DPCR5 ECSG sub-groups 1 st meeting 25 March 2009 Sub-group 1 slide - - PowerPoint PPT Presentation

DPCR5 ECSG sub-groups 1st meeting

25 March 2009 Sub-group 1 slide pack

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Agenda

• Setting the scene (45 mins)

– TORs, modus operandi – Schedule of future meetings (handout) – Key DPCR5 project milestones

• Breakout into subgroups (am – 1 hour 45 mins)

– Recap on policy proposals – Summary of responses – Key discussion issues

• Lunch (45 mins)
• Discussion questions (pm - 1 hour 45 mins)

– Subgroup 1 – market segmentation – Subgroup 2 – scope of standards & approach to standards setting

• Feedback session – groups reconvene (30 mins)

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Modus operandi

• Expect participants to canvas views of

colleagues

• Strict adherence to agenda items
• Cooperation between participants

essential

• No decisions or agreements required
• Avoidance of discussions on levels of

margins

• Minute and summary to ECSG

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Key project milestones and meeting schedule

Working group meeting 1 25 March 2009 Working group meeting 2 Mid April 2009 Working group meeting 3 Early May 2009 Ofgem update consumer challenge group May 2009 Work group meeting 4 End May/Early June 2009 Publish initial proposals Late July 2009 Working group meeting 5 Mid September 2009 Working group meeting 6 Early October 2009 Working group meeting 7 Mid October 2009 Working group meeting 8 Late October 2009 Publish final proposals End November 2009

AM Breakout session: sub-group one

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DPCR5 - Allow regulated margin on competitive connections activities for all DNOs By end December 2013 - DNOs must demonstrate meeting competition tests PASS FAIL

Evidence of effective competition

• DNO allowed to earn

an unregulated margin, contained by competition

• Ofgem continues to

monitor competition via CIR reporting Little or no evidence

• f competition

developing

• Future margins

disallowed

• Ofgem makes a

referral to the Competition Commission Competition developing but tests not yet met

• Ofgem extends

review period

• Continues to allow

regulated margin

• Continues to monitor

via CIR

DPCR4 - No Margin allowed on competitive connections activities

Recap on proposals: treatment of competitive connections for DPCR5 DNOs that meet tests from start of DPCR5 can set own margins

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Recap on proposals: Potential scope of competition tests

Market share

• Number/value of competitive connections
• HHI scores

Market penetration

• Number of active ICPs/IDNOs (affiliates and non-affiliates)

Price

• Average price metric

Investigation findings

• Breaches of non-discrimination conditions of licence (SLC19)
• Competition Act breaches

Customer awareness of competitive alternatives

• Customer survey
• Number of competitive quotations issued

Facilitation of competition

• Enabling of LV live jointing
• Quality of website information

Complaints

• ICP complaints to Ofgem/Ombudsman referrals
• Other evidence of non-compliance with spirit of competition

Compliance with SLC15 (Standards for the provision of Non- Contestable Connections Services)

• 90 per cent compliance specified
• Services specified include proving quotations, responding to

requests for design approval and completion of works

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Summary of responses

• Would a regulated margin on connections facilitate competition?

– Most DNOs supported the proposal – One DNO objected on the basis that prices would increase for rural customers who are unlikely to benefit from competition – Some ICPs accepted the principle but many expressed concerns with allowing any margin before DNOs meet the competition tests

• At what level should a regulated margin be set?

– Only one suggestion of 10%

• How should the metrics be set?

– DNOs wary of overweighting the influence of market share – One DNO thought that compliance with relevant licence conditions should not be a factor

• Are the timescales for implementation appropriate?

– A number of ICPs felt that timescales should be brought forward and suggested that competition tests to be taken by April 2010 – Some DNOs thought timescales where too conservative and should be extended (review in DPCR6) – One DNO agreed with the timescales proposed

Refer to handout for summary of January workshop discussions

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Key policy issues from responses

• Potential price increases for rural customers

– Rural connections unattractive to ICPs (regardless of voltage?) – Concern from some respondents that prices will increase without associated competition benefits

• Principle of allowing margins before competition tests are met

– Concerns about DNOs being rewarded upfront for a potentially inferior service – BUT some support for the principle of allowing headroom in pricing to attract competition

• Weighting of market share test

– Tests could be service oriented to accommodate DNOs retaining market share because they are competitive on price and service – External factors such as geography may also affect attractiveness of certain segments

PM Breakout session: Market segmentation

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December document view on market segmentation

Market segment Market value Competitive potential LV small scale domestic (1-4 premises) £353 million Unlikely - low value, low margin work Remaining LV market High potential HV £53 million High potential EHV £45 million Low volumes, highly specialist, scope for growth DG £36 million Low volumes, scope for growth Unmetered connections £45 million Initial low uptake but growing

[1] Based on charges levied by DNOs and IDNOs. Totals do not include the value of connections undertaken by independent connection providers. [2] Total value of LV market.

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Discussion questions

• Potential approaches to market segmentation by:

– Voltage – Number of premises – Rural/urban – Contestable/non-contestable activity – Domestic/non-domestic – Greenfield/brownfield – Any other factors?

• Competition potential in identified segments (taking account of

size and value)

• Identification of segments where competition is unlikely to

develop or which are non-contestable

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