Date:
21 February 2003
Cemil Altin
Head of Price Control Development
Ofgem
9 Millbank
London
SW1P 3GE
National Grid House
Kirby Corner Road
Coventry
CV4 8JY
Tel No: 02476 423943
Fax No: 02476 423945
24 hour gas escape
number 0800 111 999*
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and may be monitored
____
Dear Cemil,
Open letter from C McCarthy to DNOs regarding distributed generation
You asked for comments on the above letter and its annex.
We agree with the key objectives of the framework for the next distribution price control
coming into effect from April 2005. In particular, we welcome the intention to have a
consistent (although not necessarily identical) framework to that evolving for transmission to
avoid perverse incentives. You will be aware of our concerns with respect to the practicality
of establishing a market based transmission access framework and the suitability of using it
as the primary driver of network investment. We have proposed an evolutionary approach to
changing transmission access arrangements and we believe this fits well with the objectives
set out in the open letter and will allow the same principles to underlie both transmission and
distribution access arrangements.
We look forward to participating in the detailed consultations concerning the three work
strands:
structure of charges;
developing price controls and the DNO price control review; and
other (including losses).
As you will be aware, we believe there are significant benefits in terms of facilitating
competition in generation from using a shallow connection charging methodology because it
enables the costs of deeper infrastructure reinforcements to be appropriately shared with the
community of network customers who will benefit from them. Such an approach can weaken
the signals to generators to site economically but this may be addressed by introducing
locational Use of System charges. A shallow approach also leaves the costs of financing
deep network reinforcements arising from connecting generation with the network company.
While an initial allowance for such costs can be included in the price control, we believe
there is also merit in using an ongoing revenue adjustment mechanism (like our TO control
error correction mechanism) to vary network revenue within a price control period, with the
presumption of a ‘truing up’ of required revenue at the next price review.
National Grid Company plc
Registered Office:
1-3 Strand
London
WC2N 5EH
Registered in
England and Wales
No 2366977
Transco plc
Registered Office:
1-3 Strand
London
WC2N 5EH
Registered in
England and Wales
No 2006000
Yours sincerely
Tim Tutton
UK Director of Regulation
National Grid Transco