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The EDCM proposals
A summary of Ofgem’s consultation
Ynon Gablinger2 June 2011
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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
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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
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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
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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
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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
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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
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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
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For Against
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
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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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