DCMF Treatment of pre 2005 generation – DNO position Nigel Turvey 29 April | Energy Networks Association

Treatment of pre 2005 generation DPCR5 removed the exemption on pre April 2005 DG from paying use of system charges Some DNOs made modification applications earlier this year to integrate pre and post 2005 DG Ofgem requested that these were withdrawn to facilitate an Ofgem consultation on these issues Ofgem consulted on these issues between 21/07/2010 and 01/09/2010 There was a meeting between Ofgem and DNOs to ensure a common understanding of the issues needing decisions/guidance on 7 th September 29 April | Energy Networks Association

Treatment of pre 2005 generation There are three key issues that need decisions/guidance: –Principles that should be followed in deciding whether compensation is due and if so how it should be calculated –If compensation is due, whether this should be an unbundled ‘one-off’ payment to the generator or whether it should be a bundled discount to a use of system charge –From what date should charges apply to pre April 2005 EHV generators Ofgem issued a decision on the second of these on 23 rd August requiring an unbundled solution The third issue was referred to in the decision letter on EDCM timelines issued on 22 nd September which stated ‘Distributed generators (DG) connected at EHV who connected on pre-April 2005 terms will be subject to the arrangements for DG customers that will come into effect on the revised implementation date of 1 April 2012.‘ 29 April | Energy Networks Association

Treatment of pre 2005 generation DNO position on compensation is as follows: Operations and maintenance uplift –Generators connected under pre April 2005 arrangements generally paid a lump sum intended to cover the operations and maintenance overheads in relation to incremental connection equipment –These are costs that are incurred on an ongoing basis rather than one off associated with the connection of the generator –Hence, double charging of these ongoing costs will occur when DUoS charges also recover O&M costs –For this reason we believe that arrangements are needed to refund the unexpired proportion of capitalised O&M charges 29 April | Energy Networks Association

Treatment of pre 2005 generation Connection and reinforcement cost –Different treatment of generators connected under pre April 2005 arrangements and post April 2005 arrangements has occurred –This does not involve discrimination as the charging structure in place at any time treats all generators connected at that time the same –Non discrimination does not require the same charging structure to remain in place indefinitely –Hence there is no discrimination that needs to be addressed for these one-off costs of connection in contrast to the ongoing costs of remaining connected covered by the O&M uplift 29 April | Energy Networks Association

Treatment of pre 2005 generation Proposed DNO position on compensation is as follows: Operations and maintenance uplift –We believe that arrangements are needed to refund the unexpired proportion of capitalised O&M charges Connection and reinforcement cost –There is no discrimination that needs to be addressed for these one-off costs of connection 29 April | Energy Networks Association

Treatment of pre 2005 generation We await Ofgems decisions on what, if anything should be compensated for We also require Ofgem to consider and decide on: –a practicable compensation scheme (e.g. if reinforcement is to be compensated for, how to retro-apply apportionment rules; missing records, etc) –a uniform national basis for compensation (many DG parties are national operators, so should not face widely varying local interpretations) –Clear, definite and secure arrangements for DNOs to recover all compensation paid (in DPCR6 or otherwise) Ofgem are currently seeking further information from DNOs on the detailed arrangements concerning each pre 2005 generator Some DNOs have, where necessary, started to seek changes to contractual arrangements between DNOs and generators to facilitate charging once decisions has been made 29 April | Energy Networks Association