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CDCM Training Session. Introduction to producing DUoS Tariffs using CDCM Models Julia Haughey (EDF Energy) Binoy Dharsi (IPM Energy Retail Ltd). Agenda. Brief explanation of CDCM Information now available to suppliers Assumptions to consider Overview of CDCM model Annual review pack

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CDCM Training Session

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Cdcm training session

CDCM Training Session

  • Introduction to producing DUoS Tariffs using CDCM Models

  • Julia Haughey (EDF Energy)

  • Binoy Dharsi (IPM Energy Retail Ltd)


Agenda

Agenda

  • Brief explanation of CDCM

  • Information now available to suppliers

  • Assumptions to consider

  • Overview of CDCM model

  • Annual review pack

  • EDCM what’s happening

  • How to get involved


Cdcm training session

CDCM

Common Distribution charging methodology (CDCM)

In October 2008 Ofgem published proposals for common distribution charging methodology

Long Run Incremental Charge(LRIC) for EHV customers

Distribution reinforcement model (DRM) for LV/HV customers

Objections were raised by the two Scottish companies

Ofgem decided not to go the competition commission but instead the two models became separate CDCM and EDCM

DNOs published proposals for CDCM in August 2009 with a few amendments these were accepted and CDCM went live on 1st April 2010


Cdcm objectives

CDCM objectives

Cost reflective model

Common model to calculate the charges but with DNO specific inputs rather than 7 different methodologies that were already in place

Common structure to the charges so all tariffs have the identical components whatever DNO they are in

Common Licence condition 14 statements same structure tables called the same

Consistent and simplified information for customers and suppliers


Cdcm issues

CDCM issues

Main issues of the CDCM

Some customers saw huge changes in April 2010 increases of over 200%

Mainly in the HH market

The trade off for cost reflective tariffs means that more updates are likely

For suppliers offering fixed term contracts this can prove to be even more challenging


Cdcm change to charges april 2010

CDCM change to charges April 2010


Cdcm changes

CDCM changes


Cdcm timebands

CDCM timebands


Process involved in creating tariffs

Process involved in creating tariffs

Price Control Review (DCPR5)

RPI, Low Carbon Networks, Under/Over -Recovery

Possible parameter changes in the future (e.g. time bands)

Revenue derived for each DNO for five years

Revenue entered into CDCM model

DUoS tariffs produced

Repeat for each year


Price control review

Price Control Review

Allowed Revenue as published by Ofgem in February 2010

The allowed revenue does not account for inflation, so this (at the very least) would need to be accounted for

  • http://www.ofgem.gov.uk/Networks/ElecDist/PriceCntrls/DPCR5/Documents1/Appendix%201%20Feb%2023%20signed.pdf (page 24)


Updated revenue information

Updated Revenue Information

  • The most up-to-date view of DNO’s revenue can be gained from the quarterly DCP 030 teleconference calls


The cdcm model

The CDCM Model

  • The CDCM model is a standardised methodology that apportions allowed revenue (set by Ofgem) and translates this into tariffs for HH, HH and Unmetered supply points

  • The model has been developed to represent a more unit driven tariff to firstly provide a cost signal to customers to reduce usage and also replicate the system peaks by loading costs into the day unit and/or red/peak for HH tariffs

  • Each DNO essentially has the same CDCM model with variations to represent regional differences

  • To use the model at its most basic level it requires the input of only 1-5 data fields

    • The model also have several other more sensitive elements which can be changed as part of a DCUSA change and this will not be covered in this training session


Assumptions

Assumptions

  • The revenue that feeds into the CDCM model for April each year needs to be scaled by RPI

    • RPI for Distribution Revenue is set as the average of the last six months of the year (July to December)

  • DNO’s have incentives in place to ensure that they do not Under/Over Recovery revenue by a set percentage in any given year. If they are close to breaching these limits they will consider a mid-year tariff release

    • The sensitivity of the model, through demand usage and the weighting of revenue collection through unit rates means that forecasting tariffs become harder

  • Low Carbon Network (LCN) Schemes and other re-openers are not always accounted for by DNO’s so it is worthwhile understanding the big drivers that need to be factored in

    • Some DNO’s account for LCN funding however some only apply a small proportion of this


Inputs required to create tariffs

Inputs required to create tariffs

Direct, Indirect and Network costs can be inflated by RPI although DNO’s will update this for the next tariffs for 2011/12.

Transmission Exit charges are supplied to each DNO by National Grid


Inputs required to create tariffs1

Inputs required to create tariffs

This is the main driver in terms of setting tariffs

This input is the amount of revenue that is collected through EHV / Site Specific customers

There is uncertainty of what this figure is likely to be so taking a 10-20% variance can make £1mn difference


Tariffs produced

Tariffs Produced


Inputs required to create tariffs2

Inputs required to create tariffs

Increasing the revenue figure by £20mn


Tariffs produced revenue increase

Tariffs Produced – Revenue increase

Unit rate have increased through the £20mn revenue increase although Fixed and Capacity Charges have remained the same


Worked examples of tariffs

Worked Examples of Tariffs

The NEDL CDCM Model increases the Unrestricted NHH unit rate by 9.4% for a £20mn revenue increase

For a LV HH customer you will note that the Red rate increases by 17.4% with little change for the Amber and Green rates

It is worth noting that the Red (Peak) rate for HH tariffs are significantly higher than the other (Amber and Green) rates:

The Maximum Peak value is in SWEB at approximately 21p/kWh

The Lowest Peak value is in London at approximately 2p/kWh


Annual review pack

Annual review pack

CDCM Annual Review Pack

Produce 5 year of CDCM inputs

DNOs to provide commentary and assumptions behind the CDCM inputs

To highlight any changes timebands

Suppliers to produce tariffs

To be issued in December 2010


Annual review pack contents

Annual review packcontents


Annual review pack contents1

Annual review pack contents


Edcm what s happening

EDCM what’s happening

EDCM was due to be implemented 1st April 2011

Ofgem decision to delay until 1st April 2012

wanted more justification

More stakeholder involvement

Impacts all customers on site specific tariffs

Plus with the boundary change all HVS customers will move onto the EDCM model- more change

All customers will see a change

Allowed revenue to be split between CDCM and EDCM final decision will impact CDCM customers as well

Consultation due out imminently


How to get involved

How to get involved

DCMF- ENA offices every two months next one 6th January 2011

EDCM Consultation responses due 1st February 2011

Workstream C main suppliers participate

CDCM governance 28 changes to the current model proposed

DCP030 tele-conference

calls quarterly


Thank you

Thank you


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