Structure of Charges project WPD workshop

Structure of Charges project WPD workshop 1

Agenda Background to project Summary of proposed charging methodology Changes since October stakeholder meeting Scaling demand charges to required revenue Alternatives considered Key issues Treatment of interconnection with other networks Justifying charges Charges that result Risks of future volatility Treatment of pre 2005 generation update Publication of EDCM model Time table Next steps 2

Background to project Common licence requirement to introduce a common LRIC charging methodology at EHV was blocked by the distribution businesses of Scottish Power and Scottish & Southern Energy in October 2008 Ofgem decided to allow distributors to choose between a common LRIC or FCP methodology SLC50A was introduced in September 2009 DNOs have been jointly developing the two methodologies since September 2009 WPD held workshops on 29/04/2010,10/07/2010 and 14/10/2010 that outlined how the two methods (LRIC and FCP) work and the results at those times A joint consultation on the two methods was issued by the DNOs on 18/06/2010 and a final joint consultation is currently underway with a closing date of 01/02/2011 The consultation and previous papers are available from ENA website 3

Summary of proposed charging methodology Both methods aim to produce /kva/annum locational costs that reflect future reinforcement of the network WPD has decided to follow LRIC LRIC produces nodal costs and FCP zonal costs LRIC looks at the effect of a small increment at each node on the net present value of future reinforcement, whereas FCP looks at future demand growth in a zone over a 10 year period and assesses the resulting reinforcement needs LRIC treats demand and generation symmetrically (until scaling) whereas FCP utilises a test size generator to assess reinforcement needs 4

Summary of proposed charging methodology Resulting marginal charges are fed into a charging model that: Allocates transmission exit charges Other direct costs Deals with sole use asset charges Scales result to required revenue, and Produces tariffs to charge customers to recover this revenue Details of both LRIC and FCP are available from the ENA website 5

Summary of proposed charging EDCM applies to: methodology Distribution Systems or premises connected to the Distribution System at 22 kilovolts or more; (c) Distribution Systems or premises connected directly to substation assets that form part of the Distribution System at 1 kilovolt or more and less than 22 kilovolts or less where the primary voltage of the substation is 22 kilovolts or more and where the Metering Point is located at the same substation. Following diagram attempts to summarise this: 6

Boundary between CDCM and EDCM B1 B2 B3 C1 C2 C3 EDCM CDCM 7

Changes since October stakeholder meeting 8

Main areas of change Following areas were highlighted in our October workshop and have not changed further: LRIC Capping Generator Scaling Following areas have changed since our October workshop: Creation of the pot of revenue to be allocated between EDCM demand customers Sharing out of that pot between EDCM demand customers Application of the marginal charges Sole use asset allocation between import and export tariffs Approach to calculating charges for users subject to demand side or generation side management agreements Consideration of the need for further caps to charges 9

Main areas of change LRIC Capping The total charge generated by a network branch (from all use of it) is scaled to an annuity of the modern equivalent asset value This significantly reduces many of the charges previously seen particularly impacts generator charges Generator Scaling Generator charges are scaled (using a /kva scalar) to a target revenue derived from the price control allowed revenue This uses a factor of 1/kVA of installed capacity to cover O&M expenditure on sole use assets and shared assets 10

Scaling demand charges to required revenue Initially, a pot of revenue to be allocated between EDCM customers needs to be created This pot is created by looking at the cost of the assets used by all EDCM demand customers at the time of peak demand (assessed from a peak demand load flow) as a proportion of the total assets of the network Marginal charges, direct operating costs, network rates, indirect costs and sole use assets are allocated directly to demand customers This leaves a residual to be allocated which is the issue of greatest concern 86% of demand charges in S Wales and 76% of demand charges in S West are scaling 11

Scaling demand charges to required revenue This residual scaling represents a mixture of asset costs, tax allowances and pension costs within allowed revenue It has been decided that the tax and pension costs (which across DNOs is 20% of this residual) should be recovered on a fixed /kva basis There are two contenders for allocating the remaining 80% of residual demand scaling: Site-specific demand scaling uses site specific assets calculated from a peak demand notional path load flow as the allocation driver (i.e. what has been used to create the target revenue) or Voltage level demand scaling uses voltage level network assets as the allocation driver Following table summarises the allocation drivers 12

Scaling demand charges to required revenue Tariff Element Direct Operating costs Network Rates Indirect costs 80% of residual revenue 20% of residual revenue Site-Specific Scaling approach Site Specific assets on basis of notional path at peak demand Site Specific assets on basis of notional path at peak demand Fixed adder Site Specific assets on basis of notional path at peak demand Fixed adder Voltage level scaling approach Average voltage level assets Average voltage level assets Fixed adder Average voltage level assets Fixed adder 13

