Ofgem wants to determine the distribution charging method

Ofgem consultation (27 pages, PDF) on the implementation of its “decision” to force the 14 electricity distribution network operators in Great Britain to develop and use a “common charging methodology”.

In contrast to the common methodology options in the April 2008 consultation, the proposal is now that Ofgem will determine which common methodology will be used. This is to address the regulatory risk that respondents had identified in the April 2008 common methodology option.

Ofgem states that:

It remains our intention to progress the project through a collective licence modification following consideration of responses to this letter. Specifically, we propose to consider responses to annex 2 [which is a brief overview of various methods used or proposed in the industry] in determining the methodology for generator and demand charging across all voltage levels including reactive power and IDNO charging. In arriving at that decision we will hold discussions with the industry via a working group. We will follow this with publication of our decision and statutory consultation on the related collective licence modification. Our decision may also highlight shortcomings of the methodology which we would expect industry to address prior to 2010.

The timetable envisages that Ofgem would select a method in October 2008, and that the industry would then establish working groups to agree on the implementation and the details of future governance arrangements for the common methodology.

The current licence obligations for companies to keep their methodologies under review remains in force, yet Ofgem states that:

Given our decision to implement a common charging methodology we urge DNOs to focus now on common charging arrangements going forward. While we are happy to informally consider different methodologies during this consultation phase and are keen to see the full range of proposals before making a decision on a common methodology, we request that DNOs stop submitting formal modification proposals to us.

Substantial methodology modifications proposals from SP Energy Networks, EDF Energy Networks and Electricity North West are currently under consideration or consultation by Ofgem. The letter says nothing about the fate of these processes.

Four-week mid-summer consultation: Responses by Tuesday 19 August 2008.

Update: Ofgem has published the responses (many PDF files). Central Networks has submitted Reckon's paper on risks of exploitative abuse alongside its response.

For further information or advice please contact Franck Latrémolière.

Filed under Electricity, Ofgem.

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

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