Working towards greater predictability for 16% of your energy bill
If I had a pound every time a customer tells me they want greater certainty when it comes to forecasting future energy costs, I’d be able to retire. And retire in style if I added the number of times I and my colleagues here at npower have expressed the same sentiment. So I’m happy that this week, I can at last report that we seem to be moving towards greater predictability for a significant part of many large consumer bills – and that this, for a change, has nothing to do with EMR!
I’m talking about Distribution Use of System charges – the fee payable to local Distribution Network Operators (or DNOs) for transporting your power from the main transmission grid to your actual premises. If the UK was a human body, DNOs run the networks of capillaries that connect from the main arteries operated by National Grid.
In many cases, these charges account for around 16% of an average business customer’s overall electricity bill – quite a significant sum, especially when these costs cannot be hedged like the wholesale commodity element. Yet we currently only get 40 days notice of what these charges are going to be for the year ahead, with an indication of their levels a further 50 days beforehand.
Perhaps this wouldn’t be so bad if Distribution Use of System (DUoS) charges simply increased in line with inflation – but that isn’t the case. Maintaining a local network is a complex affair, and many factors can influence the costs required to do this, so changes to annual tariffs can be extremely unpredictable. In some cases, we’ve even seen 300% increases year on year – and have only been able to notify those customers affected one month before they have to start paying what can be many more hundreds of thousands of pounds each month.
That’s why our Network Charging team has been lobbying for some time now for a change to the way DNOs set their future charges, in a bid to make them more predictable and more transparent for customers. And I’m pleased to say that their efforts seem to paying off.
Northern Powergrid and UK Power Networks have listened and are proposing to Ofgem that DNOs set prices with fifteen months notice for the following two years. Last week, our Network Charging Team met with all six companies which hold licenses for the UK’s 14 local distribution areas and every DNO, bar one, seemed to be generally supportive of the changes being proposed. If implemented, this means that by the end of December, DUoS tariffs will be known not just for the next April-March charging year but the following year too.
However, this is not a done deal. Ofgem need to agree and may need to make some technical changes to the rules that DNOs must comply with before this can happen. But the timing seems right as Ofgem will shortly be rewriting the licenses to accommodate other new changes from 2015.
We’d welcome support from customers to help strengthen the case and will provide details of the Industry Consultation questions when it becomes available on the Electralink website. If you have any questions, please get in touch via [email protected].