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Citizens Advice response to the Ofgem Access SCR Assessment Methodology consultation

25 October 2022

Citizens Advice response to the Ofgem Access SCR Assessment Methodology consultation [ 120 kb]

This consultation addresses various aspects relating to the funding of Distribution Network Operator (DNO) additional costs which may arise from the changes resulting from the Access and Forward Looking Charges Significant Code Review (Access SCR). 

Scale of additional Access SCR funding and consumer mitigants 

We note the substantial difference between Ofgem’s predicted costs arising from the Access SCR and those submitted by DNOs for the purpose of setting baseline allowances and costs assessment for ED2. Ofgem assumed £380 million of additional inefficient network investment over a 17 year period in its cost benefit analysis (CBA) in June 2021 as a result of the changes to connection charges. The submissions by DNOs in August 2022 now suggest additional costs of up to £1.1 billion over a 5 year period. If the DNO estimates of additional costs are correct, the forecast made by Ofgem is too low with consumers potentially picking up significantly larger socialised costs for connection charges than were predicted. We recommended in our Access SCR consultation response to Ofgem that this was a real risk and that 1 actual revealed costs by DNOs should feed back into the CBA and decision-making process for the SCR to ensure decisions are made on accurate and up to date evidence. Although the decision and direction on the SCR was made by Ofgem in May this year, we recommend that Ofgem seeks to assess the impacts of these baseline allowances on the CBA on which the decision was made. We also recommend that Ofgem considers mitigants that may be used to limit the impacts on consumers, such as reviewing the level of the high cost cap. 

Move from Active Network Management contracts (ANM)

The consultation document noted that one DNO has identified that a sizeable number of ANM customers may be seeking to move to firm commitments. Ofgem should monitor closely whether this situation is likely to be replicated in other DNO areas and assess the implications for additional funding requirements for flexibility services or for reinforcement. The proposed RIIO-ED2 uncertainty mechanisms offer a means for any required additional funding to be released to DNOs. 

Responses to specific questions

We support the use of 2 years of ex-ante funding rather than 5 years of funding given the uncertainties in volumes. We also support the use of the existing uncertainty mechanisms rather than developing new mechanisms for this line of funding.