Scaling demand charges to required revenue There are two conflicting objectives driving the decision between these two methods of scaling: Forward looking charges that are higher in congested parts of the network Charges that are not materially different from a fair and reasonable allocation of costs A test for the first objective is to look at the correlation between the marginal charges for customers and the final charge to see if the marginal cost signal has been preserved Our analysis of this shows a poor correlation for both scaling methods in WPD The second objective can be understood by considering a customer connected very close to a GSP Here, the voltage level demand scaling would give an incentive to seek a private connection as the charge is likely to exceed the asset cost From these considerations, we (WPD) believe that the site specific demand scaling method is the better at meeting the objectives 14

Other areas of change since October stakeholder meeting Application of the marginal charges The marginal charges have been split between that for assets close to the user a that for assets remote from the user The part close will be charged on a capacity basis whilst that remote will be on an in year p/kwh basis Sole use asset allocation between import and export tariffs Previously these were all allocated to the import tariff, they are now split proportionately to agreed import/export agreed capacities Approach to calculating charges for users subject to demand side or generation side management agreements Capacity agreed to be available for demand side or generation side management will not be taken into account for the calculation of EDCM charges 15

Other areas of change since October stakeholder meeting Consideration of the need for further caps to charges Outliers can occur for several reasons including: The customers characteristics are significantly different from the average on the network. e.g. a customer with a large capacity who only uses a short part of the network may face large and potentially unjustifiable charges under the voltage level scaling approach The power flow analysis could indicate usage of network assets that may not be strictly necessary to supply that customer if the network were designed from scratch. In such cases the site specific approach may result in charges that cannot be justified Consideration is being given to how such caps could be applied 16

Other areas of change since October stakeholder meeting Potential solutions are: For the voltage level scaling approach the 80% of residual scaling element could be capped to an annuity on the value of site specific network assets used by the customer As the site specific network assets are calculated at the time of peak demand, it may be appropriate to scale these site specific network assets to the agreed capacity of the customer to account for those with low demands at the time of system peak For the site specific scaling approach the network use factors could be capped to a specific value e.g. set at 85 th percentile 17

Treatment of interconnection with other networks 18

Treatment of interconnection with other networks DNO DNO interconnection Generally treated as EDCM customers Off shore transmission Treated as an EDCM customer IDNO charges for EHV connected networks Portfolio tariffs for users connected at HV/LV within an EHV connected IDNO network An EDCM tariff for users connected at EHV within an EHV connected IDNO network Further work is still needed with IDNOs to address any concerns 19

Justifying charges 20

Context Derogation to delay the submission deadline included the following requirement on each DNO (this requirement has subsequently been absorbed into the Licence): To make changes to the methodology as required following sense checks, to ensure they are able to justify the level of charges particularly where charges are moving significantly (either up or down) from current levels 21

Justifying Charges Several licence conditions are of relevance to justifying charges: SLC 19.1 - The licensee must not discriminate between any person or class or classes of persons: (a) in providing Use of System;. SLC 13B.8 - The second Relevant Objective is that compliance with the EDCM facilitates competition in the generation and supply of electricity and will not restrict, distort, or prevent competition in the transmission or distribution of electricity or in participation in the operation of an Interconnector. SLC 13B.9 - The third Relevant Objective is that compliance with the EDCM results in charges which, so far as is reasonably practicable after taking account of implementation costs, reflect the costs incurred, or reasonably expected to be incurred, by the licensee in its Distribution Business. In addition, SLC 50A.12 by referring to the original Ofgem specification requires a fixed adder to be used 22

Justifying Charges demand We believe that calculating the amount of total required revenue that should be allocated to EDCM customers by assessing their usage of assets at the time of system peak is a reasonably fair way to allocate required revenue Incremental charges established using LRIC are attributed to each customer Where other costs can be separately allocated (direct operating cost, network rates and indirect costs) these have been using an appropriate driver Both proposed methods of scaling residual revenue resulting after allocating marginal costs, operating cost etc have some risk of producing non-cost reflective charges For this reason we believe that capping is required and the approaches proposed should result in justifiable charges to EDCM customers 23

Justifying Charges - generation The generation revenue target is calculated as the sum of the DG incentive scheme to post-2005 connected DG and an estimate of the cost if the O&M element of the DG incentive scheme were applied to pre-2005 DG The difference between this target revenue and the marginal charges is applied equally across all generators by using a fixed /kva/year adder Compared to demand the marginal charges and sole use charges for generation are a more significant part of the target revenue and a fixed adder appears to give reasonable results without distorting marginal charges 24

Summary Resulting charges need to be justified (a licence obligation) After many options of scaling have been assessed it appears unlikely that there is one that produces justifiable charges in all circumstance without some form of capping to the charges or some component of them Ultimately, each DNO will have to satisfy itself that it can justify the level of charges if this project is going to reach a successful conclusion 25

