05 July 2010 EDCM Stakeholder Workshop

© 2007 E.ON Agenda Background and timeline Overview CDCM / EDCM boundary Locational charging and FCP Pricing model EDCM Prices Key consultation issues Future developments 10 January 2014, E.ON, Page 2

Background and timeline

© 2007 E.ON CDCM CDCM jointly developed by DNOs, with stakeholder input Implemented April 2010 Covers all LV and HV charges DNOS working to satisfy condition relating to treatment of generator dominated areas In the event, Central Networks required no derogations No issues with CDCM billing Procuring new combined HH/NHH billing system for January 2014, E.ON, Page 4

© 2007 E.ON EDCM Will cover EHV charges from April 2011 (subject to approval) Licence requires EDCM submission by 1 September 2010 Within EDCM, DNOs have option of either LRIC or FCP CMG has established three workstreams: WSA – Network modelling WSB – Pricing modelling WSC – Price stability Some stakeholders in workstreams – more welcome! Project Manager and Technical Consultants in support See ENA website for info: January 2014, E.ON, Page 5

© 2007 E.ON Pre-April 2005 generation Generation connection rules changed from deep to shallowish from April 2005 Pre-April 2005 generation not charged export use of system DPCR5 removes dispensation not to charge from April 2010 CDCM charges (credits) HV and LV generation Ofgem pushing DNOs to implement interim EHV charging arrangements in 2010/11 Central Networks has proposed modified version of methodology for post-April 05 generation: No pass through of 80% No £1 per kW incentive £1 per kW O&M (unless paid up front) No charge where no legal right to charge 10 January 2014, E.ON, Page 6

© 2007 E.ON EDCM timeline 13 July – Ofgem boundary consultation closes 16 July – Joint DNO consultation closes July/August – DNOs consider responses and modify as needed By 1 September – DNOs submit EDCM proposals to Ofgem October/November – Ofgem consultation November/December – Authority decision Assuming no veto: Late December – DNOs publish indicative tariffs By 19 February 2011 – Final tariffs confirmed 1 April 2011 – EDCM tariffs become effective 10 January 2014, E.ON, Page 7

Overview

© 2007 E.ON Charging Model Overview (1) 10 January 2014, E.ON, Page 9

© 2007 E.ON Charging Model Overview (2) 10 January 2014, E.ON, Page 10

© 2007 E.ON Charging Model Overview (3) 10 January 2014, E.ON, Page 11

© 2007 E.ON Charging Model Overview (4) 10 January 2014, E.ON, Page 12

EDCM / CDCM Boundary

© 2007 E.ON The Current Boundary CDCM applies to customers supplied at less than 22 kV, except those currently under site-specific arrangements If the licence is not changed, EDCM will apply to all customers above 22 kV (class A), and to all HV customers currently under site-specific arrangements (class B) 10 January 2014, E.ON, Page 14

© 2007 E.ON ENA Boundary Consultation WSB has consulted on possible changes to the boundary Summary of responses published at The DNOs preference was for a 22 kV raised boundary 10 January 2014, E.ON, Page 15

© 2007 E.ON ENA Boundary Consultation – no change assumed! The prices in the EDCM consultation document assume no change Model includes current site-specific customers Any change to the boundary would require re- running the models and could materially affect prices for all customers 10 January 2014, E.ON, Page 16

© 2007 E.ON Raised Boundary Would move class B customers from current site- specific arrangements to the CDCM These customers would be removed from the EDCM modelling Will affect charges for all demand customers, including class A customers 10 January 2014, E.ON, Page 17

© 2007 E.ON Lowered Boundary Would move some CDCM customers (in class C) from the CDCM to the EDCM These customers would be added to the EDCM modelling Will affect charges for all demand customers, including class A and B customers 10 January 2014, E.ON, Page 18

