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Targeted Charging Review residual network charges – some remainders

Josephine Lord Josephine Lord Consultant
10th November 2020

While Ofgem has ruled on the arrangements that will apply to distribution use of system (DUoS) charges from 1 April 2022 following the regulator’s Targeted Charging Review (TCR) Significant Code Review (SCR) decision last November, it has still to determine a series of CUSC modifications that aim to put in place parallel arrangements for transmission charges.

At the end of September Ofgem approved three DCUSA proposals that together reform DUoS charging arrangements so that the residual element of the charge is applied on a fixed charge basis for each final demand site. There is one charging band for domestic customers and a suite of charging bands for non-domestic final demand sites.

Much of the content of the modifications was prescribed by Ofgem in its TCR SCR decision, but there were a series of issues over which the proposers (which were distribution network operators (DNOs)) and the modifications’ workgroups had some discretion over the solution to propose. These included, for example, how few sites there should be in a charging band before the band is merged with another - which was proposed to be set at two - and how that process should operate. Ofgem approved all these elements, which also included the proposed disputes process that will operate if a customer is assigned to the wrong charging band, and the exceptions process that enables changes in charging bands for large – set at 50% – changes in a site’s demand.

Work is in progress to ensure that implementation of these new charging arrangements can take place from 1 April 2022. Under the arrangements National Grid ESO (NGESO) is the agent for the DNOs in determining the boundaries of the charging bands based on data the DNOs provide. It said recently that it has now carried out this calculation and has shared the results with the DNOs and the results will shortly be available on its website.

Meanwhile, a further DCUSA modification has recently been raised, by BUUK Infrastructure, that would require DNOs to notify all suppliers of the residual charging bands that all non-domestic customers will be assigned to. This seeks to address a perceived temporary gap between a metering point being allocated to a band and this information being reflected in Line Loss Factor Classes, that could make quotes for new customers inaccurate.

For transmission use of system residual charges, the relevant proposals are still with Ofgem for determination, and there is as yet no indication of a firm date for a decision. Like the arrangements for distribution charges, those for transmission are due to come into effect on 1 April 2022. (A decision was made in March to delay the original timetable of April 2021 by a year, due to the uncertainty in charging levels faced by suppliers and customers).

Under the CUSC arrangements, there is scope to put forward a range of alternatives for Ofgem to choose between and there are important issues still to be decided upon. One is the approach for charging zones where the locational charge element is negative. The original proposal would set this charge at zero for the calculation, but alternatives seek no flooring or an adjustment approach. This impacts the charges payable by customers’ sites in different zones. Another is how many charging bands there should be for sites connected at transmission level. The original modification proposes one, but alternatives propose two or four which will significantly impact the charges that some of these transmission-connected customers face. In total for there are eight alternative options for the relevant proposal, CMP343 Transmission Demand Residual Bandings and Allocation for 1 April 2022 Implementation.

We keep track of all code modifications and their outcomes through our Modifications Registers service, and through our Alerts service we provide concise and relevant insight on developments that impact our customers, such as changes to the rules on network charging.

Our Commercial implications of Ofgem’s electricity network Targeted Charging Review on 15 December will explore the commercial impacts of this workstream on network users in more detail.

For more information please contact v.simonds@cornwall-insight.com