Charges that result 26

Evolution of demand charges 27

Summary of charges under various options Following tables show the UoS charges for individual sites that result under the different options that have been developed As the methods are still in development they are likely to change further before the method is finalised and there are still risks of data errors Charges in the consultation are based on the data that would be used to set tariffs now this data will have been updated twice before any tariff go live in April 2012 UoS charges are generally made to suppliers and the extent and timing that they are passed onto final charges to customers is governed by the contract between the supplier and customer 28

Charges that result Option 41 site specific demand scaling uses data from peak demand load flow as the driver to allocate the 80% of residual revenue Option 42 voltage level demand scaling uses the average voltage level assets as the driver to allocate the 80% of residual revenue Option 41 capped restricts the site specific scaling to twice an average value (concept is to use an 85 th percentile of GB data as we do not have this at present, twice has been used to illustrate the results) Option 42 capped restricts the average scaling to one derived from a notional path load flow analysis 29

charges in S West Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 1 246,981 260,095 350,576 253,983 350,576 Tariff 2 132,662 119,151 211,469 115,636 147,082 Tariff 3 134,296 190,439 159,709 187,028 159,709 Tariff 4 6,474 13,645 17,456 13,247 17,456 Tariff 5 171,196 313,791 212,865 281,150 212,865 Tariff 6 20,118 44,235 29,528 40,697 29,528 Tariff 7 19,394 33,063 30,955 32,535 30,955 Tariff 8 30,563 51,282 57,694 49,678 57,694 Tariff 9 11,391 49,175 28,866 35,858 28,866 Tariff 10 366,706 349,027 342,015 341,053 342,015 Tariff 11 132,833 126,342 139,721 123,402 139,721 Tariff 12 8,880 59,732 30,011 40,267 30,011 Tariff 14 52,826 70,620 80,717 68,760 80,717 Tariff 15 34,598 118,203 124,832 115,036 124,832 Tariff 16 146,846 230,360 251,460 224,971 251,460 Tariff 17 5,041 45,847 42,554 44,549 42,554 Tariff 18 366 371 357 371 Tariff 19 4,540 4,605 4,408 4,605 Tariff 20 764 773 746 773 Tariff 21 464 469 452 469 Tariff 22 3,231 3,255 3,181 3,255 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 30

charges in S West Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 23 1,159 1,171 1,133 1,171 Tariff 24 279 282 272 282 Tariff 25 1,632 1,650 1,592 1,650 Tariff 26 15,178 15,402 14,932 15,402 Tariff 27 261 264 255 264 Tariff 28 1,098 1,113 1,066 1,113 Tariff 29** 227,368 101,360 85,825 90,389 85,825 Tariff 30** 130,796 58,826 58,477 57,193 58,477 Tariff 31** 85,679 32,775 41,539 31,840 41,539 Tariff 32** 18,605 8,354 8,446 8,179 8,446 Tariff 33** 145,814 89,623 110,364 87,790 110,364 Tariff 34** 148,377 77,316 76,205 75,554 76,205 Tariff 35** 1,517 1,996 1,565 1,947 1,565 Tariff 36** 236,053 48,398 48,840 46,847 48,840 Tariff 37** 178,087 75,763 78,602 74,242 78,602 Tariff 38** 128,465 88,944 69,270 79,734 69,270 Tariff 39** 59,515 60,252 48,862 59,023 48,862 Tariff 40** 184,814 146,798 122,438 139,526 122,438 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 31

charges in S West Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 41 49,971 1,009 1,025 976 1,025 Tariff 42 49,971 54,423 60,876 53,130 60,876 Tariff 43 2,627 2,642 2,595 2,642 Tariff 44 705 713 689 713 Tariff 45 4,842 4,879 4,762 4,879 Tariff 46 773 780 757 780 Tariff 47 1,010 1,021 986 1,021 Tariff 48** 118,630 94,638 92,260 93,260 92,260 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 32

charges in S West Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 49 2,454 ( 2,180) ( 2,180) ( 2,179) ( 2,180) Tariff 50 ( 11,879) ( 10,064) ( 10,064) ( 10,064) ( 10,064) Tariff 51 5,350 3,795 3,795 3,796 3,795 Tariff 52 ( 256) ( 1,271) ( 1,271) ( 1,271) ( 1,271) Tariff 53 1,926 3,417 3,417 3,418 3,417 Tariff 54 ( 19,629) ( 11,575) ( 11,575) ( 11,575) ( 11,575) Tariff 55 69,350 30,144 30,144 30,146 30,144 Tariff 56 17,909 11,595 11,595 11,595 11,595 Tariff 57 373,775 171,684 171,684 171,731 171,684 Tariff 58 14,104 14,104 14,105 14,104 Tariff 59 23,839 23,839 23,840 23,839 Tariff 60 8,734 8,734 8,734 8,734 Tariff 61 9,705 9,705 9,706 9,705 Tariff 62 3,014 3,014 3,014 3,014 Tariff 63 1,260 1,260 1,260 1,260 Tariff 64 6,927 6,927 6,927 6,927 Tariff 65 13,136 13,136 13,136 13,136 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 33

