Structure of electricity distribution charges (2008)

The G3 group of electricity distribution network operators in Great Britain was established by E.ON Central Networks, ScottishPower EnergyNetworks and SSE Power Distribution to collaborate on aspects of the development of methods for setting distribution use of system charges.

The G3 companies asked Reckon to conduct an external, independent review of its proposals before applying for Ofgem's permission to put them into practice.

Our report, published at our client's request, examined the principles underpinning the "forward cost pricing" method proposed by the G3 companies to determine the structure of use of system charges to the EHV elements of their distribution networks, and compared it with the "long run incremental cost" approach adopted by WPD, another distribution network operator. We took account of both the incentives for customers given by different methods for setting distribution network access charges, and the competition law compliance issues raised by some of these methods.

We concluded that:

Franck Latrémolière was then asked by G3 to present the points on exploitative abuse to an industry forum discussing distribution charging methodologies.

We were subsequently asked by G3 to prepare a response (22 pages, PDF) to an Ofgem consultation on the G3 method.

*Franck Latrémolière

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Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.