Ofgem threats on power distribution structure of charges

Ofgem consultation (50 pages, PDF) on a possible requirement for electricity distribution network operators to establish new structures of charges acceptable to Ofgem (and compliant with legal requirements, in particular the Competition Act 1998) across all voltage levels within the next 18 months.

According to Ofgem:

Given the repeated delays in delivering revised charging methodologies, it is no longer appropriate for this project to continue on a voluntary basis. We propose to place a formal licence condition on DNOs to deliver appropriate charging methodologies ahead of April 2010, the start of the new price control period.

The main point on which responses are sought is whether the licence condition should leave companies to work on their own or together as they see fit, or whether it should direct the development of “a common charging model for all Distribution Service Providers”, with an obligation on each company, “in conjunction with all other distribution services providers”, to “prepare and give effect” to that charging model.

Ofgem expresses a preference for mandating a common model. Under this joint working option, Ofgem states that “once the common methodology were put in place the management and modification of DNO charging methodologies would be on an individual basis”.

Ofgem also invites advance notice of any objections by DNOs to such licence obligations. Under the Utilities Act 2000 and the implementing regulations, a rejection of the proposal by more than a fifth of licensees (by number of licences and number of connected customers) could be referred to the Competition Commission. If fewer than a fifth of licensees object, and if Ofgem were to disregard their objections, the only recourse would appear to be judicial review.

Ofgem threatens big fines if the licence modification were imposed and subsequently not complied with. It does not say whether this would apply in a case where Ofgem had vetoed proposals from companies.

Responses by Wednesday 14 May 2008.

For further information or advice please contact Franck Latrémolière.

Filed under Electricity, Ofgem.

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