charges in S West Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 66 4,683 4,683 4,683 4,683 Tariff 67 49,393 49,393 49,394 49,393 Tariff 68 9,738 9,738 9,738 9,738 Tariff 69 90,276 90,276 90,292 90,276 Tariff 70 Tariff 72 419 419 419 419 Tariff 73 10,454 10,454 10,455 10,454 Tariff 74 5,111 5,111 5,111 5,111 Tariff 75 13,708 13,708 13,708 13,708 Tariff 76 2,161 2,161 2,161 2,161 Tariff 77** ( 10,876) 6,012 6,012 6,013 6,012 Tariff 78** 73 6,255 6,255 6,255 6,255 Tariff 79** ( 1,448) 3,190 3,190 3,190 3,190 Tariff 81** ( 69,723) ( 14,087) ( 14,087) ( 14,087) ( 14,087) Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 34

charges in S Wales Existing charges Option 41 Option 42 Option 41 Capped Tariff 1 665,574 488,778 1,710,432 477,010 Tariff 2 107,857 220,623 166,586 219,098 Tariff 3 985,441 765,804 1,119,700 755,939 Tariff 4 91,525 150,197 126,096 148,733 Tariff 5 399,286 369,732 398,859 366,647 Tariff 6 325,588 271,053 348,997 268,042 Tariff 7 17,437 146,891 146,891 142,792 Tariff 8 24,907 132,639 102,853 131,413 Tariff 9 50,609 125,058 75,619 124,243 Tariff 10 11,125 18,315 14,577 18,089 Tariff 11 173,836 1,284,915 849,326 1,279,021 Tariff 12 1,376,928 528,482 528,482 519,199 Tariff 13 123,388 134,438 155,234 133,219 Tariff 14 138,871 67,765 117,825 66,595 Tariff 15 158,504 86,243 202,617 84,484 Tariff 16 58,058 58,214 65,736 57,414 Tariff 17 384,129 359,102 306,141 356,052 Tariff 18 918,602 899,710 705,271 894,450 Tariff 19 55,738 215,187 189,476 213,728 Tariff 20 118,746 162,610 126,160 161,377 Tariff 21 4,818 99,782 82,911 99,154 Tariff 22 31,590 45,236 39,992 44,787 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges Option 42 capped 577,178 166,586 761,400 126,096 367,175 348,997 146,891 102,853 75,619 14,577 849,326 528,482 155,234 107,094 202,617 65,736 306,141 705,271 189,476 126,160 82,911 39,992 35

charges in S Wales Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 23 713,609 631,801 647,388 625,706 647,388 Tariff 24 420,188 263,257 339,587 259,840 321,900 Tariff 25 15,683 35,888 32,442 35,610 32,442 Tariff 26 9,122 72,060 109,062 71,374 71,466 Tariff 27 59,823 69,981 63,553 69,426 63,553 Tariff 28 40,149 234,304 226,465 232,141 226,465 Tariff 29 498,737 166,910 163,225 164,115 163,225 Tariff 30 1,326,852 1,438,567 561,603 1,300,283 561,603 Tariff 31 94,500 180,426 94,277 134,595 94,277 Tariff 32 1,090 914 1,081 914 Tariff 33 710 567 705 567 Tariff 34 5,343 4,927 5,320 4,927 Tariff 35 2,761 2,361 2,737 2,361 Tariff 36 31,947 26,833 31,697 26,833 Tariff 37 977 816 968 816 Tariff 38 2,521 2,282 2,508 2,282 Tariff 39 22,638 20,115 22,495 20,115 Tariff 40 1,566 1,328 1,552 1,328 Tariff 42 6,422 5,412 6,361 5,412 Tariff 43 309 260 306 260 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 36

charges in S Wales Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 44** 50,554 18,766 17,228 18,584 17,228 Tariff 45** 114,556 40,153 23,670 38,875 23,670 Tariff 46** 16,765 21,871 9,639 15,512 9,639 Tariff 47** 300,919 129,221 107,891 128,244 107,891 Tariff 48 103,795 138,641 111,918 137,555 111,918 Tariff 49 2,606 2,231 2,584 2,231 Tariff 50 2,326 1,949 2,304 1,949 Tariff 51 16,923 13,360 16,842 13,360 Tariff 52 2,056 1,729 2,036 1,729 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 37

