Update on Charging Methodology Consultation and Key Industry Responses (April 2008)

2. Charging Methodology Update April 2008 Oliver Day Distribution Pricing Manager

3. USE OF SYSTEM CHARGING CONSULTATION • Closing date 22nd February • 7 responses • 1 trade association • 3 Large suppliers • 1 Large consumer/private network operator • 1 LDNO • 1 Academic • Mixed response on general charging method • Comments aimed at charging development in general • Multiple DNO development • Split of Allowed Revenue • Minimised change Vs coordinated change • Simplistic solution unless clear benefits • Comments aimed specifically to EDF Energy Networks • Concern over price movement • Cost elements not considered • Not sufficiently robust • Support of principles • Exacerbates margin squeeze to IDNOs • No implementation without IDNO charges

4. USE OF SYSTEM CHARGING CONSULTATION • Mixed responses to Questions asked – comments received include: • 1, Time bands • Reasonable approach • Incompatible with Triad times • More clarity on site specific description • 2, Load flow data • Contention with ‘Triad’ approach • Suggestions to cleanse data • 3, Security factors • Strikes the right balance • Consideration of planned development • 4, Growth rates • Appropriate to derive from LTDS • Concern over LRIC with varying growth rates • 5, Marginal costs • Concern over zero and small growth rates

5. USE OF SYSTEM CHARGING CONSULTATION • Questions continued: • 6, Demand Scaling • Mixed response • Appears reasonable • insufficient description • 7, Allowed Revenue Split • Mixed response • Reasonable approach • Split further • 8, Licence Objectives • Possibly better meets compared to current • More so at EHV less clear at HV/LV • Should be addressed by Ofgem • Yes conceptually • 9, Allowed Revenue • Mixed response • Review as part of price control or after • Should be addressed by Ofgem • Yes it is desirable

6. OFGEM INVOLVEMENT • Three meetings held to explore modelling in detail • Model shared with and analysed by Ofgem • Helped to improve understanding of calculations • Identification of areas requiring more investigation – including: • Alternative scenarios to understand the effect of the power flow scaling factor • Alternative scenarios to understand the effect of different size increments • Why highest demand and lowest generation charges don’t occur in the same time period • Why power flow £/kVA time band charge signal relativity does not mirror the relativity of the p/kWh time band charge

7. CONSULTATION CONCLUSION • Still areas to address prior to submission of methodology change • Recovery of cost through unit charges as a proxy to demand charges • Stability of year on year charges • Improvements to information provided on before and after price comparison • ‘Common approach’ factor also to consider • However, some clarity on current proposal:- • New methodology needs to ‘better meet’ – not provide a perfect solution on first attempt – imperfections and blemishes accepted? • Implementing new HH LV Substation tariff & correction of HV tariff error • Misunderstanding of our use of ‘Triad’ and comparisons to NG use • Belief of unfair approach to EHV connected group • Effect on IDNOs

8. IDNO CHARGES • Accused of exasperating margin squeeze • Margin examples provided not representative • Our examples show ‘healthy’ margin • Need for industry ‘example book’ based on real developments • Our approach to all HV/LV charges: • Not customer specific – same terms available to all users if meet connection characteristics • With charges that are cost reflective of fixed and variable components • Fair to IDNOs, private network operators and end users

9. IDNO EXAMPLES • Scenario 1 – Large urban mostly apartments • 600 apartments • HV connection – 2.5GWhs • Scenario 2 – Medium development with commercial • 170 dwellings • Retail and leisure • HV connection – 1.7GWhs • Scenario 3 – Ofgem/WPD.SP medium development • 150 dwellings • HV connection – 0.6GWhs • Scenario 4 – Ofgem/WPD.SP Small development • 45 dwellings • PC 6 connection – 0.18GWhs • Scenarios 1&2 based on real developments connected to EDF Energy Networks’ system

10. NEXT STEPS • Progress to secure the robustness of model in SPN • Content with EHV power flow component • Strengths are greater than weaknesses • Some work on yardstick model for EHV charges and Tariffs • Methodology change progression • Progression of HV/LV Generation charge development • Implementation of methodology in EPN and LPN • Still very significant amount of work • Common approach – initial thoughts • Need to initiate progress now • Timescales too tight to wait until September • Need to appreciate effort required to implement • Industry wide resource constraints

11. THANK YOU