NGC Charges and Embedded Demand

1
NGC Charges and Embedded Demand

• Transmission Access Standing Group
• 5th July 2002
• Tim Russell Independent Consultant

2
Who should pay NGC charges for embedded demand?

• The customer always pays in the end
• But
• Who is best placed to manage charges?
• Nothing here implies anything that would
• Stop triad charging
• Compromise the Suppliers relationship with the
  customer

3
Current Arrangement for NGC Charges
NGC Connection Charge
Distribution Company
NGC TNUOS Charge
(Included in DUOS)
Supplier
Customer
WHY?
4
Aim of Reform

• Efficiency Improvement
• Particularly that of NGC investment (see 3.11 of
  Ofgem February document)
• For embedded demand who can best signal need
  for new NGC investment?
• Responsibility currently split, DNO for NGC
  connection, Suppliers for NGC infrastructure

5
DNOs need the best crystal ball

• DNOs need to know more than anybody about future
  pattern of demand connected to their network in
  order to plan and build it.
• 1MW significant at 11kv, but small at GSP level
• DNOs already contract for NGC connection
• Best placed to optimise contract for use of rest
  of NGC network

6
Suggested Arrangement for NGC Charges
NGC Connection Charge
Distribution Company
NGC TNUOS Charge
Supplier
Customer
7
Money flow through Distribution Companies?

• Straight pass through (as currently with NGC
  Connection Charges)
• OR
• Regulated incentive scheme to encourage efficient
  use of NGCs system
• Which of above is a matter for Regulator (2005
  price control review?)

8
Distribution Company Incentives

• Incentivised pass-through of NGC charges could
• Provide incentives for accurate forecasting of
  need for new capacity
• and efficient use of capacity
• Provide incentives for encouraging distributed
  generation

9
What can DNOs do physically?

• DNOs have discretion about design of their
  network
• DNOs may feed load from different GSPs, with
  different cost implications to (and hence perhaps
  charges from!) NGC
• Can therefore help optimise investment in
  combination of distribution and transmissiona
  financial incentive would surely encourage this

10
Summary 1

• DNOs paying NGC charges would
• Rationalise contractual relationships
• Avoid need for suppliers to contract with NGC for
  use of network
• Need not affect customer / supplier relationship
  or triad charges

11
Summary 2

• DNOs paying NGC charges could
• Provide incentives for more efficient investment
  in transmission
• Lead to encouragement of distributed generation
• Provide an extra income for DNOs

12
Final Thought

• CUSC alone cannot deliver incentives for
  efficiency in this area
• CUSC can create the contractual framework to
  allow efficiencies to be made by a suitable
  incentive scheme
• If contractual relationship were suitable there
  would be an opportunity for this in 2005, should
  Ofgem choose to take it