charges in S Wales Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 53 9 9 13 9 Tariff 54 143,888 143,888 143,908 143,888 Tariff 55 ( 657) ( 657) ( 656) ( 657) Tariff 56 4,899 4,899 4,904 4,899 Tariff 57 2,549 2,549 2,551 2,549 Tariff 58 417 417 418 417 Tariff 59 5,793 5,793 5,794 5,793 Tariff 60 31,376 31,376 31,404 31,376 Tariff 61 3,729 3,729 3,730 3,729 Tariff 62 ( 4,309) ( 4,309) ( 4,307) ( 4,309) Tariff 63 123,128 123,128 123,128 123,128 Tariff 64 2,694 2,694 2,698 2,694 Tariff 66 ( 13,957) ( 16,216) ( 16,216) ( 16,215) ( 16,216) Tariff 67 ( 24,504) ( 14,201) ( 14,201) ( 14,200) ( 14,201) Tariff 68 ( 19,350) ( 13,178) ( 13,178) ( 13,178) ( 13,178) Tariff 69 81,552 20,958 20,958 20,960 20,958 Tariff 70 114,158 4,654 4,654 4,655 4,654 Tariff 71 663,967 77,348 77,348 77,387 77,348 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 38

charges in S Wales Existing charges Option 41 Option 42 Option 41 Capped Option 42 capped Tariff 72 ( 14,607) 1,291 1,291 1,292 1,291 Tariff 73 6,275 3,328 3,328 3,332 3,328 Tariff 74 79,108 1,945 1,945 1,948 1,945 Tariff 75 48,344 35,534 35,534 35,539 35,534 Tariff 76 ( 186) ( 186) ( 186) ( 186) Tariff 77 8,901 8,901 8,901 8,901 Tariff 78 3,398 3,398 3,398 3,398 Tariff 79 834 834 835 834 Tariff 80 543 543 543 543 Tariff 81 22,636 22,636 22,636 22,636 Tariff 82 386 386 386 386 Tariff 83 808 808 809 808 Tariff 84 9,917 9,917 9,930 9,917 Tariff 85 180,546 180,546 180,546 180,546 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 39

Risks of future volatility 40

Risks of future volatility The main drivers of changes to prices from year to year are: Target revenue driven by price control allowance. There is more volatility in this year to year than under DPCR4 due to the removal of the volume driver which increases the risk of over/under recovery Peak demand on network and flows on network used by EDCM customers affects how the required revenue is split between EDCM and CDCM customers Marginal charges changes in loading on specific branches of the network affect these Individual customer changes to Agreed Capacities and usage at time of peak demand both have a direct effect on the customers charge Addition of new customer/closures 41

Risks of future volatility Consultation results are based on data that would have been used to set charges for 2010/11 i.e. current year We have re run our models on data that would be used to create charges for 2011/12 i.e. the indicative charges sent out prior to Christmas Two sets of results follow: 1. comparison of consultation results (2010/11 data) with results using 2011/12 data set but without the underlying tariff increase 2. comparison of consultation results (2010/11 data) with results on a 2011/12 data set (these charges will include the tariff increase of 22% in S West and 11% in S Wales) Note that 2. includes new customer not connected during 2010/11 42

Tariff 1 Tariff 2 Tariff 3 Tariff 4 Tariff 5 Tariff 6 Tariff 7 Tariff 8 Tariff 9 Tariff 10 Tariff 11 Tariff 12 Tariff 14 Tariff 15 Tariff 16 Tariff 17 Tariff 18 Tariff 19 Tariff 20 Option 41 260,095 119,151 190,439 13,645 313,791 44,235 33,063 51,282 49,175 349,027 126,342 59,732 70,620 118,203 230,360 45,847 366 4,540 764 charges in S West 1. Option 41 data only 236,195 123,433 198,933 12,537 274,177 38,695 37,446 55,386 47,896 396,790 112,514 48,516 98,635 126,319 246,299 50,258 313 3,762 754 2. Option 41 data tariff increase plus new customers 278,870 151,110 239,357 15,090 345,090 48,575 42,557 65,144 57,929 466,387 130,911 64,280 118,110 158,641 302,354 64,362 4,719 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 375 895 Option 42 350,576 211,469 159,709 17,456 212,865 29,528 30,955 57,694 28,866 342,015 139,721 30,011 80,717 124,832 251,460 42,554 371 4,605 773 1. Option 42 data only 321,537 209,765 164,216 15,376 177,902 25,461 34,792 56,364 31,277 405,588 126,109 27,800 108,255 129,998 262,011 48,298 316 3,800 760 2. Option 42 data tariff increase plus new customers 395,676 267,518 192,683 18,905 215,369 30,789 38,991 66,456 35,593 478,283 149,225 35,524 131,040 163,623 323,510 61,665 378 4,769 903 43

