1. IDNO Tariff Proposal Andrew Neves

2. © 2007 E.ON Background IDNOs have issues with current DNO tariffs  Alleging ‘margin squeeze’  Particular issues with capacity and reactive charges  Want structural parity between their tariffs and upstream DNO charges (i.e. simple structures) WPD and SP’s tariff modification proposals vetoed  Both were complex changes which raised various issues  WPD has subsequently made revised proposals Pressure from Ofgem “…we urge all of the other DNOs to review their approach to charging IDNOs without delay….” (Martin Crouch – WPD veto letter)

3. © 2007 E.ON Proposal Simple change  Based on current tariff pricing principles  Can’t match ‘fixed plus unit charges’ domestic structure against similar IDNO tariff due to variable number of connections - therefore propose simple ‘unit rate only’ versions of base commercial tariffs  IDNOs chose between base and unit only tariff for each connection  ‘Use it or lose it’ rule for capacity (needs developing) Variants on four base tariffs  LV Small Non Domestic (two rate), LV Medium Non Domestic, LV Large Non Domestic and HV Large Non Domestic  Calculate equivalent unit rate by forecasting total yield of each base tariff and finding unit rates that give the same yield

4. © 2007 E.ON IDNO margin scenarios – CNE current tariffs Assumes 4000 annual units per house(15% night), ADMD 1.4 kW per house, 0.95 power factor, losses 1% LV-LV, 3% LV-HV.

5. © 2007 E.ON IDNO margin scenarios – equivalent CNE unit only tariffs Assumes 4000 units per house(15% night), ADMD 1.4 kW per house, 0.95 power factor, losses 1% LV-LV, 3% LV-HV.

6. © 2007 E.ON IDNO margin scenarios – choice of tariffs Percentages in bold are the best IDNO options for each scenario Assumes 4000 units per house(15% night), ADMD 1.4 kW per house, 0.95 power factor, losses 1% LV-LV, 3% LV-HV.

7. © 2007 E.ON IDNO margin scenarios – CNE draft G3 tariffs Assumes 4000 annual units per house(15% night), ADMD 1.4 kW per house, 0.95 power factor, losses 1% LV-LV, 3% LV-HV.

8. © 2007 E.ON Plus-points and potential issues Plus-points  Simple change  Gives IDNOs choice  Addresses issue with structures  Generally improves margins  No change to underlying methodology  Principles easily transferable to G3 methodology in future  Requires only a simple boundary meter (or ‘virtual’ meter) Potential issues  Use it or lose it rule needed to protect against ‘capacity hoarding’  Discrimination between IDNOs and ‘normal’ customers?