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CDCM Training Session

CDCM Training Session. Introduction to producing DUoS Tariffs using CDCM Models Julia Haughey (EDF Energy) Binoy Dharsi (IPM Energy Retail Ltd). Agenda. Brief explanation of CDCM Information now available to suppliers Assumptions to consider Overview of CDCM model Annual review pack

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CDCM Training Session

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  1. CDCM Training Session • Introduction to producing DUoS Tariffs using CDCM Models • Julia Haughey (EDF Energy) • Binoy Dharsi (IPM Energy Retail Ltd)

  2. Agenda • Brief explanation of CDCM • Information now available to suppliers • Assumptions to consider • Overview of CDCM model • Annual review pack • EDCM what’s happening • How to get involved

  3. CDCM Common Distribution charging methodology (CDCM) In October 2008 Ofgem published proposals for common distribution charging methodology Long Run Incremental Charge(LRIC) for EHV customers Distribution reinforcement model (DRM) for LV/HV customers Objections were raised by the two Scottish companies Ofgem decided not to go the competition commission but instead the two models became separate CDCM and EDCM DNOs published proposals for CDCM in August 2009 with a few amendments these were accepted and CDCM went live on 1st April 2010

  4. CDCM objectives Cost reflective model Common model to calculate the charges but with DNO specific inputs rather than 7 different methodologies that were already in place Common structure to the charges so all tariffs have the identical components whatever DNO they are in Common Licence condition 14 statements same structure tables called the same Consistent and simplified information for customers and suppliers

  5. CDCM issues Main issues of the CDCM Some customers saw huge changes in April 2010 increases of over 200% Mainly in the HH market The trade off for cost reflective tariffs means that more updates are likely For suppliers offering fixed term contracts this can prove to be even more challenging

  6. CDCM change to charges April 2010

  7. CDCM changes

  8. CDCM timebands

  9. Process involved in creating tariffs Price Control Review (DCPR5) RPI, Low Carbon Networks, Under/Over -Recovery Possible parameter changes in the future (e.g. time bands) Revenue derived for each DNO for five years Revenue entered into CDCM model DUoS tariffs produced Repeat for each year

  10. Price Control Review Allowed Revenue as published by Ofgem in February 2010 The allowed revenue does not account for inflation, so this (at the very least) would need to be accounted for • http://www.ofgem.gov.uk/Networks/ElecDist/PriceCntrls/DPCR5/Documents1/Appendix%201%20Feb%2023%20signed.pdf (page 24)

  11. Updated Revenue Information • The most up-to-date view of DNO’s revenue can be gained from the quarterly DCP 030 teleconference calls

  12. The CDCM Model • The CDCM model is a standardised methodology that apportions allowed revenue (set by Ofgem) and translates this into tariffs for HH, HH and Unmetered supply points • The model has been developed to represent a more unit driven tariff to firstly provide a cost signal to customers to reduce usage and also replicate the system peaks by loading costs into the day unit and/or red/peak for HH tariffs • Each DNO essentially has the same CDCM model with variations to represent regional differences • To use the model at its most basic level it requires the input of only 1-5 data fields • The model also have several other more sensitive elements which can be changed as part of a DCUSA change and this will not be covered in this training session

  13. Assumptions • The revenue that feeds into the CDCM model for April each year needs to be scaled by RPI • RPI for Distribution Revenue is set as the average of the last six months of the year (July to December) • DNO’s have incentives in place to ensure that they do not Under/Over Recovery revenue by a set percentage in any given year. If they are close to breaching these limits they will consider a mid-year tariff release • The sensitivity of the model, through demand usage and the weighting of revenue collection through unit rates means that forecasting tariffs become harder • Low Carbon Network (LCN) Schemes and other re-openers are not always accounted for by DNO’s so it is worthwhile understanding the big drivers that need to be factored in • Some DNO’s account for LCN funding however some only apply a small proportion of this

  14. Inputs required to create tariffs Direct, Indirect and Network costs can be inflated by RPI although DNO’s will update this for the next tariffs for 2011/12. Transmission Exit charges are supplied to each DNO by National Grid

  15. Inputs required to create tariffs This is the main driver in terms of setting tariffs This input is the amount of revenue that is collected through EHV / Site Specific customers There is uncertainty of what this figure is likely to be so taking a 10-20% variance can make £1mn difference

  16. Tariffs Produced

  17. Inputs required to create tariffs Increasing the revenue figure by £20mn

  18. Tariffs Produced – Revenue increase Unit rate have increased through the £20mn revenue increase although Fixed and Capacity Charges have remained the same

  19. Worked Examples of Tariffs The NEDL CDCM Model increases the Unrestricted NHH unit rate by 9.4% for a £20mn revenue increase For a LV HH customer you will note that the Red rate increases by 17.4% with little change for the Amber and Green rates It is worth noting that the Red (Peak) rate for HH tariffs are significantly higher than the other (Amber and Green) rates: The Maximum Peak value is in SWEB at approximately 21p/kWh The Lowest Peak value is in London at approximately 2p/kWh

  20. Annual review pack CDCM Annual Review Pack Produce 5 year of CDCM inputs DNOs to provide commentary and assumptions behind the CDCM inputs To highlight any changes timebands Suppliers to produce tariffs To be issued in December 2010

  21. Annual review packcontents

  22. Annual review pack contents

  23. EDCM what’s happening EDCM was due to be implemented 1st April 2011 Ofgem decision to delay until 1st April 2012 wanted more justification More stakeholder involvement Impacts all customers on site specific tariffs Plus with the boundary change all HVS customers will move onto the EDCM model- more change All customers will see a change Allowed revenue to be split between CDCM and EDCM final decision will impact CDCM customers as well Consultation due out imminently

  24. How to get involved DCMF- ENA offices every two months next one 6th January 2011 EDCM Consultation responses due 1st February 2011 Workstream C main suppliers participate CDCM governance 28 changes to the current model proposed DCP030 tele-conference calls quarterly

  25. Thank you

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