Option 41 charges in S West 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 21 464 460 550 469 464 555 Tariff 22 3,231 3,263 3,646 3,255 3,278 3,666 Tariff 23 1,159 1,176 1,384 1,171 1,184 1,395 Tariff 24 279 282 333 282 284 336 Tariff 25 1,632 1,937 2,256 1,650 1,949 2,273 Tariff 26 15,178 13,298 16,328 15,402 13,450 16,532 Tariff 27 261 270 317 264 272 319 Tariff 28 1,098 1,096 1,351 1,113 1,106 1,365 Tariff 29** 101,360 119,729 153,180 85,825 112,288 142,936 Tariff 30** 58,826 58,920 71,475 58,477 59,038 71,645 Tariff 31** 32,775 26,752 31,477 41,539 32,742 39,543 Tariff 32** 8,354 12,486 14,766 8,446 13,316 15,854 Tariff 33** 89,623 83,688 97,426 110,364 101,472 121,756 Tariff 34** 77,316 89,550 112,982 76,205 82,984 104,031 Tariff 35** 1,996 1,914 2,445 1,565 1,583 1,986 Tariff 36** 48,398 49,638 59,920 48,840 50,859 61,574 Tariff 37** 75,763 91,790 107,365 78,602 93,504 109,672 Tariff 38** 88,944 98,550 124,663 69,270 80,643 99,622 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 44

charges in S West Option 41 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 39** 60,252 72,547 90,642 48,862 60,006 73,605 Tariff 40** 146,798 144,001 175,700 122,438 118,374 141,110 Tariff 41 1,009 995 1,261 1,025 1,005 1,276 Tariff 42 54,423 21,020 25,716 60,876 26,182 32,653 Tariff 43 2,627 2,490 2,746 2,642 2,501 2,759 Tariff 44 705 732 860 713 737 866 Tariff 45 4,842 4,979 5,617 4,879 5,004 5,650 Tariff 46 773 838 966 780 843 973 Tariff 47 1,010 899 1,090 1,021 907 1,101 Tariff 48** 94,638 93,801 109,891 92,260 90,362 105,151 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 45

charges in S West Option 41 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 49 ( 2,180) 1,386 1,355 ( 2,180) 1,386 1,355 Tariff 50 ( 10,064) ( 4,613) ( 4,627) ( 10,064) ( 4,613) ( 4,627) Tariff 51 3,795 3,818 3,802 3,795 3,818 3,802 Tariff 52 ( 1,271) ( 3,194) ( 3,215) ( 1,271) ( 3,194) ( 3,215) Tariff 53 3,417 3,438 3,423 3,417 3,438 3,423 Tariff 54 ( 11,575) ( 14,048) ( 14,077) ( 11,575) ( 14,048) ( 14,077) Tariff 55 30,144 25,487 25,391 30,144 25,487 25,391 Tariff 56 11,595 11,681 11,631 11,595 11,681 11,631 Tariff 57 171,684 172,296 171,577 171,684 172,296 171,577 Tariff 58 14,104 14,208 14,147 14,104 14,208 14,147 Tariff 59 23,839 24,409 24,347 23,839 24,409 24,347 Tariff 60 8,734 8,893 8,856 8,734 8,893 8,856 Tariff 61 9,705 9,772 9,731 9,705 9,772 9,731 Tariff 62 3,014 3,032 3,019 3,014 3,032 3,019 Tariff 63 1,260 1,270 1,264 1,260 1,270 1,264 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 46

charges in S West Option 41 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 64 6,927 6,914 6,885 6,927 6,914 6,885 Tariff 65 13,136 13,023 12,967 13,136 13,023 12,967 Tariff 66 4,683 4,150 4,133 4,683 4,150 4,133 Tariff 67 49,393 70,523 70,199 49,393 70,523 70,199 Tariff 68 9,738 10,045 10,007 9,738 10,045 10,007 Tariff 69 90,276 90,816 90,430 90,276 90,816 90,430 Tariff 72 419 421 419 419 421 419 Tariff 73 10,454 10,934 10,886 10,454 10,934 10,886 Tariff 74 5,111 4,917 4,877 5,111 4,917 4,877 Tariff 75 13,708 13,892 13,833 13,708 13,892 13,833 Tariff 76 2,161 2,197 2,187 2,161 2,197 2,187 Tariff 77** 6,012 6,060 6,034 6,012 6,060 6,034 Tariff 78** 6,255 6,305 6,278 6,255 6,305 6,278 Tariff 79** 3,190 3,214 3,200 3,190 3,214 3,200 Tariff 81** ( 14,087) ( 28,018) ( 28,046) ( 14,087) ( 28,018) ( 28,046) Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 47