© 2007 E.ON Ofgems Consultation Ofgem has proposed a number of options Some options would combine raising the boundary (excluding some class B customers) and lowering the boundary (including some class C customers) Any change would require a modification to the distribution licence conditions 10 January 2014, E.ON, Page 19

© 2007 E.ON Ofgems Impact Assessment Implementing any boundary change would involve re-running the whole EDCM model and affect all prices for all EDCM customers Illustrative prices that have been published do not apply to all boundary options Actual price impact of boundary changes could be quite different 10 January 2014, E.ON, Page 20

© 2007 E.ON EDCM / CDCM Boundary – Next steps The illustrative charges in the EDCM consultation document are likely to change These changes will be affected by the outcome of the boundary consultation Submission in September will reflect the boundary in the licence at that time 10 January 2014, E.ON, Page 21

Locational charging and FCP

© 2007 E.ON What is EHV locational pricing? Valuation of spare capacity Tariffs vary by point of connection Reflects levels of utilisation of network assets Benefits: Connections where there is spare capacity Demand-side management Price signals to distributed generation Economically efficient network reinforcement 10 January 2014, E.ON, Page 23

© 2007 E.ON Forward Cost Pricing (FCP) Network studies Analysis based on a zonal approach (network groups) Network resilience over a 10-year period assessed Reinforcements due to load AND generation identified – only thermal capacity considered Load and generation treated differently Load analysis Peak and Maintenance scenarios assessed for each year Earliest year in which each asset requires reinforcement identified Generation analysis Single analysis (minimum loads, maximum output from existing generation) Hypothetical generators connected to test resilience Additional generation that can be connected before overloads occur estimated 10 January 2014, E.ON, Page 24

© 2007 E.ON FCP – distribution network analysis Demand Generation 10 January 2014, E.ON, Page 25 Peak Demand Analysis N-1 contingencies Diversified winter loads Winter asset ratings Secure generation output Summer Demand Analysis N-2 contingencies Diversified summer peak loads Summer asset ratings Secure generation output Reinforcement Identify reinforcement Identify timing Most Onerous Regime Identify timing Reinforcement Identify reinforcement Identify timing TSG Analysis N-1 contingencies Diversified summer min. loads Summer asset ratings Maximum generation output Test size generator overload ? Headroom Analysis Generator increments Identify reinforcement NO YE S

© 2007 E.ON Typical FCP cost recovery profile 10 January 2014, E.ON, Page 26

© 2007 E.ON Derivation of network group prices 10 January 2014, E.ON, Page 27

© 2007 E.ON Original FCP generation principles Prediction of sizes and locations of future connections difficult Test size generators used to simulate effect of lumpy connections Test size generators derived from existing plant profile – 85 th percentile Connected to principal substation in each network group Headroom assessment pricing No price if TSG does not cause any overloads Incremental generator increased until overload – price based on headroom Aimed more at assessing fault level costs Generator driven costs dominated by switchgear (fault level) 10 January 2014, E.ON, Page 28

© 2007 E.ON Improvements to FCP generation principles 10 January 2014, E.ON, Page 29 Original MethodologyImproved Methodology SizeTSGs derived from existing generation plant profile TSGs derived from existing generation plant profile AND accepted offers [TSG sizes linked to future connections] Connection points TSGs connected to principal substation TSGs connected to principal substation AND network group perimeter [Circuits explicitly tested] Probabilities used in pricing Probability derived from total test and forecast generation for each voltage level Probability extended to incorporate multiple tests in each network group [Recognition that an asset may be overloaded by multiple tests within same network group]

© 2007 E.ON Test Size Generator size profiles 10 January 2014, E.ON, Page 30 Original MethodologyImproved Methodology Voltage (kV) CN EastCN WestVoltage (kV) SubstationCircuit

© 2007 E.ON TSG connection point – original methodology 10 January 2014, E.ON, Page 31

© 2007 E.ON TSG connection points – improved methodology 10 January 2014, E.ON, Page 32

