1. Managing Exceeded Capacity

2. 10 September 2009 2 The Issue of Exceeded Capacity DNO Connection Charging Methodologies: customers who increase Maximum Capacity pay connection charges for any works needed. Customers may also pay contribution for previous reinforcement Customers exceeding their Maximum Capacity –may avoid paying customer contributions and drive general network reinforcement expenditure –are a major problem (10% to 20% exceeding capacity) Existing charging and enforcement mechanisms provide minimal incentive for customers to manage their capacity within their contracted levels In DPCR5, Ofgem focussing on three themes: Environment, Customers and Networks To help attain these objectives, charging and commercial policies need to encourage efficient investment whilst delivering good customer service

3. 10 September 2009 3 DNO Remedies for Breach Customers who exceed Max. Cap. in breach of connection agreement 12.3 The Customer not to exceed the Maximum Capacity; 12.4 Where Customer breaches Clause 12.3, it shall: 12.4.1 upon written notice from the Company, reduce to within the Maximum Capacity; and 12.4.2 where it wishes, propose a variation to the Maximum Capacity; or 12.4.3 where it wishes submit a Modification Application. 12.5 Following a breach of Clause 12.3 the Company shall be entitled to charge the Customer (the Customer to pay on demand) such sum as the Company may require calculated in accordance with the Company’s charges. 5.6 The Company may without notice to the Customer, De-energise the Connection Point if: 5.6.4 the Customer breaches Clauses 12.3, 5.7 If the Company De-energises the Connection Point as a result of breaches by the Customer, then the Customer shall pay on demand any costs incurred by the Company. Remedies are administratively burdensome. If no co-operation from Customer then only option is de-energisation If entry for de-energisation is refused, then enforcement through the County Court process as Electricity Code would not apply This remedy is ineffective: rarely if ever used by DNOs in practice

4. 10 September 2009 4 Submitted CDCM Proposals CDCM submitted by the DNOs in compliance with SLC 50.14 and 50.15 has the same rate for Exceeded Capacity and for Maximum Capacity A proposal for a higher rate for Exceeded Capacity was withdrawn shortly before submission as Ofgem concern that it had not been fully justified Majority of DNOs agreed that this proposal should therefore not be included in the CDCM submission: All DNOs supported the CDCM In CDCM proposals, customers who exceed capacity will incur higher charges each month, but they may avoid connection charges Majority of DNOs (CE, CN, EDF-E, ENW) concerned that submitted CDCM provides insufficient incentives to customers to remain within Maximum Capacity and to promote efficient network investment

5. 10 September 2009 5 Alternative Remedies (1) for Exceeded Capacity: 1. Charge for the Exceeded Capacity at a higher rate than the contracted Maximum Capacity Previously used by CN: proved effective in addressing issue Ofgem stopped CN using approach as were not satisfied that Exceeded Capacity charge was cost reflective Charge rate three times higher for Exceeded Capacity Following graph illustrates CN experience of the effectiveness, in terms of reducing excess over two years effect of reverting to the standard rate.

6. 10 September 2009 6 CN Experience:

7. 10 September 2009 7 Alternative Remedies (1) for Exceeded Capacity continued: 1. Charge for the Exceeded Capacity at a higher rate than the contracted Maximum Capacity Ofgem issues have been addressed 500MW model in CDCM produces annuitised costs of capacity at each voltage level Various proportions of these costs are included in the capacity charges. Costs are then DISCOUNTED to reflect contributions Exceeded Capacity charge is NOT DISCOUNTED as no contributions Proposed higher rate represents true cost of capacity: –not a penalty nor reflects future uncertain costs that may not materialise. –calculated the same as all other charges in the CDCM; and –is as cost reflective as all other charges in CDCM The expected IT billing costs of this proposal are unlikely to be any greater than for the current CDCM proposals

8. 10 September 2009 8 Alternative Remedies (2) for Exceeded Capacity continued: 2. Levy connection charges through the supplier Where a breach occurs, connection charges payable but customer refuses to pay: levy the connection charge on the supplier Supplier then recovers costs from the customer Statutory rights on entry for de-energisation apply to non- payment of supplier charges: Remedy easier to enforce. Approach requires changes to DCUSA and NTC Approach may be disproportionate, especially for isolated incidences. Such one-off breaches can be ‘inadvertent’. Recurrence can be discouraged by a clear and appropriate cost message.

9. 10 September 2009 9 Alternative Remedies (3) for Exceeded Capacity continued: 3. Pass-through of capacity breach investigation costs DNOs could levy costs in following up instances of Exceeded Capacity Costs would cover the transactional costs of actions such as –administrating capacities –contacting and visiting sites –processing stages towards de-energisation

10. 10 September 2009 10 Conclusion: Current approach penalises customers who remain within Maximum Capacity or pay for increases The existing processes and remedies are ineffective Effective remedies are necessary to meet DPCR5 requirements Option 1) is another form of DSM, which Ofgem want DNOs to undertake Paying customers to constrain demand will be ineffective if others can drive reinforcement without bearing the cost CE, CN, EDF-E and ENW believe Option 1) is a proven cost reflective method of managing capacity and cost on the distribution network. If proposal not accepted, other approaches will have to be progressed through the various governance processes. The status quo and submitted CDCM approach do not work and changes are required.