DNPC08Review of Standard LDZ System Charges

Consultation Responses 25 October 2010

Summary of Responses

11 Responses•10 Non-confidential, covered here

•8 shippers•2 IGTs

•1 Confidential

General Theme of Responses

•Overall respondents were fairly negative about the proposals and consultation process

•Strong support for retaining a common charging structure

•Many other issues and concerns raised beyond direct questions

•Responses focussed on overall issues rather than particular analysis undertaken

Summary of Responses to Questions

Q1 Should we move to a charging structure which reflects individual network costs?Some support, in principle, but mainly negative response

Q2 Do you agree that, based on the analysis shown, transportation to CSEPs and to directly-connected loads should use the same charging functions?Of those commenting explicitly on this (6 respondents), majority agreed

Q3 Which of the three options set out ((Parameter Update, Best Fit, or Common Option) would you prefer to be implemented and why?Only Parameter Update option received support (6 respondents)

Q4 Is there any reason why the proposals should not be implemented from 1st April 2012?Implementation in 2012 received some qualified support (5 respondents)

DN Draft Proposal Post-Consultation

Following consideration of responses, DN initial intentions are to:

•Propose implementation of Parameter Update methodology from April 2012:Will retain common function typesWill retain current charging structure with current AQ charging bandsBut form of structure will reflect individual DN costs:“Power” charging function parameter for >732 MWh/a supply points will vary by DNResulting relative levels of charges for three charging bands will vary by DN

• Timing of Final Report submission to Ofgem still under consideration

•Aim to give at least a year’s certainty of charging structure from these proposals

Main Issues Raised in Responses (1) 1. Common Charging Structure

Response view• Strong preference for common charging structure expressed• Proposals inconsistent with DNO moves to common charging methodology and

with assurances given at time of DN Sales

DN view• All options were based on retaining a common methodology• Options explored extent of commmonality desired for charging structure• Possible to retain common structure and reflect individual network costs• 2 of the 3 options presented gave identical charging structures across all DNs

Main Issues Raised in Responses (2) 2. Data quality and type

Response view• Data used for analysis was only a snapshot• Data is not forward looking• Need to consider how residual charges are recovered• Need to understand data better to give view/need further analysis

DN view• Large sample of supply point-connection tier data taken. Don’t expect supply

points to move so snapshot represents ongoing position• Analysis uses average historical costs. Relatively few new supply points so

emphasis is on equitable, stable cost-reflective charges rather than on marginal cost-based signals

• Use of average historical costs avoids issue of residual charge• Consultation is about methodology – key issues raised were not about the

analysis undertaken

Main Issues Raised in Responses (3)

3. Impact on IGTs

Response view• Results for West Midlands and London DNs for medium sized CSEP loads appear inconsistent with other DN results• Negative impact for some IGTs for larger supply points within some CSEPs

DN view• Will double-check WM and London DN results prior to final proposals. As it is, results are similar for these 2 GDNs as for other GDNs• Consider results for CSEPs reflect costs. Note that changes will have varying impacts across different types and sizes of supply point – main impacts highlighted in consultation paper

Main Issues Raised in Responses (4)

4. Other methodology issues

Response view• Why are costs of LTS Maintenance only allocated to LTS?• Reflecting varying costs by connection point pre-supposes that customers can change their connection point

DN view• LTS-related costs impact on charges for all supply points since analysis was based on tiers used not just tiers connected to.• Purpose of methodology is to reflect the average costs typically incurred for supply point types. Acknowledged that customers cannot change their connection once established.

Main Issues Raised in Responses (5)

5. Consultation process and timing

Response view• Should have involved shippers more; better options could be developed• Consultation should be delayed until new governance process is in place• Not the right time for these changes since fundamental market reforms coming

DN view• DNs presented outline of issues being considered at DCMF prior to formal consultation and received little feedback and no alternative proposals• Collection of data and analysis has been ongoing for 2 years so appropriate to conclude now• DN transportation charging is a significant element of gas supply cost and DNs have duty to review. Important to reflect major industry change – DN Sales