CDCM Annual Review Update

CDCM Annual Review Update

Mo Sukumaran

SSEPD(on behalf of DNOs)

DCMF - 2 June 2011

12 May 20111 | Energy Networks Association - CMG

DNO Licence obligations

Licence Conditions 13

The licensee must at all times have in force:• Authority approved Use of System Charging Methodology • Authority approved Connection Charging Methodology

The licensee must, for the purpose of ensuring that the Charging Methodology continues to achieve the Relevant Objectives:• review the methodology at least once every year; and• make such modifications (if any) of the methodology as are necessary for the purpose of better achieving the Relevant Objectives.

Relevant Objectives

In essence , the Relevant Objectives in relation to the Charging Methodology are:

• DNOs need to meet their licence and electricity act obligations

• facilitates competition in the generation and supply of electricity, and does not restrict, distort, or prevent competition in the market

• reflects cost incurred by the DNO’s business

• reflects developments and structural changes in the DNOs business

CDCM Annual Review Process

4 | Energy Networks Association – DCMF

Three Stage Process for the Annual Review of the CDCM methodology;

• First two stages (Remind and Review) combined into one session

• Stage 1 & 2 – Remind/Review.

– An analysis is completed – inputs/outputs of the CDCM model

– Based on the licence requirements

– Focusing on cost reflectivity and may also take account of approved (but not implemented) EHV methodology (EDCM)

– Overview of the methodology and a review of the change proposals in place/planned

• Stage 3 – Refine and Agree.

– DCMF(MIG) would be used to agree the change proposal work areas

7 April 2011

CDCM Annual Review timetable

April May June July August

Stage 1 & 2

Stage 3

Review workshop session

Remind / Review

Consolidation of workshop

Refine and agree allocation

7 April 20115 | Energy Networks Association - DCMF

DCMF

CDCM Annual Review Timetable

6 | Energy Networks Association – DCMF

• 17 May – Annual Review workshop held. Meeting presentation and meeting headline issued

• 2 June DCMF – update stakeholders on Annual Review workshop

• June/July – Methodologies Issue Group (MIG) to review workshop outputs and progress change proposal work areas

• August DCMF – update stakeholders - completion of Annual Review process.

7 April 2011

CDCM Annual Review Workshop Feedback

Workshop Objectives:

• Review the CDCM Methodology

• Present an independent challenge on areas of the CDCM

• Identify, discuss and group issues

• Progression of further work and change process


The change process

29 April 20108 | Energy Networks Association

•Licence condition 50.28 sets out that DNOs must make arrangements to provide for the review and future modification (where appropriate) of the modification arrangements.

Output from annual review

Potential Issues with CDCM

Reckon gave a presentation:

• A high-level review of CDCM issues

• Categorisation of Issues

– Structure of tariffs and calculations

– Predictability and volatility

– Impact of wider developments



• Parties likely to be affected

– Suppliers

• mostly affected by predictability, transparency, governance and

interactions with wider industry developments

– Generators

• Generation dominated areas and EDCM

– IDNOs and out-of-area DNOs

• Potentially affected by all the issues



• Difficult to foresee effect of CDCM changes

– Impact different for various customer types

• due to interaction of tariffs subject to same tariff

– Experiment with model to assess likely impact of a change

• Specific Issues identified

– Costing assets on ‘hypothetical’ 500MW Model and cost

running costs on forecasts basis



• Specific Issues identified (cont’d)

– Revenue matching approach

– Allocation of costs

• Exclusion of replacement

• Partial recovery of indirect costs

• Calculation of directs and indirects (based on RRP analysis?)

• Costing of 500MW Model

– Extension of existing network to meet new 500MW or

– Replacement of network to serve 500MW of actual demand

– Costing basis eg LV trenching costs, application of on-costs




– Use of coincidence factors to allocate costs

• NHH / HH tariffs (cause of price differentials)

– Some NHH charges based on consumption at time of DNO system peak

– HH charges based on use of peaking probabilities

– Methodology and Model are complicated

• Model available and transparent (excel formulas can be traced)

• Perceived as ‘black boxes’

• Complexity due to reflecting different licence/economic/ofgem objectives




– Governance process

• Change proposes measures against ‘ 4 licence objectives’

• Individual changes may not address related methodology

issues

– Should we take ‘patches’ fix approach or review the overall design?

– Should we have 2 models eg CDCM and Model ‘M’ (for IDNO

discounts) or a single model?


CDCM Annual Review Generation Dominated Areas (GDA)

• DNOs appointed Frontier Economics to review GDA issues

• Frontier Economics concluded in their initial report:

– Strong case against introducing complex locational based HV

and LV charging regime at this time

– May be a case for introducing a simpler charging regime for HV

– Consideration given to advantages/disadvantages that are

difficult to quantify


CDCM Annual Review Generation Dominated Areas (GDA)

• Frontier Economics final’ report expected by end June:

– expected to propose no urgent change required

– allows to reflect on EDCM and other CDCM work that may

interact with GDA generation

– implement Initial GDA measures in April 2013.


CDCM Annual Review Improvements Planned

MIG Issues Log

• 15* Issues on MIG log

– Start, submission and implementation dates

MIG Meetings

• MIG – open monthly meetings

• Papers published on ENA website

*some contain multiple similar issues grouped together


CDCM Annual Review Improvements Planned


Issue No Title Target Implementation

1 Commonality of the network (500MW) model April 2013

2 Standing charge factors April 2013

3 Reactive proxy data April 2014

4 Justification of non-scaling Generator scaling April 2013

7 & 17 Excess capacity management & de-energised site charges April 2013

10 & 13 Generation in demand rich areas April 2012

11 & 21 UMS Tariffs April 2012

12 & 22 Use of HH and NHH forecast data for costing April 2013

13 HH generation intermittent/non intermittent tariffs April 2012

14 UMSO administration charges April 2013

15 Time of day bands to seasonal time of day time bands April 2014

16 Delinking April 2014

18 HV sub & LV sub additional IDNO connection points April 2012

19 Charging of reactive energy where there is no reactive data April 2014

26 CDCM default tariff application TBC

CDCM Annual Review Open session

• Issues discussed:

– Provision of NHH tariffs for HH metered customers

• PC5-8 customers face higher charges if switched to HH

– HH calculation of excess Reactive charges

– Split of ‘K’ recovery between customer groups

– Improve Predictability of CDCM charges

– Improve allocation of costs and Scaling approach

– Reduce ‘distortion’ near CDCM/EDCM boundary


CDCM Annual Review Next Steps

• Issues identified at the workshop will be submitted to the

MIG at its meeting on 30 June

• Proceed to Stage 3 of the Annual Review


CDCM Annual Review Update

Documents

annual review process

workshop objectives

ehv methodology edcmoverview

relevant objectives

annual reviewreckon

cdcm methodologypresent

cdcm modelbased

dnos business