DCMF MIG EDCM Review sub-group

by Franck Latrémolière on 8 October 2014

This page collects material related to the Methodologies Issues Group (MIG)'s 2014 review of the EDCM.

I try to update this page when I hear of any developments related to the review. If you think that I am missing something important, email editor@dcmf.co.uk.

This page is unofficial. I have not discovered any official web page for this review. As far as I can tell, there is nothing about it on the ENA website.

Next: Meeting #5, date unknown (maybe 22 or 24 October)

Possible topics:

• Calculation of the target generation revenue pot (MIG issue 67).
• MIG issue 62: derivation of EDCM revenue target for demand.
• Everything else.

What is "everything else"? I think that the following issues have been raised and are within the scope of the review, but have not yet been either addressed or assigned to any other meeting:

• Should the EDCM boundary be changed? To what? Or should site-specific CDCM tariffs and/or generic EDCM tariffs be introduced?

• If the Sub Group thinks that a long term single solution should be developed, when, how and by whom should this work be done? [ToR paragraph 7b, part]

• If the is not sufficient transparency of the EDCM, who should do this work? [ToR paragraph 7d, part]

• Do DNOs comply with the EDCM in setting their charges? Who checks that they do? What protections are there against error and fraud? Should Ofgem establish a requirement for DNOs to arrange for some kind of audit of the input data into their charging models, or even require DNOs to pay bounties (payable on top of any refunds due) to customers or others who discover errors? [Franck paragraph 28a]

• Administrative burden of excessive numbers of site-specific demand tariffs for generators, e.g. solar farms. [Franck paragraph 28c]

• Establishing a better process to help MIG and DCUSA working groups understand and manage the impact of changes to the CDCM on EDCM tariffs. For example, changes to the 500 MW model, changes to service models, changes to the treatment of coincidence factors could all have a significant impact on EDCM tariffs even they are likely to be driven by CDCM requirements. [Franck paragraph 28d]

Do you have a different view about which are the important issues that remain to be addressed? Send it to editor@dcmf.co.uk and I'll add it here.

Compilation of substantive text in the official minutes

Meeting 2 – Future Reinforcements

Members considered point 7 (c) in the ToR – the merits or otherwise of including future demand and generation led reinforcements in EDCM charging methodology

A briefing note (Attachment 2) was presented at the meeting to facilitate discussion. MS gave an overview of the contents of the note and invited further discussion on the points raised. A number of papers on the matter issued previously to the attendees highlighted the merits/deficiencies of locational economic charging were noted. The merits and challenges of adopting ‘economic charging’ were discussed and mixed views expressed.

A number of attendees agreed that there is merit in reflecting future reinforcements in the charging methodology. Ofgem felt that whilst ‘open minded’ on the issue, they can see merits in retaining appropriate locational economic charging signals to achieve efficient network investment in the medium and long term. It was noted that European Energy Directives and Government drive for more Smart Grid, Demand Side Management and increasing distribution generation are being promoted to encourage more efficient energy use and lower network investments.

The members noted that Network charges that take cognisance of above mentioned factors and tariffs structured to provide cost signals to customers are generally considered to be cost reflective. The members agreed that charges that are transparent, predictable and less volatile are preferred. The group agreed that there is insufficient evidence to conclude whether the intended objectives of LRIC and FCP are working or not. Further it is unclear whether since the introduction of EDCM there had been any changes in customer’s behaviour in lower consumption in peak time, lower capacity requirements , move to lesser network congested areas or lower network investments by the DNOs.

It was noted that Connection charges also provided some cost signals which may influence customer’s decisions where to locate. On attendee also asked whether since the introduction of ‘shallowish’ connection charging methodology this has resulted in increasing connections, degree of DNO funded investments to facilitate connections and any indication of customer’s siting decisions. One attendee noted that the EDCM does not provide sufficient strong incentives to customers willing to contract with DNOs to undertake Demand Side Management (DSM) or Demand Side Response (DSR) measures. The attendee asked whether an independent study of this topic can be undertaken by this group or MIG. It was noted that there is no funding to undertake such study. It was noted that Ofgem’s led SmartGrid ‘Workstream 6’ are discussing DSM/DSR approaches. Members also discussed whether having site-specific charges without future reinforcements provided sufficient locational cost messages and incentives. The group noted that a DCUSA Change Proposal is being progressed to remove the LRIC/FCP cost in EDCM demand charges.

