03 April 2009 energynetworks.org 1 Common Methodology Group Work Presentation from Workstream 4 Review of the Connection Charging Boundary in the CDCM A PRESENTATION BY THE REGULATION GROUP OF THE ENERGY NETWORK ASSOCIATION PRESENTED BY TONY McENTEE & NEIL FITZSIMMONS

03 April 2009 energynetworks.org 2 WS 4 – Work to Date Key focus on harmonising approach across DNOs Baseline methodology Identified Other Options for Change Option 1 – Revised Boundary for Sharing Costs; Option 2a – Revised CAF: Total Approach; Option 2b – Revised CAF: Incremental Approach; Option 2c – Revised CAF: Incremental Approach with Headroom; Option 3 – Allowance for Deferment of Asset Replacement; To issue a consultation on way forward

03 April 2009 energynetworks.org 3 Baseline Methodology Produced common set of words for Connection Charging Methodology Greater clarity and consistency in application across DNOs Areas covered Minimum Scheme Cost Allocation Costs to be paid in full by the distributor; Costs to be paid in full by the customer; Costs to be apportioned between the customer and the distributor; and Recovery of costs for previous Reinforcement Recovered Equipment and Deferment of Asset Replacement Electricity (Connection Charges) Regulations 2002 (ECCR) Speculative Developments

03 April 2009 energynetworks.org 4 Option 1 – Revised Boundary for Sharing Costs; Baseline The costs of Sole Use Assets and Extension Assets are to be charged in full to the customer. The costs of Reinforcement are to be apportioned between the customer and the distributor. Option The costs of Sole Use Assets are to be charged in full to the customer. The costs of Extension Assets and Reinforcement are to be apportioned between the customer and the distributor.

03 April 2009 energynetworks.org 5 Option 2a – Revised CAF: Total Approach Baseline Required Capacity: the design capacity of the connection, agreed with the customer. For customers requiring increases in capacity this is defined as the incremental capacity. New Network Capacity: the secure capacity following Reinforcement of the assets. Option Required Capacity: the design capacity of the connection, agreed with the customer. For customers requiring increases in capacity this is defined as the total capacity following the increase. New Network Capacity: the secure capacity following Reinforcement of the assets. Same approach for Fault Level CAF – x3 in Baseline and in Option

03 April 2009 energynetworks.org 6 Option 2b – Revised CAF: Incremental Approach; Baseline Required Capacity: the design capacity of the connection, agreed with the customer. For customers requiring increases in capacity this is defined as the incremental capacity. New Network Capacity: the secure capacity following Reinforcement of the assets. Option Required Capacity: the design capacity of the connection, agreed with the customer. For customers requiring increases in capacity this is defined as the incremental capacity. New Network Capacity: the increase in secure capacity following Reinforcement of the assets. Same approach for Fault Level CAF – x3 in Baseline and No x3 in Option

03 April 2009 energynetworks.org 7 Option 2c – Revised CAF: Incremental Approach with Headroom; Baseline Required Capacity: the design capacity of the connection, agreed with the customer. For customers requiring increases in capacity this is defined as the incremental capacity. New Network Capacity: the secure capacity following Reinforcement of the assets. Option Required Capacity: the design capacity of the connection, agreed with the customer. For customers requiring increases in capacity this is defined as the incremental capacity. New Network Capacity: the increase in secure capacity following Reinforcement of the assets. Same approach for Fault Level CAF – x3 in Baseline and No x3 in Option

03 April 2009 energynetworks.org 8 Option 3 – Allowance for Deferment of Asset Replacement Baseline The customer will not receive any credit for the value of any deferment of asset renewal expenditure by the distributor. Option The customer will receive a credit for the value of any deferment of asset renewal expenditure by the distributor in accordance with the following table. Asset to be replacedCredited Value Within x years[x%] of replacement cost Greater than x yearsNo credit given

03 April 2009 energynetworks.org 9 WS 4 – Next Steps Issue Consultation (after Easter) Consider responses and discuss with Ofgem DNOs to bring forward formal modification proposals for implementation 1 April 2010.