Common Methodology Group Work

1. Common Methodology Group Work Presentation from Workstream 2 Development of the distribution reinforcement model 11 December 2008 PRESENTED BY GEORGE MORAN , CENTRAL NETWORKS, ON BEHALF OF WORKSTREAM 2 energynetworks.org

2. Scope Workstream 2 have the responsibility for: Producing an overall timetable for the development of a charging model that can be adopted by the DNO’s; Supporting and advising the consultants that have to deliver the suite of charging models that cover the full spectrum of charges for all voltage levels, by the end of January 2009; Ensuring that the model is cognisant of decisions coming out of workstream 3 (tariff structures); and Identifying any issues with the proposed implementation and to provide alternative solutions. ToR from: http://2008.energynetworks.org/structure-of-charges/ energynetworks.org

3. Deliverables Workstream 2 have the responsibility for: Identifying the main differences between DNO’s existing charging models to assist with the development of a common DRM model; Producing a process map detailing an overview of the model functionality; Developing spreadsheets which capture the requirements of the common methodology set out in Ofgem’s October decision document; and Documentation of the methodology. December 11, 2008 energynetworks.org 3

4. Areas under consideration DRM strawman Connection boundary Generation charges Tariff structures Cost matrices Reactive power charges EHV sole use asset template DRM Load & coincidence factor template Revenue Reconciliation Scaling (Fixed Adder) Operational Costs (Opex) Network Costs (500MW model) IDNO’s EHV Modelling Time of day and time of year cost signals Allocation of costs for availability charges Split of allowed revenue December 11, 2008 energynetworks.org 4

5. Progress DRM strawman A strawman based on the most recently updated DRM model has been chosen as the basis for illustrating the concepts and principles for the modelling. The model has then been updated to better reflect different aspects of Ofgem’s decision letter. The consultant will interact with DNOs to select the most desirable charging principles. Reactive power charges A sheet calculating reactive charges based on the ENW approach has been included in the strawman, although how the weighting factors (or “step 7 in ENW’s methodology) are to be applied is still to be resolved. December 11, 2008 energynetworks.org 5

6. Progress DG yardsticks DG yardsticks have been added to the strawman, based on the DNO’s current interpretation of the decision document and the use of F-factors rather than coincidence factors (see presentation on Cost and Benefit to DG). Areas still to be resolved include whether benefits at the level of connection should be counted; the choice of F-factors per technology type and the final tariff structure. Coincidence factor template A template (separate from the strawman) has been prepared to allow companies to calculate the coincidence factor per yardstick group at time of system peak and the associated load factor. An alternative method to use the coincidence factors and load factors based on the use of DECs and peaking probabilities is being developed as a possible alternative or as a possible complimentary approach for STOD costing. December 11, 2008 energynetworks.org 6

7. Progress Time of day and time of year cost signals Thegroup has compiled the current approached used by all companies. A template has been presented to allocate costs on a day/night split basis and an alternative proposal has been offered that could include an allocation based on the time of year. Further work is being is been undertaken to understand if the use of the G3 DECs as another potential solution in this area. 500MW model One DNO has presented its 500MW model, for others to use it as a template for presenting their own. Discussions are still ongoing as to whether the charging model should include the replacement of services as well as reinforcement. It should be noted that this model excludes that part of the network whose costs are recovered normally through the connection charge. December 11, 2008 energynetworks.org 7

8. Progress Allocation of costs for availability charges The group has compiled the current approaches used by all companies and looked at previous (academic and industry) reports on how to allocate the costs for availability charges. A decision is still to be reached. Split of allowed revenue The group received two worked examples on how the EHV/HV-LV split of the allowed revenue should be done (on the basis of MEAV) and will look at alternatives. This is still to be incorporated in the model. December 11, 2008 energynetworks.org 8

9. Future areas of work Calculation of forecast O&M costs IDNO charges EHV sole use asset charges Representation of the network and tariff yardsticks as “cost-matrices” Allocation of scaling, as £/kVA or £/kW, into the customer/tariff yardsticks Incorporation of the tariff and tariff components, as specified by WS3 Minimum cost connection/Service models - discuss the possibility of having a generic network model representing HV and LV service assets. This will assist in the calculation of some cost elements of the fixed charge December 11, 2008 energynetworks.org 9