Provision of third party access to licence exempt electricity and gas networks Andy Pace 4 October | Energy Networks Association - DCMF

Background 2 | Energy Networks Association – DCMF The Electricity and Gas (Internal Markets) Regulations 2011 introduce new obligations on licence exempt distribution and supply undertakings, including a duty to facilitate third party access to their electricity and gas networks. Relevant DECC documents DECC Draft Guidance: Provision of third party access to licence exempt electricity and gas networks, 14 October DECC Revised Guidance: Provision of third party access to licence exempt electricity and gas networks, February Relevant Ofgem documents: Guidance on third party access charges for licence exempt gas and electricity distribution networks 151/11 dated 10 November 4 October 2012

Proposed Solutions 3 | Energy Networks Association – DCMF Full Settlement Metering Approach All premises within the unlicensed network have meters. All premises are charged DUoS as normal No DUoS charged at boundary meter No settlement issues Difference Metering Approach Some premises on unlicensed network elect to move supplier These premises will be required to have half hourly metering Meter readings of these premises will go through normal settlement process. Boundary meter reading of the unlicensed network will be reduced by the units of the premises who have elected to move supplier. Implications on how DUoS derived 4 October 2012

Difference Metering Approach 4 | Energy Networks Association – DCMF 4 October 2012

TPA Working Group 5 | Energy Networks Association – DCMF TPA working group has met twice and includes customer representatives No issues with DUoS billing for full settlement metering approach Consultation completed on 2 options for apply DUoS under the difference metering approach: OPTION 1: Apply DUoS at boundary –DUoS charged at boundary as normal on raw meter data (not adjusted for difference metering) –Supplier of premises within unlicensed network not charged DUoS for site –Unlicensed network provider charges premises using their approved methodology for use of system charges (via supplier) –Requires raw data and difference data to be available for the boundary meter. –Implications on settlement process 4 October 2012

TPA Working Group 6 | Energy Networks Association – DCMF OPTION 2: Apply DUoS at boundary and individual premises –DUoS charged to premises on unlicensed network who have elected to move suppler as follows: Same unit rates as applied at boundary meter Zero capacity charges (unlicensed network operator will charge this element) Zero reactive charges (unlicensed network operator will charge this element) Possibly an element of the fixed charge –DUoS charged at the boundary meter as follows (on adjusted meter readings): Capacity charge (based on MIC) Reactive charges Unit rates Fixed charge (possibly reduced) Gross flow required to determine excess capacity Gross flow required to determine full reactive charge 4 October 2012

7 | Energy Networks Association – DCMF 4 October 2012

8 | Energy Networks Association – DCMF 4 October 2012

Analysis of TPA Charging Methods 9 | Energy Networks Association – DCMF 4 October 2012 Charging Method StrengthsWeaknesses Boundary One bill to the supplier Favoured by majority of DNOs Follows general industry approach of network billing Ensures cost reflectivity regarding the supplier licence Simplest flows of data and billing Customers at the meeting were not keen on this option, preferring the Customer charging option Needs a new flow of gross data Customer Preferred option for the customers that attended the meeting and some of their suppliers Customers believe that this approach will allow them to clearly be able to see their direct DUoS cost Needs a new flow of gross data More complex solution with additional data and billing movements and more scope for error/double counting Increased financial risk for parties given the number of billing transactions Unclear if legal under DNO licences Likely to be more expensive due to the increased flows information and billing, through administrative costs Majority of DNOs favoured Boundary option Suppliers receive multiple bills

Next Steps 10 | Energy Networks Association – DCMF Draft document circulated to working group Agreed document will be sent to Ofgem with 2 key questions: –Confirm the legality/appropriateness of the customer charging option –Request clear guidance on Ofgem’s preference on charging 4 October 2012