The EDCM currently uses network use factors to identify those assets between GSP and exit point being used by customers to allocate certain EDCM costs. Members questioned whether the current methodology that uses a mechanistic approach to identify future reinforcements and costs is appropriate. Some attendees questioned whether the use of ‘hypothetical’ future reinforcements (acknowledging that LRIC and FCP methods are different in assessing this) is cost reflective and good proxy for providing locational based economic charging signals.

One attendee proposed that it is more cost reflective to use the demand and generation led reinforcements stated in the RIIO-ED1 business plans (updated annually) in EDCM.

Some attendees raised the issue of the difficulties of understanding EDCM, the availability of populated EDCM (not currently possible due to data confidentiality) and volatility of EDCM charges.

The appropriateness of the current EDCM/CDCM boundary was raised. It was acknowledged that there had been extensive discussion and consultation during the EDCM development phase and any revisions to the current definitions would require changes to the DNO’s licence. The group noted that current boundary definition set at any level between EDCM (site-specific)/CDCM (generic) is always likely to affect a small number of customers adversely whose connection / metering position. Alternative definitions not linked to location of metering or extending the CDCM classification to include specific type of HV connection configurations may be worthy of further separate investigation.

Meeting 2 – Data Collection

Members considered point 7 (a) in the ToR – feedback and data collected on the responses of customers to connection and DUoS charges

The group agreed to draft a ‘wish list’ of data items, subject to availability and practicality of data collection, and confidentiality. The EDCM Models are available to Ofgem for collation of data and analysis. Keith Burwell (KB) agreed to provide anonymised EDCM data in a form that maintains confidentiality thus allowing it to be released to the group. In addition KB will review confidential Connection data provided to them by the DNOs and extract those data items that might be useful to the group. KB agreed to present some analysis of the data to the group to facilitate discussion and reach a conclusion on the questions raised whether it is appropriate to include/exclude future reinforcement in EDCM.

The group noted that any items that were deemed confidential under the Statutory Acts (Electricity Act, Utility Act), Connection Agreement or other instruments should not be provided.

Meeting 2 – Super Red Consumption

Members considered point 7(e) in the ToR.

The remote or parent element of the FCP/LRIC charge is charged as a unit rate applied to each customer’s consumption during the super red time band. Some DNO costs and scaling are allocated to customers on the basis of their historical consumption in the super red time band, but charged as a capacity charge to those customers. This means that each customer’s consumption during the super red time band would affect its capacity charges in the future.

It was said that the link between capacity charges and consumption during the super red time band is not clearly understood or obviously transparent to customers, and that a better understanding of the make-up of capacity and unit rates will help customers and stakeholders. The group debated alternatives to the current approach, including introducing wider time bands (red, amber, green) or charging a greater proportion of costs through super red unit rates. The group did not agree upon any changes.

Meeting 3 – Assessing Measures to Reduce Volatility in the EDCM

RH noted that there has never been an objective assessment of what the level of volatility is with the EDCM, and without this knowledge it is difficult to know how to address it. MS said that from the published EDCM charges in the LC14 statement we can calculate the tariff variance year on year for each customer. However, it was acknowledged that the underlying reasons for the changes are not publicly available due to the confidentiality of the data in the models. KB agreed that this type of analysis can be done with the data already submitted by DNOs confidentially to Ofgem. The Group agreed that we do need to first establish what volatility is in EDCM charges and identify the key factors that cause this. MS highlighted the main points raised in the MIG Consultation paper on Volatility as a starting basis for discussion. The Group agreed that even though only 3 years EDCM data is available, it can still provide a helpful view on trends to date. WPD introduced LRIC earlier than 2012 and whilst this version is not the same as current, it will be useful to analyse all the data that is available.

