Ofgem resumes review of distribution charges

Ofgem has announced it is relaunching its significant code review of Distribution Use of System charges.

The regulator paused work on the review in November. In an open letter to industry, Ofgem said at the time it was slowing down the delivery of some network charging and connections reforms to divert resources to tackling the energy crisis over winter.

The regulator said the reforms would continue in the meantime but would focus on implementing decisions that had already been taken.

The significant code review (SCR) of Distribution Use of System (DUoS) charges was spun-off from an earlier SCR of forward-looking charges and network access arrangements across both transmission and distribution.

Ofgem said this would allow it to implement its proposed changes to connection charges and network access arrangements, which included a reduction in connection charges for distribution customers, for the beginning of the RIIO ED2 price controls in April 2023.

With the winter gone and those changes now implemented, Ofgem has published another open letter stating that it is resuming work on the DUoS review.

“The DUoS SCR will consider whether the methodology underpinning DUoS charges could be improved, noting the need for arrangements that are consistent across transmission and distribution, while reflecting the differences in the systems,” it explained.

“Our review will consider how distribution charges can support efficient use and development of the network, recognising the importance of competition and supporting decarbonisation. This includes the balance between usage-based and other charges, as well as the possibilities presented by time-of-use and locational signals to better reflect network costs and benefits.

“We will also consider a range of other important issues, such as the predictability of some charges. The practicality and proportionality of the arrangements and the nature of electricity as an essential service will play a central role in our review.”

Ofgem said it will begin with a brief review of recent developments that could impact the scope of the SCR. It intends to set out timelines and further details of its planned engagement with industry by early summer.

Furthermore, the regulator said it has resumed meetings of the Transmission Network Use of System (TNUoS) Taskforce, which were likewise paused in November. The taskforce is exploring near-term reforms to transmission charges out to the late 2020s. Longer-term reforms (late 2020s into 2030s) are being explored as part of Ofgem’s Strategic Transmission Charging Reform programme alongside the government’s Review of Electricity Market Arrangements (REMA).

The letter also stated that Ofgem has been working with the electricity system operator (ESO), network companies and the government to put in place immediate measures to address mounting concerns over the speed of network connections. It said this includes approving the two-step process for offering transmission connections to customers in England and Wales proposed by National Grid ESO.

Ofgem said it will publish more information about its plans for further reforms to the connections process in the “coming weeks”.