Distribution Network Operators (DNOs) are incentivised under the regulatory regime to reduce system losses. These are measured using settlement data as the difference between units entering and units leaving their distribution network. Retrospective adjustments made by suppliers to compensate for past errors supressed the units out part of the losses determination, making losses appear far higher than they actually were. The regulatory consequence of this was a penalty imposed on all DNOs of several £100m. The challenge was to construct and present a compelling case for appealing this penalty with Ofgem.
We are experts in electricity settlement. We understand the data, where it comes from and what it means. We also understand the regulatory loss incentive regime, the complex calculations and how it uses settlement data. In addition, in our Information Services practice, we have the capability to load, process and undertake rigorous analysis of large volumes of data in very short timescales.
We developed a robust methodology for quantifying the “units out” energy volumes that had been supressed by suppliers as part of their compensatory adjustments; and a means of factoring these adjustments out of the losses calculation to provide far more representative determination of losses. We loaded significant volumes of historical data for the entire DPCR4 (regulatory review) period into a large database, processed this applying our methodology and generated a far more accurate calculation of losses. Finally, we presented our methodology and results to Ofgem.
Our methodology provided the basis of addressing this industry wide issue and almost all DNOs used it in appealing their loss penalties. After protracted industry debate, our client (as well as other DNOs) successfully appealed a significant proportion of their penalties.
Our report highlighted to Ofgem the incongruity of the regulatory framework in this area and how it was inhibiting development of localised heat and power schemes, as well as resulting in unnecessary costs for consumers. This brought about a major council trial of a large localised heat and power scheme on the public electricity network, which overcame the regulatory anomalies, as a precursor to initiating the regulatory changes required.