The group discussed the various inputs /outputs of the EDCM and their volatility year on year and reasons for it. Thoughts on any useful analysis that can be done on EDCM input/output data is welcomed by the Group.

The group then discussed the various reasons regarding what could be driving the volatility – including the various input/outputs of EDCM eg LRIC/FCP, Network Use Factors (NUFs), Capacity, Super Red consumption, Scaling and EDCM target revenue. Both the LRIC/FCP and NUFs are determined by network powerflow analysis each reflecting the network configuration and demand/generation modelled for relevant charging years. Thus, this can give rise to significant (up/down) changes in costs and factors and customers adversely tend to seek explanations. MS explained customers often feedback that EDCM charges are difficult to understand as is the volatility year on year. Furthermore, it is not clearly evident to them how their behaviour can affect the charges or how behaviour of other customers also affects their charges.

It was noted that NUFs are used to allocate a number of costs and it is believed there is some volatility in NUFs (although analysis is required to quantify this) LRIC/FCP Charge 1 does also vary and can have an effect but as it’s a smaller proportion (generally around 10%) of the total charge, its impact on volatility may be less – again further analysis is required to assess this.

IJH noted that due to the difficulty in forecasting EDCM charges and unavailability of confidential EDCM charging models Suppliers tend to treat EDCM distribution charges as ‘pass through‘ cost items in their contracts with the customer. The Supplier charges may well be day/night or simple tariff structure but the EDCM will be pass through so to minimise financial risks.

The group discussed how the NUFs are derived and work in practice, and how this affects the charges; and also how some portions are socialised. As the charges are set on an annual basis, the inputs reviewed each year which in itself leads to volatility.

KB explained that in regard to potential analysis we need to consider how best to present price variance along with the materiality of any impact to gain useful outputs to allow meaningful conclusions to be reached. For example, there could be some large percentage changes in tariffs that could be very small monetarily, so there needs to be care taken into the impact analysis that will be produced. It was also noted that all DNOs need to provide Ofgem (KB) with the 2012/2013 data asap so that the impact analysis can be completed. It was also requested that the data is all presented on one sheet. KB may request additional data from DNOs.

Action 03/01: All DNOs

It was agreed that KB would include the above mentioned analysis, including changes in LRIC/FCP charges, NUFs, Scaling, Capacity and Super Red consumption and any other relevant data item to assess potential customer behaviour.

The group asked if there were any comparisons that could be made to the CDCM, and JH took an action to undertake some analysis for this to examine the volatility of CDCM tariffs.

Action 03/02: JH

Meeting 3 – Ways to Reduce Volatility

MS initiated discussion on various options about ways to address volatility in the EDCM; it was questioned whether the following inputs should be subject to Smoothing:

• Local Charge 1

• Remote (nodal) Network Group Price

The group felt that some analysis should be completed before it is decided about smoothing any of the inputs.

In regard to NUFs, it was explained that they are uncapped for producing the targeted allowed revenue. However, it was highlighted that there is capping mechanism in the allocation of costs for each customer. The power flow to derive the NUFs is run every year, so there will be changes, some material, which can produce volatility. Options to reduce volatility discussed e.g. smoothing e.g. average of the previous 3 years, or set the NUFs equal to 1 or some other variant.

DW proposed undertaking NUF impact analysis. It was agreed that DNOs would complete some templates for the different scenarios a). Use the 13/14 as a base model, then put the 14/15 NUFs into base model and compare against the existing 13/14 model b) populate the average of two years NUFs into the base model c) populate the base model NUFs with a “1”, and send the results to Ofgem. MS suggested banding the NUFs e.g. 0-0.5, 0.5 to 1, 1-1.5, 1.5 and greater. The group felt that this will cause step change in volatility at the boundaries not included in the analysis. KB highlighted that if any issues are identified with the data submitted to Ofgem, he will liaise with the respective DNO directly.

