LDNO Charging Methodology

2. LDNO Charging Methodology DCMF Presentation January 2010

3. BACKGROUND • DNO / IDNO / Ofgem working group progressing LDNO charging arrangements since first meeting in July 2008. • An approach to LDNO charging based on an “All the Way” reduction percentage using a “Price Control Disaggregation” model established. • This approach utilised by DNOs in August 2009 CDCM proposal. • EDF Energy Networks entered discussions with Ofgem on our 2nd interim proposal using this method in September 2009. • Ofgem comfortable with approach • Concerns over comparatively low percentage cost allocation to LV • Would require adequate review and justification of differences prior to submission • Review initiated to fully understand data differences

4. CDCM SUBMISSION STARTING POINT

5. EDF ENERGY NETWORKS’ REVIEW • Review identified eight scenarios • February FBPQ data was used in first model • Updated forecasts now used to populate models • Some weakness in model • Missing ESQCR costs • 2007 snapshot of incentive revenue • Outcome • Approximately 8% movement in EPN and SPN • Slight movement in LPN • Interim modification formally submitted 27 November

6. REVIEW OUTCOME

7. JUSTIFICATION OF REMAINING DIFFERENCES • Perceptions following review and formal interim submission: • EDF Energy Networks’ margins “still look a little low, especially for LPN” • LPN network entirely underground – “undergrounding of network is more expensive than overhead” • Ofgem expressed requirement to robustly justify remaining lower margins. • Need to justify likely impact to both interim and CDCM • Next set of slides summarise justification…

8. UNDERGROUND CABLING • Undergrounding of cable is expensive • Twice the cost of equivalent low voltage overhead • Significant customer contribution • Twenty times the cost of equivalent extra high voltage overhead • Costs entirely borne by the DNO • Low incidence of condition based replacement - LV • Not affected by environmental damage (rotting poles, weather, trees)

9. FACTORS AFFECTING THE EDF ENERGY NETWORKS SYSTEM (1) • High load-growth London and South East • EHV cost emphasis • Highly utilised EHV network • Drives need to reinforce • Underground cables • Costs weighted towards EHV • Minimal Consac • Low LV cost • Low capitalisation of fault costs • Low LV cost

10. FACTORS AFFECTING THE EDF ENERGY NETWORKS SYSTEM (2) • High-value projects “Most of these projects relate to large general reinforcement schemes, predominantly but not exclusively in London and the South East.” Final Proposals - Allowed revenue - Cost assessment 7 December 2009 • EDF Energy Networks have largest share of schemes

11. COST ALLOCATION SEESAW Typical displacement EHV LV Customer contributions Low utilisation Consac Fault capitalisation High value projects Overhead replacement

12. COST ALLOCATION SEESAW EPN & SPN EHV LV Customer contributions Minimal Consac Low fault capitalisation High load-growth High value projects Overhead replacement High utilisation Costs Twenty times equivalent Costs Twice equivalent

13. COST ALLOCATION SEESAW LPN No overhead replacement EHV LV Customer contributions Minimal Consac Low fault capitalisation High load-growth High value projects High utilisation All Under ground Costs Twenty times equivalent Costs Twice equivalent

14. LPN EHV EXAMPLES • Complexity of projects in dense urban environments = Bespoke solutions and specialist contractors • Space restrictions as no adjacent available land: • St Johns Wood: Many temporary stages required with very complex sequencing of work during project • Cable tunnels required: • Seacoal Lane: Proximity of underground, City Thameslink Station & Fleet river • Brunswick Wharf: 8.3 km tunnel with seven shafts • Planning requests/consents & negotiations more complex: • Brunswick Wharf : Permissions required to pass beneath Rotherhithe Tunnel, Blackwall Tunnel, DLR, PO Railway, Central and Metropolitan lines • St Johns Wood: Complex negotiations – currently 16 design revisions

15. LPN SITES:FACTORS THAT LEAD TO HIGER CAPITAL COSTS The 7 LPN EHV sites are similar in complexity. Lodge Road 66kV Bankside – Tate Modern Hackney 132kV St Johns Wood Brunswick Wharf Seacoal Lane Osborn Street They require: Additional design effort in order to develop effective design solutions Additional project management effort to manage the delivery of complex projects that have a greater number of phases and interdependencies Hackney Cable Tunnel Shaft

16. The seven major projects share all (or a majority) of the complexity factors listed below: Specialist civil designs required due to complexity of locations Space restrictions as no adjacent available land: More project phases More temporary arrangements/stages Sub-surface EHV substation installations Cable tunnels required Forced ventilation arrangements are necessary Planning requests/consents more complex Archaeological surveys/constraints Conservation area aesthetics must be respected Plant and materials storage difficulties due to space constraints Restrictions of working in designated ‘confined spaces’ (tunnels, U/G chambers) Neighbouring commercial interests and traffic flows sensitive to progress of works. LPN SITES: FACTORS THAT LEAD TO HIGER CAPITAL COSTS Seacoal Lane to Paternoster Tunnel

17. LPN SITES – SEACOAL LANE Total Cost ~£38 million, Network Design ~£3 million £1 million for specialist civil design work Proximity of underground & City Thameslink Station Fleet river runs underground adjacent to site Old Bailey nearby (noise and traffic flow constraints etc.) Restricted access to site Demolition of building above ground necessary Substation underground on three basement levels Detailed structural analysis of foundations needed Ventilation issues Cable tunnels necessary for cable routes from site Difficulties in negotiating with landlord adding to costs Complex planning applications / party wall issues / ransom strip of land Landlord insist on restrictions in magnetic field densities (EMF Studies). Substation Site

18. LPN SITES - BANKSIDE Current estimated total project cost of £55m Existing Bankside Power station building to be structurally re-enforced to accommodate new plant and building layout alterations. Very complex civil designs - in constant negotiation with Tate Gallery & LDA Multi-phase project Decommissioning one 22kV substation two 11kV substations • Creating two new 11kV substations with a total of 84 panel switchboard (longest switchboard in Europe) • Creating one 20kV substation with 23 panel switchboard • Temporary switchboards to be created • Many work phases required to transfer distribution feeders to new switchboard • Total build to be achieved in compressed timeframe.

19. CONCLUSION • Reviewed the sufficiency of model • Added ESQCR • Reviewed the cost allocation • Explained high EHV and Low LV • Reviewed the appropriateness of inputs • Latest forecast values • Set incentives to match year of charges • Addition of ESQCR cost made significant change • EPN and SPN • Now a True and Fair reflection of cost • Final allocation reflects the nature of the network in London and the South East.

20. NEXT STEPS • EDF Energy Networks interim LDNO modification proposal ‘non-vetoed’ decision – 21 December 2009 • Interim LDNO charges to be implemented from April 2009 • LDNOs can choose between current boundary tariffs or new tariffs • Need to seek consent for relief from SLC 14.20 • Requirement to provide three months notice • Plus seek form approval for charging schedule • Need to seek consent from applicable DCUSA parties • Requirement to waive 40 day notice • Backdating does not affect ‘normal’ 2009/10 published tariffs • Establish charging preference for LDNOs embedded networks

21. THANK YOU