1. EDCM update Andrew Neves CMG Chair 2 June 2011 1 | Energy Networks Association - DCMF

2. Current position 2 June 2011 2 | Energy Networks Association – DCMF The EHV distribution charging methodology (EDCM) submitted to Ofgem and published on 1 April, see: http://2010.energynetworks.org/edcm-file-storage/7-edcm- deliverables 2011/12 Illustrative tariffs based on the EDCM submitted to Ofgem Customer total charges not provided due to legal constraints Ofgem consultation on the EDCM published on 20 May 2011, see: http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid =687&refer=Networks/ElecDist/Policy/DistChrgs http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid =687&refer=Networks/ElecDist/Policy/DistChrgs

3. EDCM submission workshop 2 June 2011 3 | Energy Networks Association – DCMF Post-submission workshop held on 12 May 2011 –Overview of the EDCM submission –Results of the volatility analysis –Managing your charges –Feedback and Q&A Lively discussion on many aspects of the EDCM –Generation charges and credits –Interaction with connection charges for pre-2005 DG –Volatility of charges –How customers can reduce their charges

4. Ofgem consultation on the EDCM 2 June 2011 4 | Energy Networks Association – DCMF Ofgem consultation document contains Ofgem’s initial views on the DNOs’ proposed EDCM: –“2.20. Our initial assessment is that it is a substantial improvement on the DNOs’ current methodologies and it largely meets the objectives set out for the project…” Detailed comments are provided on a number of methodological aspects: –“2.24. While our initial assessment of the DNOs’ proposed EDCM is broadly positive, we think that there are some areas where changes to the methodology might help the EDCM to better achieve the Relevant Objectives”

5. Ofgem consultation Issues relating to demand tariffs 2 June 2011 5 | Energy Networks Association - DCMF

6. Ofgem’s views – Demand issues 2 June 2011 6 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 1Calculation of the revenue target from demand customers The method is reasonable Issue 2Use of capacity at the voltage level of connection and super- red demand at higher levels as “cost drivers” This is a reasonable principle, however Ofgem seeks views on the use of capacity at the voltage level of connection. Issue 3Indirect costs and 20 per cent of demand scaling allocated on the basis of capacity and super-red consumption Ofgem are “broadly comfortable”. They seek views on whether super- red demand should incorporate reactive power flows.

7. Ofgem’s views – Demand issues 2 June 2011 7 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 4Direct costs, network rates and 80 per cent of demand scaling allocated on the basis of site- specific notional assets The method is reasonable, on balance. Issue 5Calculation of network use factors - Reasonable to assume normal running conditions - Possible condition 1: Change the treatment of spare capacity in the network Issue 6The 80-20 split of residual revenue to be allocated using different drivers Reasonable. DNOs to keep the split under review

8. Ofgem’s views – Demand issues 2 June 2011 8 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 7The use of 15 demand customer categories -Ofgem is not convinced these categories are required - DNOs to explain apparent inconsistencies between NUF values and categories

9. Ofgem consultation Issues relating to generation tariffs 2 June 2011 9 | Energy Networks Association - DCMF

10. Ofgem’s views – DG issues 2 June 2011 10 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 8Calculation of the revenue target from generators - Possible condition 2: To change the application of the “sole use factor”. - Otherwise reasonable. Issue 9The generation scaling methodology - Use of the fixed adder is a “positive attribute of a scaling method” - Ofgem seeks views on the general approach to generation scaling Issue 10Generation credits only applied to units exported during the super-red time band On balance, this is appropriate

11. Ofgem’s views – DG issues 2 June 2011 11 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 11No FCP/LRIC credits to intermittent generation Possible condition 3: To allow some credit to intermittent generation. Suggested method to split the FCP/LRIC credit into local and remote elements – intermittent generation could be paid on the basis of the remote element only Issue 12Import charges for generation-dominated mixed import-export sites - DNOs to provide an explanation for setting the NUFs to the collar for import tariffs of such sites -Seek stakeholder views on treating “generation-dominated assets” differently for calculating NUFs

12. Ofgem consultation Issues relating to LDNO tariffs 2 June 2011 12 | Energy Networks Association - DCMF

13. Ofgem’s views – LDNO issues 2 June 2011 13 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 13The CDCM/EDCM boundary as applied to LDNO distribution systems This is the subject of a separate Ofgem consultation and is not addressed in this consultation. Issue 14Charges for EDCM-like end users Possible condition 4: Indirect cost discount of 50 per cent should be extended to all capacity-based charge elements (i.e. 20 per cent scaling) Issue 15Number of boundary categories for CDCM portfolio tariffs Possible condition 5: Reduce the number of boundaries so that discounts only vary with the voltage level of the boundary

14. Ofgem’s views – LDNO issues 2 June 2011 14 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 16Capping of LDNO discounts on CDCM tariffs to 100 per cent This may not be appropriate – but not an issue at the moment or in the future. DNOs to keep this under review

15. Ofgem consultation Other issues 2 June 2011 15 | Energy Networks Association - DCMF

16. Ofgem’s views – Other issues 2 June 2011 16 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 17Sole use asset charges- Concerned that demand scaling is not applied to sole use assets - No change proposed for now. DNOs to re-evaluate and address under open governance, if necessary Issue 18DSM/GSM proposals- Proposals are “sensible” and provide an appropriate signal - DNOs to provide more information on the precise arrangements Issue 19Excess reactive power charges Current proposal is more appropriate than the December 2010 proposal

17. Ofgem’s views – Other issues 2 June 2011 17 | Energy Networks Association – DCMF IssueOfgem’s initial assessment Issue 20Sense checking of branch incremental costs in LRIC Possible condition 6: To modify the approach to sense-checking LRIC charges Issue 21VolatilityOfgem considering a requirement on the DNOs to deliver measures to address inherent volatility, and to offer long term products to customers Comment on Excel modelSuggestions for improving presentation and transparency

18. EDCM – Next steps 2 June 2011 18 | Energy Networks Association – DCMF Ofgem holding stakeholder workshops –Demand workshop: 6 June 2011 –Generation workshop: 9 June 2011 –IDNO workshop: Date to be confirmed Joint Ofgem DNO meeting to discuss areas of potential improvements to the EDCM Need to resurrect workstreams, if necessary