Action: 03/03: KB

Action 03/04: all DNOs

There were some thoughts in the group that setting the NUFs to “1” i.e. effectively treating it like CDCM at each voltage level – whilst this provides simple and predictable cost allocation mechanism and potential less volatility , it will dilute some cost reflectivity of the charges. Ofgem have stated previously, that cost reflectivity is an important objective in EDCM.

kW/kVA ratio (Super Red) – The group agreed that smoothing this EDCM input data ie averaging previous years (say 3 years) would not provide appropriate costs signal for customers to manage their load away from the peak demand period. Further the customer’s incentive to act is reduced by introducing smoothing.

The group discussed potential analysis that could be produced that would link customer’s FCP/LRIC charges to future reinforcements charged for, It was mentioned that disaggregation of Remote/local FCP/LRIC and then linking this to specific asset reinforcement could be a difficult exercise. However, it was agreed that DNOs would discuss this with their engineers to get some feedback. KB would undertake some general analysis. KB will talk to Iain Morgan to review and analyse the DNO Connections Data to determine the cost message from shallowish charging policy on customer’s siting decisions and behaviour. The group also asked whether the DNOs published LTDS substation data contained any information that helps customer’s siting decisions, or forecast reinforcements. It was mentioned that under ED1-RIIO, the DNOs in their business plans published their planned reinforcements over the next 8 years. The members agreed to think about this area after the meeting in order to see if any meaningful analysis could be completed.

Another area discussed was about providing notice of the changes to the inputs for the EDCM Model e.g. 15 months like CDCM. JH highlighted that as the models are not visible because of confidentiality issues, this notice will not provide enough information to allow Suppliers to predict prices at any greater level than they can now.

However, it was felt that the analysis could prove useful, and it was agreed that DNOs should complete the analysis related to the Super Red (similar to the analysis being done for the NUFs) and circulate this to Ofgem.

Action 03/05: All DNOs

{_Meeting 3 – DSM Arrangements in the EDCM_]

MS initiated the discussions on the results of a survey completed by the DNOs on current DSM arrangements, and it was noted that the numbers were very small (3). MS also mentioned that Ofgem Workstream 6 is also looking at DSM and there are some LCN trials being undertaken. MS mentioned that ENW have published a DSM terms and conditions including the charging mechanism which is a variant of that proposed in EDCM.

MSc gave his thoughts on DSM. He believes the EDCM current incentives to have DSM are too low and hence the low take up. He proposed that a more cost reflective process should be in place. MSc explained that in his view that a customer should be able to buy a firm capacity, and then sell this back to the DNO when that capacity was requested/needed at price that reflected the DNOs true avoided/deferred network reinforcement costs. MSc stated that if such a mechanism was implemented, it would put more activity in this market.

Some members of group had reservations a about the concept but asked for more details.

MSc agreed to write some examples illustrating the points regarding the DSM arrangements and potential charging mechanisms. MS also mentioned that Ofgem Workstream 6 is also looking at DSM and there are some LCN trials being undertaken,

Mike Attree to clarify ENW approach on DSM

CO would circulate the guidance note from UKPN which is available on request to the members of the group.

Meeting 3 – EDCM Analysis

It was noted that as the data has been submitted to Ofgem, KB queried what type of analysis will prove the most beneficial to the group. KB went through the different types of analysis that will be done, and RH noted that he would also like to see how the FCP charges split between capacity and super-red.

RH felt that the analysis should start from basic areas, and build up from there. RH asked KB/IM to look at the Connections Data and produce some useful analysis – RH earlier email refers. RH is happy to discuss his thoughts with Ofgem.

KB discussed the idea of Qualitative analysis v Quantitative analysis – it was felt that there could be a short questionnaire (perhaps online) asking customers a very targeted set of questions on locational costs, customer behaviour on demand/capacity and factors that would influence their decisions and whether they would respond to them.