charges in S Wales Option 41 2010/11 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 2010/11 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 1 488,778 712,792 765,267 1,710,432 1,875,560 2,134,264 Tariff 2 220,623 193,157 217,502 166,586 134,107 150,112 Tariff 3 765,804 818,797 919,554 1,119,700 1,164,053 1,325,874 Tariff 4 150,197 142,665 161,707 126,096 118,169 132,795 Tariff 5 369,732 333,396 377,223 398,859 366,070 415,593 Tariff 6 271,053 271,525 302,018 348,997 348,236 391,307 Tariff 7 146,891 132,606 143,830 146,891 132,606 143,830 Tariff 8 132,639 119,228 134,644 102,853 97,509 109,439 Tariff 9 125,058 89,045 100,286 75,619 53,127 59,246 Tariff 10 18,315 14,997 17,020 14,577 12,812 14,432 Tariff 11 1,284,915 1,563,634 1,762,099 849,326 1,200,772 1,334,373 Tariff 12 528,482 491,335 528,806 528,482 491,335 528,806 Tariff 13 134,438 142,424 155,959 155,234 147,098 161,819 Tariff 14 67,765 61,279 67,754 117,825 94,675 106,917 Tariff 15 86,243 70,876 76,274 202,617 170,630 191,018 Tariff 16 58,214 50,416 56,409 65,736 54,424 61,092 Tariff 17 359,102 350,474 400,142 306,141 294,948 334,655 Tariff 18 899,710 866,949 959,496 705,271 704,910 768,492 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 48

charges in S Wales Option 41 2010/11 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 2010/11 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 19 215,187 208,292 241,435 189,476 176,956 204,454 Tariff 20 162,610 162,673 183,450 126,160 122,608 138,304 Tariff 21 99,782 80,426 88,777 82,911 66,566 72,638 Tariff 22 45,236 39,964 44,041 39,992 34,907 38,069 Tariff 23 631,801 586,035 649,174 647,388 622,683 692,063 Tariff 24 263,257 296,558 330,762 339,587 350,276 393,634 Tariff 25 35,888 36,434 39,774 32,442 34,342 37,302 Tariff 26 72,060 87,796 101,248 109,062 102,936 119,039 Tariff 27 69,981 80,703 90,385 63,553 74,364 82,868 Tariff 28 234,304 546,285 598,724 226,465 487,036 529,235 Tariff 29 166,910 181,685 203,362 163,225 163,396 181,722 Tariff 30 1,438,567 1,400,674 1,625,687 561,603 594,356 675,726 Tariff 31 180,426 163,369 188,357 94,277 87,851 99,307 Tariff 32 1,090 886 999 914 752 842 Tariff 33 710 658 757 567 538 616 Tariff 34 5,343 5,603 5,903 4,927 5,247 5,488 Tariff 35 2,761 2,080 2,330 2,361 1,781 1,982 Tariff 36 31,947 30,908 34,838 26,833 26,199 29,333 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 49

charges in S Wales Option 41 2010/11 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 2010/11 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 37 977 847 949 816 725 807 Tariff 38 2,521 2,431 2,622 2,282 2,232 2,389 Tariff 39 22,638 19,226 21,106 20,115 17,178 18,722 Tariff 40 1,566 1,511 1,681 1,328 1,309 1,447 Tariff 42 6,422 5,727 6,438 5,412 4,879 5,450 Tariff 43 309 285 319 260 245 272 Tariff 44** 18,766 36,323 40,886 17,228 34,714 38,995 Tariff 45** 40,153 8,226 9,349 23,670 5,277 5,895 Tariff 46** 21,871 21,618 24,558 9,639 10,948 12,116 Tariff 47** 129,221 99,733 114,249 107,891 67,561 76,443 Tariff 48 138,641 123,411 142,331 111,918 100,966 115,858 Tariff 49 2,606 2,420 2,696 2,231 2,093 2,314 Tariff 50 2,326 2,460 2,723 1,949 2,144 2,356 Tariff 51 16,923 24,888 27,245 13,360 21,895 23,716 Tariff 52 2,056 1,722 1,952 1,729 1,447 1,631 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 50

charges in S Wales Option 41 2010/11 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 2010/11 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 53 9 5,296 3,030 9 5,296 3,030 Tariff 54 143,888 124,396 116,935 143,888 124,396 116,935 Tariff 55 ( 657) 341 ( 2,000) ( 657) 341 ( 2,000) Tariff 56 4,899 8,853 6,379 4,899 8,853 6,379 Tariff 57 2,549 16,487 14,258 2,549 16,487 14,258 Tariff 58 417 2,388 1,230 417 2,388 1,230 Tariff 59 5,793 6,308 4,920 5,793 6,308 4,920 Tariff 60 31,376 1,114 429 31,376 1,114 429 Tariff 61 3,729 5,238 4,382 3,729 5,238 4,382 Tariff 62 ( 4,309) ( 1,912) ( 2,889) ( 4,309) ( 1,912) ( 2,889) Tariff 63 123,128 192,886 159,790 123,128 192,886 159,790 Tariff 64 2,694 38,349 35,837 2,694 38,349 35,837 Tariff 66 ( 16,216) ( 8,860) ( 10,038) ( 16,216) ( 8,860) ( 10,038) Tariff 67 ( 14,201) ( 18,963) ( 19,482) ( 14,201) ( 18,963) ( 19,482) Tariff 68 ( 13,178) ( 2,337) ( 6,073) ( 13,178) ( 2,337) ( 6,073) Tariff 69 20,958 4,955 2,930 20,958 4,955 2,930 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 51

