The EDCM proposals A summary of Ofgem’s consultation Ynon Gablinger 2 June 2011

2 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

3 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

4 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

5 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

6 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

7 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

8 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

9 ForAgainst Full 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

10 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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