Ofgem workshop on EDCM charging for demand…………………

6 June 2011

Ofgem workshop on EDCM charging for generation……………

9 June 2011

Consultation responses…………………………………………………………

4 July 2011

Responses on phasing………………………………………………

24 June 2011

Ofgem’s decision……………………………………………………………………

Aug/Sep 2011

EDCM implementation……………………………………………………………

1 April 2012

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