charges in S Wales Option 41 2010/11 1. Option 41 data only 2. Option 41 data tariff increase plus new customers Option 42 2010/11 1. Option 42 data only 2. Option 42 data tariff increase plus new customers Tariff 70 4,654 6,613 5,496 4,654 6,613 5,496 Tariff 71 77,348 39,766 34,865 77,348 39,766 34,865 Tariff 72 1,291 15,658 6,226 1,291 15,658 6,226 Tariff 73 3,328 3,948 3,656 3,328 3,948 3,656 Tariff 74 1,945 29,552 23,939 1,945 29,552 23,939 Tariff 75 35,534 57,265 45,567 35,534 57,265 45,567 Tariff 76 ( 186) ( 110) ( 110) ( 186) ( 110) ( 110) Tariff 77 8,901 13,883 11,523 8,901 13,883 11,523 Tariff 78 3,398 8,138 7,204 3,398 8,138 7,204 Tariff 79 834 3,461 1,952 834 3,461 1,952 Tariff 80 543 ( 68,659) ( 77,629) 543 ( 68,659) ( 77,629) Tariff 81 22,636 1,833 639 22,636 1,833 639 Tariff 82 386 2,755 1,189 386 2,755 1,189 Tariff 83 808 2,832 1,558 808 2,832 1,558 Tariff 84 9,917 19,846 13,788 9,917 19,846 13,788 Tariff 85 180,546 16,710 6,069 180,546 16,710 6,069 Note: customers marked with ** are currently CDCM and hence the existing charges are CDCM charges 52

Risks of future volatility There are two areas where the individual customers behaviour affect their charge: Agreed Supply Capacity whilst it needs to be high enough for the sites peak demand, there is a cost associated with having an Agreed Supply Capacity greater than necessary during peak periods generally referred to a Super Red. The movements in this between 08/09 and 09/10 has been assessed as follows 53

Movement in Super Red s Super Red s are used in the allocation of Indirect Cost and allocation of 20% of the residual revenue 54

Treatment of pre 2005 generation - update 55

Treatment of pre 2005 generation DPCR5 removed the exemption on pre April 2005 DG from paying use of system charges Determination of the appropriate test for undue discrimination and assessment of the contractual position of these generators has been undertaken Ofgem have provided no guidance on how undue discrimination should be interpreted in this regard WPD made a modification application on 17th June to integrate pre and post 2005 DG from 1 st October 2010 Ofgem requested that this was withdrawn to facilitate an Ofgem consultation on these issues Ofgem consulted on these issues between 21/07/2010 and 01/09/2010 There was a meeting between Ofgem and DNOs to ensure a common understanding of the issues needing decisions/guidance on 7 th September 56

Treatment of pre 2005 generation There are three key issues that need decisions/guidance: Principles that should be followed in deciding whether compensation is due and if so how it should be calculated If compensation is due, whether this should be an unbundled one-off payment to the generator or whether it should be a bundled discount to a use of system charge From what date should charges apply to pre April 2005 EHV generators Ofgem issued a decision on the second of these on 23 rd August requiring an unbundled solution The third issue was referred to in the decision letter on EDCM timelines issued on 22 nd September which stated Distributed generators (DG) connected at EHV who connected on pre-april 2005 terms will be subject to the arrangements for DG customers that will come into effect on the revised implementation date of 1 April 2012. 57

Treatment of pre 2005 generation We await Ofgems decisions on what, if anything should be compensated for We continue to seek changes, where necessary, to contractual arrangements between WPD and generators to facilitate charging once a decision has been made 58

Publication of EDCM model 59

Publication of EDCM model We believe that there are significant benefits to customers if the EDCM model were published: Customer can better understand the components of the charge Customer can make initial assessment of the impact of changing their usage at peak times or their agreed capacity Customers can start to see the impact of changes made by others connected near to them Customers can assess the impact of changes they may seek to make to the methodology under open governance However, the Utility Act prevents publication of data without the customers consent A licence requirement to publish would allow these models to be available, however Ofgem are not proposing to seek such a change 60

Publication of EDCM model As little progress seems to be being made in unlocking this issue, we will be sending out information to each EDCM customer detailing the input data to the model and the components of resulting charges Where there is a linkage between input data for customers and the components we will identify this to allow users to make some assessment to the impact of their future behaviour on charges We will also seek to understand what if any concerns they have with publication and ask for their permission to publish data about their site 61

Timetable/next steps 62

Timetable/next steps Feedback from today please DNO consultation by 01/02/2011 Submission to Ofgem 01/04/2011?? Further WPD workshop to consider Ofgem consultation May 2011?? Indicative charges by/before 31/12/11 Implementation 01/04/12 63

Any Questions? 64