DCC Charging Methodology 4 th April 2013 A Prelude Before exploring the full excitement of the DCC SEC charging regime it worth understanding the nature of the task facing the DCC DCC Charging Methodology ID: 405676
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Slide1
Distribution Charging Methodologies Forum
DCC Charging Methodology
4
th
April 2013Slide2
A Prelude... Before exploring the full excitement of the DCC / SEC charging regime, it worth understanding the nature of the task facing the DCC
DCC Charging Methodology
2
One person is tasked to organise a night out for 20 colleagues
At the end of the meal the bill is £660 and the organiser needs to recover this across the 20 of them ...
£35 each (which includes an overall tip of £40) is straightforward approach but isn’t entirely “equitable” because
3 people didn’t drink any of the wine
7 people had a starter
10 people had a desert and ½ of these also had coffee with it1 person objected in principle to paying the tip!So the other extreme is for the organiser to go through the bill item by item and allocate the relevant share of each cost item accordingly butit will be complex and time consumingit must be supported accurate records of activityThus the challenge for the organiser is to find the middle ground that is both broadly cost reflective and reasonably straightforward to implementSlide3
Overview
The DCC / SEC charging regime is designed to ensure the recovery of revenue allowable under the price control licence conditions
Based
on the charging objectives
Charges will be mixture of fixed and explicit charges (i.e. usage) to DCC Users
The overall amount based on the selected DCC, DSP and CSPs
Balance between fixed and explicit charges also depends on chosen DCC, DSP and CSPsDCC Charging Methodology
3Slide4
The DCC’s financial circumstances are changing over time and the DCC / SEC charging regime will evolve to reflect these
changesFrom DCC Licence award
DCC only recovers its own costs and governance costs (i.e. those of the SEC Panel / secretariat) via fixed per meter charges for domestic premises
Service Providers will incur set up costs but these are internalised
From the start of market proving i.e. once service providers have their systems ready to operate
Recovery of Service Provider Costs (including financing charges) commences
Service providers levy service related charges start of e.g. a charge per communication service responseDCC charging recovers both DCC’s own costs and payments to service providers Explicit charges
– related to service usage based on DCC’s variable costsFixed costs – on a per meter basis (domestic irrespective of enrolment + non-domestic enrolled) across charging groupsEnduring regime i.e. rollout completeDCC reaches a steady state with stable payments to service
providersDCC Charging Methodology4Slide5
The charging regime for the DCC is captured in a number of areas within the regulatory framework
The DCC’s licence contains the charging principles, snappily titled as the Relevant Policy Objectives of the Charging Methodology (see next slide).
Revenue restriction set out in the DCC price control licence conditions sets the DCC’s allowed revenue in each year.
SEC contains the charging methodology (SEC Section K) as the embodiment of these principles i.e. how the DCC’s charges are determined.
The charging methodology will be subject to the SEC industry modification process whereby the amended charging regime is considered to better facilitates the charging principles.
Annual charging statement calculated consistent with the charging methodology setting out the DCC’s charges for the year ahead (reflecting service provider costs) and published each year three months in advance
Other commercial terms (SEC Section J) e.g. Application of VAT / Invoicing / Bad Debt Socialisation / Emergency Funding / Data Estimation & Publication / Interest / Pay First & Dispute Later
DCC Charging Methodology
5Slide6
Relevant Policy Objectives of the Charging
Methodology – NB the plain English version1
st
Objective – the charges for the provision of services (other than elective / value added) for domestic premises are uniform i.e. do not vary by location across Great Britain
2
nd Objective – subject to the 1st
Objective the charges should on balancefacilitate effective competition in the supply of energynot restrict, distort, or prevent competition in the provision of energy metering services and energy efficiency servicesnot disincentive early rollout by suppliersas far as is reasonably practicable be cost-reflective (based on the costs seen by DCC) and
non-discriminatoryNB these are set out in DCC Licence Condition 18 and repeated in SEC Section C for completeness
DCC Charging Methodology6Slide7
Implementation within SEC
The SEC contains Explicit Charges based on usage (Section K7.5)
Current drafting limited to a fee for a detailed quote for elective services
Will be expanded for other usage charges e.g. per monthly meter reading
Excluding bilateral Elective Services, anything not covered by an Explicit Charge will be funded via the DCC’s Fixed Charges. Fixed charges are payable by suppliers and networks in respect of their meters (domestic irrespective of enrolment and non-domestic where enrolled) based on the Charging Group Weighting Factors
Five charging groups (SEC Section K3.8)
g1 - import electricity suppliersg2 - export electricity suppliersg3 - gas suppliersg4 - electricity distributors
g5 - gas transportersCharging Group Weighting FactorsSpecify the ratios of prices for each charging groupSet based on the costs related to the relevant proportions of electronic message types for each class of DCC users to provide a broadly cost reflective allocation of fixed costs
DCC Charging Methodology7Slide8
Simple Worked Example
8
This example illustrates the calculations of fixed per meter charges for each charging group within the charging methodology.
This calculation applies for the regulatory year (t) and takes the costs to be recovered via fixed charges (
EFR
t
) divided by the number of months (NMt
) and shares it across each charging group (EMSMSgt) weighted by the charging group weighting factor (agt) to give a per meter charge for each charging group (
FCgt).DCC Charging MethodologySlide9
Worked Example – Enduring Regime
DCC Charging Methodology
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