© 2007 E.ON Central Networks FCP outputs All prices indexed against estimated reinforcement costs Reinforcements validated against our 10-year network plan and watch list 10 January 2014, E.ON, Page 33

© 2007 E.ON Locational prices for selected 132kV network groups 10 January 2014, E.ON, Page 34 Willington: L: £1.54 G: £0.00 Ratcliffe- on-Soar: L: £3.41 G: £0.00 Drakelow: L: £0.00 G: £0.00 Enderby: L: £0.00 G: £0.91

© 2007 E.ON Locational prices for selected 33kV network groups 10 January 2014, E.ON, Page 35 Willington: L: £1.54 G: £0.00 Drakelow: L: £0.00 G: £0.00 Burton: L: £0.00 G: £1.71 Burton South: L: £0.00 G: £0.00 Gresley: L: £0.00 G: £1.63 Heanor: L: £1.58 G: £1.61 Stanton: L: £1.54 G: £1.25 Spondon: L: £1.54 G: £0.49 Derby: L: £5.18 G: £0.71 Derby South: L: £1.78 G: £0.00 Uttoxeter: L: £5.13 G: £1.73

Pricing model

© 2007 E.ON Key Inputs Customer dataset Capacity, peak-time consumption, generated units forecast, etc. FCP or LRIC dataset Charge 1, charge 2, gross kW and kVAr flows in maximum and minimum demand scenarios DNO data: revenue, CDCM model assets, … 10 January 2014, E.ON, Page 37

© 2007 E.ON Overview of the application of charge 1 and charge 2 10 January 2014, E.ON, Page 38 Charge 1Charge 2 Import MPAN Charge to import capacity or peak- time demand Billed as p/kVA/day Nothing Export MPAN Generation credit based on F factor Billed as p/kWh Export capacity charge Billed as p/kVA/day

© 2007 E.ON Component of Demand Tariffs 10 January 2014, E.ON, Page 39 ComponentDriverApplied by Sole useSole use asset MEAVFixed charge Charge 1Capacity/peak-time consumption Capacity charge ExitPeak-time consumptionCapacity charge Scaling – peak-timePeak-time consumptionCapacity charge Scaling – capacityCapacityCapacity charge

© 2007 E.ON Breakdown of Demand Tariffs – By DNO 10 January 2014, E.ON, Page 40

© 2007 E.ON Component of Generation Tariffs 10 January 2014, E.ON, Page 41 ComponentDriverApplied by Sole use if applicable Sole use asset MEAV Fixed charge Charge 1Units exportedUnit credit Exit (non generation dominated) Units exportedUnit credit Exit (generation dominated) CapacityCapacity charge Charge 2CapacityCapacity charge

© 2007 E.ON Breakdown of Generation Charges & Credits – By DNO 10 January 2014, E.ON, Page 42

© 2007 E.ON Charging Model Overview (1) 10 January 2014, E.ON, Page 43

© 2007 E.ON Charge 1 - Demand Charge 1 comes from the load flow modelling Applied to agreed capacity for network group to which customer is connected Applied to demand at time of peak for parent or grandparent groups Note: for CN time of peak or super red time band is to 19.00, Mon-Fri, Nov-Feb 10 January 2014, E.ON, Page 44

© 2007 E.ON Worked Example – Charge 1 Demand Location – Derby South BSP FCP charge 1: £0.24/kVA/yr Applied to Agreed Capacity: 27,000 kVA Charge: 27,000 x £0.24 = c. £6,000 Parent Location – Willington GSP FCP charge 1: £1.54/kVA/yr Applied to Peak Time Consumption: c. 15,000 kVA Charge: 15,500 x £1.54 = c. £23,000 Applied as a charge to agreed capacity Charge = (£ *15000/27000) = £1.10/kVA/yr £1.10/kVA/yr = 0.3p/kVa/day 10 January 2014, E.ON, Page 45

