1. Local asset charging arrangements DCMF April 2008

2. Agenda  Introduction  Progress to date  Options  Changes to TNUoS  Specific treatment of generator connections  Specific treatment of distance to zonal hub  Local asset charging of substation assets  Change to connection/use of system boundary  Summary of pre-consultation responses

3. Introduction  Treatment of assets local to generation connections within the TNUoS methodology identified as requiring a more cost-reflective approach  SQSS design variations for demand and generations allowed, provided this does not:  Reduce the security of MITS  Result in additional investment or operational costs  Compromise licensees statutory or licence obligations  PLUGS ‘Shallow’ connection charging methodology introduced in April 2004  Many connection assets moved into infrastructure  Capital savings not reflected in TNUoS charges

4. Progress to date  GB ECM-06 final proposals submitted to the Authority in November 2006 following consultation  Generic substation and circuit discounts derived from TNUoS  Subsequently vetoed in February 2007 following impact assessment  Considered as insufficiently cost-reflective  GB ECM-09 consultation published in November 2007  12 responses received, split in support of  Discount which is consistent with original TNUoS charge  Discount which reflects the actual savings  Not possible to achieve full cost reflectivity for local asset savings and avoid inappropriate signals  GB ECM-11 pre consultation published in February 2008

5. GB ECM-11 Pre Consultation  3 high-level options presented 1.Changes to TNUoS a) Specific treatment of generation connections b) Specific treatment of distance to zonal hub 2.Local charge for substation assets 3.Change to connection / use of system boundary  Charging boundary redefined so local generation assets are charged as connection assets  Full costs charged to specific user, with apportionment rules

6. Changes to TNUoS Specific treatment of generation connections (1) y km x km G D y km x km D G G  Current arrangements  “Local” and “wider” circuits subject to the same expansion factor (£/MWkm)  “Local” and “wider” circuits different construction type and costs (particularly at 132kV)  Specific treatment of generation connections  “Local” assets removed from transport model  Separate treatment of “local” assets with more specific expansion factor and security factor

7.  Sub-options 1.Generator only vs. marginal investment  Shared radial spurs  Interconnected tees 2.Applicable voltages  132kV only  All voltages 3.Local expansion factors  Generation zone/ TO region/ GB  construction type/ circuit rating 4.TEC or CEC  Post TAR – combination of short term and long term access Changes to TNUoS Specific treatment of generation connections (2)

8. Changes to TNUoS Specific treatment of distance to zonal hub (1)  Current arrangements  Transport model used to calculate nodal costs based on standard expansion factors  Tariffs based on zonal costs; weighted average of applicable nodal costs  Distance to zonal hub, nodal charges based on:  Zonal charge  Difference between nodal and zonal MWkm  Difference between “local” and “wider” EF G1 D +100MWkm +80MWkm +90MWkm G2 For G1 & G2, 90MWkm G1 D G2 +100MWkm +80MWkm Zonal hub +75MWkm For G1, (75MWkm+ 25MWkm×[EF2-EF1] x SF) For G2, (75MWkm- 5MWkm×[EF2-EF1] x SF)

9. Changes to TNUoS Specific treatment of distance to zonal hub (2)  Sub-options 1.Local Expansion Factors  Volume weighted for Gen zone or TO region  Simplified model (last connecting circuit)  Average of generation connection circuits 2.Local Security Factors  Simplified assumptions  Seculf 3.Selection of Zonal Hub  Generation marginal cost weighted average  Lowest generation node  Demand marginal cost weighted average

10. Local asset charging of substation assets  Required to reflect the full cost of local assets  A £/kW average cost for the remote end substation  Zonal  TO region  GB

11. Change to connection/use of system boundary  Deepening of the charging boundary exposes the User to the full specific cost of asset investment  Complexity with applying a consistent boundary  Options  132kV only or all voltages  Connection asset sharing methodology  TEC  CEC  Fault level contribution

12. Summary of responses  9 responses received  Support for Option 1  Some support for Option 2 – further analysis needed  Very little support for deepening charging boundary  Support for including Substation element in charge