P272, as the new charging regime is known, will mean non-domestic electricity users will be charged based on half-hourly data read from their advanced meters if they are in profile classes 5-8. It will predominantly affect mid-sized businesses.
A delay to the implementation date has been expected, being first called for in February 2014. Elexon, on behalf of the Balancing and Settlement Code (BSC) panel, was concerned that the short timescales for implementation combined with large numbers of sites moving to half-hourly from non half-hourly charging presented a risk to “settlement accuracy” and “interrupted supply contracts”.
Ofgem shared these concerns, but was unwilling to approve a delay until RWE Npower raised an urgent modification (P322) setting out revised implementation arrangements. P322 requires suppliers to have started migration by November 5 this year, and ensures mandatory reporting of progress made each month.
Ofgem said on approving the extension: “We consider that P322 alternative, together with extending the P272 implementation date will significantly reduce the risk of contract interruptions.”
But this is very much a ‘swings and roundabouts’ decision, with the full impact hard to determine at this stage. Customers should not be left without power when the mandatory switch-over occurs, but will have to wait longer to reap the benefits. On the other hand, suppliers will have longer to transition their customers, but will still have to start as early as they would have done had the delay not happened. Nobody is a clear winner.
Those that argued for the delay would say it is to the benefit of customers. Npower’s business relations manager Dan Meredith said Npower was “very pleased with Ofgem’s decision to offer a longer window for businesses who need it, rather than pursuing a hasty roll-out. The new deadline gives us more time to communicate the potential costs and benefits of these changes to our customers, while ensuring that the implementation is as smooth as possible.”
But Meredith also said that the move to half-hourly metering is “critical to getting British business more engaged in energy management.” The delay now means that some customers will not be able to benefit from half-hourly charging, potentially for up to two years.
Those who were against the delay, such as Smartest Energy, argue that the decision also gives a long period of uncertainty to customers and hinders competition.
“We believe that either the level of churn will reduce significantly for a period of two years (because suppliers are reluctant to price unknown charges), or that many customers will enter into contracts which need to be re-opened. This will happen because suppliers will not know for certain at the time of pricing what kind of meter the customer has.”
Theoretically P322 should ensure there are no bottlenecks in transitioning customers, and should ensure that suppliers have to start taking action now. Ofgem openly expressed its “disappointment” with “the pace of the industry’s preparations to date for the move to HH settlement” in April this year. Ofgem will be aware of any suppliers’ slow progress long before April 2017, and will be able to act accordingly.
But P322 in itself causes problems. Inenco’s chief commercial officer David Cockshott said: “Whilst it seems sensible to adopt a phased approach to avoid process pitfalls, the decision to change P272 timescales means that some affected businesses will still be charged and settled half hourly from this November.”
“The amendment means that businesses in phase one will need to plan for new charges and arrange their metering contracts in just five months. Other businesses have up to 18 months to prepare for changes.”
The switch to half-hourly charging is not without cost for businesses, and the sooner they know when they will be affected, the cheaper the transition could be made. But so far P272 has been poorly publicised, so communication will have to be vastly improved.
But this does not just involve suppliers and customers. National Grid Electricity Transmission voiced concerns to Elexon in a consultation pre the decision that half-hourly charging on meters migrated before the implementation date under p322 “could require unmanageable manual data exchanges between suppliers and National Grid.”
Elexon’s market advisor Kevin Spencer said all these arguments were taken into account in the decision-making, but overall the benefits and negatives should even themselves out.
“Having been involved the both the CBA for P272, and the Regulatory Impact Assessment (RIA) undertaken by Ofgem, I know how hard it is to analyse of the impacts of a delay.”
“While the overall benefits identified may take longer to be realised, lower cost, additional customer benefit may be realised by aligning change of measurement class to contract rounds. The RIA suggested that on balance the cost/ benefit for this change is neutral but any changes, driven by the delay, are likely to fall within the wide spread of modelled scenarios.”
Until the process starts with suppliers submitting their first monthly migration plan, it will be difficult to know how it will all play out. One thing is for sure, if they know about P272 business electricity customers will continue to be concerned. If they don’t, they soon will be.