© 2007 E.ON Charge 1 - Generation Charge 1 comes from the load flow modelling Credit (p/kWh) if generator supports the network Intermittent generation deemed not to support Applied throughout the year (not in super red) 10 January 2014, E.ON, Page 46

© 2007 E.ON Worked Example – Charge 1 Generation Location – Derby South BSP FCP demand charge 1: £0.24/kVA/yr Convert to generation credit: Non Intermittent: 0.24 x 100 / 8760 x 1 = p/kWh Intermittent: 0.24 x 100 / 8760 x 0 = p/kWh Applied to Output (kWh): 290,000,000 kWh Credit: 290,000,000 x p = c. £8,000 Parent Location – Willington GSP FCP charge 1: £1.54/kVA/yr Convert to generation credit: Non Intermittent: 1.54 x 100 / 8760 x 1 = p/kWh Intermittent: 1.54 x 100 / 8760 x 0 = p/kWh Applied to Output (kWh): 290,000,000 kWh Credit: 290,000,000 x p = c. £50, January 2014, E.ON, Page 47

© 2007 E.ON Charge 2 - Generation Charge 2 comes from the load flow modelling Applied to agreed capacity for network group to which customer is connected Applied to agreed capacity for parent or grandparent groups 10 January 2014, E.ON, Page 48

© 2007 E.ON Worked Example – Charge 2 Generation Location – Stony Stratford BSP FCP charge 2: £1.81/kVA/yr Applied to Agreed Export Capacity: 15,000 kVA Charge: 15,000 x £1.81 = c. £27,000 Parent Location – East Claydon GSP FCP charge 1: £0.00/kVA/yr Applied to Agreed Export Capacity: 15,000 kVA Charge: 15,000 x £0.00 = c. £0 Applied as a charge to agreed capacity Charge = (£ £0.00) = £1.81/kVA/yr £1.81/kVA/yr = 0.5p/kVa/day 10 January 2014, E.ON, Page 49

© 2007 E.ON Charging Model Overview (2) 10 January 2014, E.ON, Page 50

© 2007 E.ON Demand Tariffs Sole use asset charge Fixed charge (p/day) Proportional to modern equivalent asset value Based on direct costs only Transmission exit All expressed as capacity charges (p/kVA/day) Charge rate reflects peak-time consumption 10 January 2014, E.ON, Page 51

© 2007 E.ON Charging Model Overview (3) 10 January 2014, E.ON, Page 52

© 2007 E.ON Demand Scaling (1) 1.Apportion allowed revenue between voltage levels on basis of MEAVs 2.Split EHV portions (and cost of generation credits) between EDCM customers and CDCM customers on basis of demand At voltage level of connection use agreed capacity for EDCM customers At higher voltage levels use demand at peak This gives the EDCM Demand pot 3.Subtract demand charge 1, sole use, transmission exit and add back generation credits to give required scaling amount 10 January 2014, E.ON, Page 53

© 2007 E.ON Demand Scaling (2) 4. Required scaling amount divided by sum of agreed capacities and estimated peak time consumption of all EDCM demand customers giving a single £/kVA/year fixed adder 5.Fixed adder applied to agreed capacity and estimated peak time consumption of each EDCM user. Between 2 otherwise identical customers: The one with the higher agreed capacity will pay more in scaling The one with the highest peak time consumption will pay more in scaling 10 January 2014, E.ON, Page 54

© 2007 E.ON Demand Scaling – Illustration Scaling Revenue Required: £60, January 2014, E.ON, Page 55 Ben NevisSnowdon Forecast Agreed Capacity20,000 Historic Peak time consumption as a proportion of agreed capacity 18,0002,000 Scaler calculation60,000 / (20, , , ,000) = £1/kVA/yr Scaler£1/kVa/yr£1/kVA/yr Scaling calculation1 x (20, x 20,000) 1 x (20, x 20,000) Scaling allocation£38,000£22,000

