Citizens Advice Response on Regulatory treatment of CLASS as a balancing service in RIIO-ED2 network price control
Utilising distribution network assets with Customer Load Active System Services (CLASS) capability can deliver savings for consumers during the ED2 period. While a market-based mechanism is preferable as it should lead to more efficient outcomes.
However, we believe the option proposed by Ofgem (Option 1A) is potentially the least preferable option for consumers because:
- It represents poor value for consumers with around half of benefits given away to the distribution network operators (DNOs). The Impact Assessment shows this could cost consumers over £800m.
- DNOs would be able to make further, and excessive, returns on assets that consumers are already paying for.
- It does not provide a regulatory mechanism that is fit-for-purpose for dealing with all types of DNO load management.
To address this, Ofgem should:
Reduce the share the DNO receives of the profits from providing class to a level that maintains an incentive but is more proportionate to the incremental investment required to deliver CLASS (for example, to 10%)
Set out principles for DNO load management activity in ED2 and design a Directly Remunerated Service (DRS) that can be applied to different forms of DNO load management.
Reconsider Options 1B and 2 if a new DRS, with a lower DNO sharing factor, is not accepted