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CDCM Annual Review Update

CDCM Annual Review Update. 12 May 2011. Mo Sukumaran SSEPD (on behalf of DNOs) DCMF - 2 June 2011. 1 | Energy Networks Association - CMG. DNO Licence obligations. Licence Conditions 13 The licensee must at all times have in force:

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CDCM Annual Review Update

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  1. CDCM Annual Review Update 12 May 2011 Mo Sukumaran SSEPD (on behalf of DNOs) DCMF - 2 June 2011 1 | Energy Networks Association - CMG

  2. DNO Licence obligations Licence Conditions 13 The licensee must at all times have in force: • Authority approved Use of System Charging Methodology • Authority approved Connection Charging Methodology The licensee must, for the purpose of ensuring that the Charging Methodology continues to achieve the Relevant Objectives: • review the methodology at least once every year; and • make such modifications (if any) of the methodology as are necessary for the purpose of better achieving the Relevant Objectives.

  3. Relevant Objectives In essence , the Relevant Objectives in relation to the Charging Methodology are: • DNOs need to meet their licence and electricity act obligations • facilitates competition in the generation and supply of electricity, and does not restrict, distort, or prevent competition in the market • reflects cost incurred by the DNO’s business • reflects developments and structural changes in the DNOs business

  4. CDCM Annual Review Process 7 April 2011 4 | Energy Networks Association – DCMF Three Stage Process for the Annual Review of the CDCM methodology; • First two stages (Remind and Review) combined into one session • Stage 1 & 2 – Remind/Review. • An analysis is completed – inputs/outputs of the CDCM model • Based on the licence requirements • Focusing on cost reflectivity and may also take account of approved (but not implemented) EHV methodology (EDCM) • Overview of the methodology and a review of the change proposals in place/planned • Stage 3 – Refine and Agree. • DCMF(MIG) would be used to agree the change proposal work areas

  5. CDCM Annual Review timetable April May June July August Review workshop session Remind / Review Stage 1 & 2 Consolidation of workshop Stage 3 Refine and agree allocation DCMF 7 April 2011 5 | Energy Networks Association - DCMF

  6. CDCM Annual Review Timetable 7 April 2011 6 | Energy Networks Association – DCMF 17 May – Annual Review workshop held. Meeting presentation and meeting headline issued 2 June DCMF – update stakeholders on Annual Review workshop June/July – Methodologies Issue Group (MIG) to review workshop outputs and progress change proposal work areas August DCMF – update stakeholders - completion of Annual Review process.

  7. CDCM Annual Review Workshop Feedback 12 May 2011 Workshop Objectives: • Review the CDCM Methodology • Present an independent challenge on areas of the CDCM • Identify, discuss and group issues • Progression of further work and change process 7 | Energy Networks Association - CMG

  8. The change process Output from annual review 29 April 2010 8 | Energy Networks Association Licence condition 50.28 sets out that DNOs must make arrangements to provide for the review and future modification (where appropriate) of the modification arrangements.

  9. Potential Issues with CDCM 12 May 2011 Reckon gave a presentation: • A high-level review of CDCM issues • Categorisation of Issues • Structure of tariffs and calculations • Predictability and volatility • Impact of wider developments 9 | Energy Networks Association - CMG

  10. Potential Issues with CDCM 12 May 2011 • Parties likely to be affected • Suppliers • mostly affected by predictability, transparency, governance and interactions with wider industry developments • Generators • Generation dominated areas and EDCM • IDNOs and out-of-area DNOs • Potentially affected by all the issues 10 | Energy Networks Association - CMG

  11. Potential Issues with CDCM 12 May 2011 • Difficult to foresee effect of CDCM changes • Impact different for various customer types • due to interaction of tariffs subject to same tariff • Experiment with model to assess likely impact of a change • Specific Issues identified • Costing assets on ‘hypothetical’ 500MW Model and cost running costs on forecasts basis 11 | Energy Networks Association - CMG

  12. Potential Issues with CDCM 12 May 2011 • Specific Issues identified (cont’d) • Revenue matching approach • Allocation of costs • Exclusion of replacement • Partial recovery of indirect costs • Calculation of directs and indirects (based on RRP analysis?) • Costing of 500MW Model • Extension of existing network to meet new 500MW or • Replacement of network to serve 500MW of actual demand • Costing basis eg LV trenching costs, application of on-costs 12 | Energy Networks Association - CMG

  13. Potential Issues with CDCM 12 May 2011 • Specific Issues identified (cont’d) • Use of coincidence factors to allocate costs • NHH / HH tariffs (cause of price differentials) • Some NHH charges based on consumption at time of DNO system peak • HH charges based on use of peaking probabilities • Methodology and Model are complicated • Model available and transparent (excel formulas can be traced) • Perceived as ‘black boxes’ • Complexity due to reflecting different licence/economic/ofgem objectives 13 | Energy Networks Association - CMG

  14. Potential Issues with CDCM 12 May 2011 • Specific Issues identified (cont’d) • Governance process • Change proposes measures against ‘ 4 licence objectives’ • Individual changes may not address related methodology issues • Should we take ‘patches’ fix approach or review the overall design? • Should we have 2 models eg CDCM and Model ‘M’ (for IDNO discounts) or a single model? 14 | Energy Networks Association - CMG

  15. CDCM Annual Review Generation Dominated Areas (GDA) 12 May 2011 • DNOs appointed Frontier Economics to review GDA issues • Frontier Economics concluded in their initial report: • Strong case against introducing complex locational based HV and LV charging regime at this time • May be a case for introducing a simpler charging regime for HV • Consideration given to advantages/disadvantages that are difficult to quantify 15 | Energy Networks Association - CMG

  16. CDCM Annual Review Generation Dominated Areas (GDA) 12 May 2011 • Frontier Economics final’ report expected by end June: • expected to propose no urgent change required • allows to reflect on EDCM and other CDCM work that may interact with GDA generation • implement Initial GDA measures in April 2013. 16 | Energy Networks Association - CMG

  17. CDCM Annual Review Improvements Planned 12 May 2011 MIG Issues Log • 15* Issues on MIG log • Start, submission and implementation dates MIG Meetings • MIG – open monthly meetings • Papers published on ENA website *some contain multiple similar issues grouped together 17 | Energy Networks Association - CMG

  18. CDCM Annual Review Improvements Planned 12 May 2011 18 | Energy Networks Association - CMG

  19. CDCM Annual Review Open session 12 May 2011 • Issues discussed: • Provision of NHH tariffs for HH metered customers • PC5-8 customers face higher charges if switched to HH • HH calculation of excess Reactive charges • Split of ‘K’ recovery between customer groups • Improve Predictability of CDCM charges • Improve allocation of costs and Scaling approach • Reduce ‘distortion’ near CDCM/EDCM boundary 19 | Energy Networks Association - CMG

  20. CDCM Annual Review Next Steps 12 May 2011 • Issues identified at the workshop will be submitted to the MIG at its meeting on 30 June • Proceed to Stage 3 of the Annual Review 20 | Energy Networks Association - CMG

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