© 2007 E.ON Demand Scaling Options vs current demand charges 10 January 2014, E.ON, Page 56 Current demand charges £ million Option 14 demand charges £ million Option 3 demand charges £ million Option 12 demand charges £ million Option 15 demand charges £ million CE NEDL4.65.5No data CE YEDL4.44.8No data CN East CN West EDFEN EPN EDFEN LPN EDFEN SPN ENW FCP: 3.7 LRIC: SPEN SPD SPEN SPM SSEPD SEPD SSEPD SHEPD WPD Wales FCP: 10.2 LRIC: WPD West FCP: 1.8 LRIC: Total

© 2007 E.ON Generation Scaling No scaling applied to Generation Credits Currently proposed no scaling applied to Generation Charges, but options being discussed: Add £1/kW/yr to cover O&M calculate scaler for post 2005 DG targeting post 2005 DG allowed revenue and apply scaler to all DG 10 January 2014, E.ON, Page 57

© 2007 E.ON Charging Model Overview (4) 10 January 2014, E.ON, Page 58

EDCM prices

© 2007 E.ON CNE tariff Movements 10 January 2014, E.ON, Page 60

© 2007 E.ON CNE tariff Movements 10 January 2014, E.ON, Page 61

© 2007 E.ON Component of Demand Tariffs 10 January 2014, E.ON, Page 62 ComponentDriverApplied by Sole useSole use asset MEAVFixed charge Charge 1Capacity/peak-time consumption Capacity charge ExitPeak-time consumptionCapacity charge Scaling – peak-timePeak-time consumptionCapacity charge Scaling – capacityCapacityCapacity charge

© 2007 E.ON Breakdown of Demand Tariffs – By DNO 10 January 2014, E.ON, Page 63

© 2007 E.ON Breakdown of Demand Tariffs – By Customer - CNE 10 January 2014, E.ON, Page 64

© 2007 E.ON Breakdown of Demand Tariffs – By Customer - CNW 10 January 2014, E.ON, Page 65

© 2007 E.ON Component of Generation Tariffs 10 January 2014, E.ON, Page 66 ComponentDriverApplied by Sole use if applicable Sole use asset MEAV Fixed charge Charge 1Units exportedUnit credit Exit (non generation dominated) Units exportedUnit credit Exit (generation dominated) CapacityCapacity charge Charge 2CapacityCapacity charge

© 2007 E.ON Breakdown of Generation Charges & Credits – By DNO 10 January 2014, E.ON, Page 67

© 2007 E.ON Breakdown of Generation Tariffs – By Customer - CNE 10 January 2014, E.ON, Page 68

© 2007 E.ON Breakdown of Generation Tariffs – By Customer – CNW 10 January 2014, E.ON, Page 69

© 2007 E.ON Importance of Demand Profile 10 January 2014, E.ON, Page 70 Illustrative Charges: Cust 1: £200,000Cust 2: £200,000 Charges if same profile as cust 2:Charges if same profile as cust 1: Cust 1: £270,000Cust 2: £140,000

Key consultation issues

© 2007 E.ON Key consultation issues Power flow modelling Pre-April 2005 generation Charge 1 for demand Demand/generation side management Generation credits Generation charges No demand credits Negative charges Transmission exit charges Sole use asset charges Generation scaling Demand scaling options Tariff components Interconnected networks Volatility 10 January 2014, E.ON, Page 72

Future developments

© 2007 E.ON Future Developments The Distribution Charging Methodology Forum will be the place where ideas relating to charging are discussed and developed Changes arising from this will become the subjects of formal modification proposals under DCUSA governance DCUSA parties can raise modification proposals Other materially affected parties can also raise modification proposals, with the Authoritys approval The future of charging is in your hands! 10 January 2014, E.ON, Page 74

05 July 2010 EDCM Stakeholder Workshop

Thank You – Safe Journey Home!