Common Methodology Group Work

Common Methodology Group Work Exceeded capacity discussion Arguments for not charging a higher rate for exceeded capacity PRESENTED BY María Isabel Liendo energynetworks.org energynetworks.org

Charging exceeded capacity Current situation: DNOs currently vary in their charging approach for exceeded capacity: some DNOs charge for the higher capacity (kVA) for a month, whereas others charge for the entire year (as a means to give a pricing signal to not exceed capacity). CDCM proposes charging for the exceeded capacity on the month of the breach, at the same p/KVA rate as normal capacity charges. The DNOs’ views were split in this area: a vote of 4 to 3. This presentation states the reason for the majority’s decision. energynetworks.org energynetworks.org 2

Reasons for charging at the same rate Proposal to calculate a higher (penal) rate for exceeded capacity was implemented in the CDCM model. However, the case was not clear that the charges were reflective of the real costs incurred by DNOs for capacity breaches. There are legal implications deriving from trying to impose a “penal” charge which does not reflect real costs, in particular in UoS charges were the customer is not able to negotiate the contract terms. UoS charges are a very blunt instrument to influence customer behaviour in relation to capacity usage. Other means are more effective (direct communication with the customer). energynetworks.org energynetworks.org 3

Reasons for charging at the same rate (2) There had been a precedent of Ofgem vetoing a DNO’s approach to impose a higher rate for charging capacity breached. There is no evidence of significant capacity breaches in DNO areas were only one month is charged at the same rate (WPD’s experience). There were considerable billing system implications in the DNOs’ systems to allow charging at a higher rate. It is expected that the suppliers would also have great difficulty validating the bills, since they would need to obtain and process the same data for kVA and kVAr as the DNOs, this might not be already incorporated in their systems. Therefore, the decision was made to charge exceeded capacity at the same rate as normal capacity rates. Note: Some parties continue to think this is an area for future development. energynetworks.org energynetworks.org 4

Common Methodology Group Work