Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. Charging Methodology Update April 2008 Oliver Day Distribution Pricing Manager

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. 3 USE OF SYSTEM CHARGING CONSULTATION Closing date 22 nd February 7 responses 1 trade association 3 Large suppliers 1 Large consumer/private network operator 1 LDNO 1 Academic Mixed response on general charging method Comments aimed at charging development in general – Multiple DNO development – Split of Allowed Revenue – Minimised change Vs coordinated change – Simplistic solution unless clear benefits Comments aimed specifically to EDF Energy Networks – Concern over price movement – Cost elements not considered – Not sufficiently robust – Support of principles – Exacerbates margin squeeze to IDNOs – No implementation without IDNO charges

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. 4 USE OF SYSTEM CHARGING CONSULTATION Mixed responses to Questions asked – comments received include: 1, Time bands Reasonable approach Incompatible with Triad times More clarity on site specific description 2, Load flow data Contention with ‘Triad’ approach Suggestions to cleanse data 3, Security factors Strikes the right balance Consideration of planned development 4, Growth rates Appropriate to derive from LTDS Concern over LRIC with varying growth rates 5, Marginal costs Concern over zero and small growth rates

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. 5 USE OF SYSTEM CHARGING CONSULTATION Questions continued: 6, Demand Scaling Mixed response – Appears reasonable – insufficient description 7, Allowed Revenue Split Mixed response – Reasonable approach – Split further 8, Licence Objectives Possibly better meets compared to current More so at EHV less clear at HV/LV Should be addressed by Ofgem Yes conceptually 9, Allowed Revenue Mixed response – Review as part of price control or after – Should be addressed by Ofgem – Yes it is desirable

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. 6 OFGEM INVOLVEMENT Three meetings held to explore modelling in detail Model shared with and analysed by Ofgem Helped to improve understanding of calculations Identification of areas requiring more investigation – including: Alternative scenarios to understand the effect of the power flow scaling factor Alternative scenarios to understand the effect of different size increments Why highest demand and lowest generation charges don’t occur in the same time period Why power flow £/kVA time band charge signal relativity does not mirror the relativity of the p/kWh time band charge

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. 7 CONSULTATION CONCLUSION Still areas to address prior to submission of methodology change Recovery of cost through unit charges as a proxy to demand charges Stability of year on year charges Improvements to information provided on before and after price comparison ‘Common approach’ factor also to consider However, some clarity on current proposal:- New methodology needs to ‘better meet’ – not provide a perfect solution on first attempt – imperfections and blemishes accepted? Implementing new HH LV Substation tariff & correction of HV tariff error Misunderstanding of our use of ‘Triad’ and comparisons to NG use Belief of unfair approach to EHV connected group Effect on IDNOs

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. 8 IDNO CHARGES Accused of exasperating margin squeeze Margin examples provided not representative Our examples show ‘healthy’ margin Need for industry ‘example book’ based on real developments Our approach to all HV/LV charges: Not customer specific – same terms available to all users if meet connection characteristics With charges that are cost reflective of fixed and variable components Fair to IDNOs, private network operators and end users

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. 9 IDNO EXAMPLES Scenario 1 – Large urban mostly apartments 600 apartments HV connection – 2.5GWhs CurrentNew Margin %48%64% Average Plot Margin ££24£35 Scenario 2 – Medium development with commercial 170 dwellings Retail and leisure HV connection – 1.7GWhs CurrentNew Margin %43%54% Average Plot Margin ££38£48 Scenario 3 – Ofgem/WPD.SP medium development 150 dwellings HV connection – 0.6GWhs CurrentNew Margin %37%53% Average Plot Margin ££19£27 Scenarios 1&2 based on real developments connected to EDF Energy Networks’ system Scenario 4 – Ofgem/WPD.SP Small development 45 dwellings PC 6 connection – 0.18GWhs CurrentNew Margin %26%21% Average Plot Margin ££13£11

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. 10 NEXT STEPS Progress to secure the robustness of model in SPN Content with EHV power flow component – Strengths are greater than weaknesses Some work on yardstick model for EHV charges and Tariffs Methodology change progression Progression of HV/LV Generation charge development Implementation of methodology in EPN and LPN Still very significant amount of work Common approach – initial thoughts Need to initiate progress now Timescales too tight to wait until September Need to appreciate effort required to implement Industry wide resource constraints

Charging Methodology Development Oliver Day © Copyright EDF Energy plc. All rights reserved. THANK YOU