DW agreed to develop some potential targeted questions that could be included in this type of survey.

Meeting 3 – Work Plan

EDCM Review Group Meeting Summary and Action Log

MS said that the final report to the DCMF MIG will answer the questions raised in the terms of reference for this group. In this context, the meetings which have already happened needs to be summarised and developed into text to be included within that document.

MW will develop a draft/skeleton report for members to include/edit each section of the report.

Action 03/10: MW

The following items were agreed to be contributed by the following members. Other members will lead remaining topics. All members encouraged to contribute to the review/edit of the report :

• Locational Costs (FCP/LRIC) – MS/RH

• DSM – MSc

• Volatility – JH

Meeting 4

...

Meeting #4, Monday 22 September 2014

This meeting is due to be held at Dean Bradley House, London (ENA). Possible topics:

• Piecemeal changes to the EDCM to address individual issues or a long term single solution? [ToR paragraph 7b, part]
• Transparency and communication to customers [ToR paragraph 7d, part]
• MIG issue 43: to provide visibility of cost signals

I did not attend this meeting.

Meeting #3, Friday 12 September 2014

This meeting is due to be held at Dean Bradley House, London (ENA).

The planned topics are:

• Feedback and data collection on the response of customers to connection and DUoS charges [ToR paragraph 7a].
• Year-on-year volatility of Network Use Factors (NUFs).
• MIG issue 42: to assess measures to reduce volatility.
• Demand-side management: the current EDCM arrangements are designed for customers requesting more capacity than the network can provide at that time and do not provide a fair reward to customers giving firm capacity back to the DNO where this would defer reinforcement.

I did not attend this meeting.

Meeting #2 took place on Friday 15 August 2014

This meeting was held at 10 am at 2-3 Golden Square, London (ElectraLink).

• DCMF MIG EDCM Review Group Meeting 2 Agenda (2 pages, PDF)

The list of topics for this meeting was changed significantly twice: first at DCMF eight days before the meeting, and again when the agenda was issued 21.5 hours before the meeting.

I attended the meeting as an observer. I had given up contributing to the DCMF MIG EDCM review for the time being, due to concerns about processes. Read my EDCM papers if you want to know what I think about the issues.

Official action log circulated after the meeting:

• EDCM Review Group Meeting 2 Meeting Actions (3 pages, PDF)

Meeting #1 took place on Tuesday 29 July 2014

This meeting was held at Dean Bradley House, 52 Horseferry Road, London (ENA).

Proposed terms of reference for MIG EDCM review (4 pages, PDF)

Agenda for meeting 1 of MIG EDCM review (2 pages, PDF)

MIG issues log June 2014 (Microsoft Excel)

Submissions circulated ahead of the meeting:

• M&CM – June 2014 note to DCMF (22 pages, PDF)
• M&CM – Submission on terms of reference (4 pages, PDF)

• Franck Latrémolière initial submission (6 pages, Microsoft Word)
• Franck Latrémolière worked examples (12 pages, Microsoft Word)
• Franck Latrémolière on export capacity charges (Microsoft Excel)
• Franck Latrémolière comparison with ICRP (2 pages, Microsoft Word)

• Other email correspondence received in advance (2 pages, PDF)

Official action log circulated after the meeting:

• EDCM Review Group Meeting 1 Meeting Actions (3 pages, PDF)

My take from the meeting:

• The EDCM boundary has been brought within the scope of the review.
• Ofgem might now be sympathetic to the idea of "phasing in" major changes.
• Each meeting will have one or two areas of focus, to be announced in advance of the meeting.
• The meeting scheduled for Monday 11 August 2014 has been postponed [to Friday 15 August 2014].
• There has been no apparent progress on collecting information for ex post evaluation or on improving transparency.

Do you have a different view about what the important points were from this meeting? Send it to editor@dcmf.co.uk and I'll add it here.

Scheduled: Meeting #6, date unknown

Topics:

• Findings.
• Draft report.

See also