Electricity Tariff Structure Review:

Alternative Tariff Structures

A Consultation Paper

CER/04/239
July 1st 2004
SUMMARY

Since 2000, the Commission has reviewed customer tariff levels on an annual
basis. Whilst some changes have been made to the types of tariffs offered to
customers since this date, overall transmission, distribution and PES supply
tariffs, as well as network connection charges, have continued to reflect legacy
structures which were in place prior to retail market opening.

The aim of the Electricity Tariff Structure Review has been to evaluate these
legacy structures with a view to presenting alternative tariff and charge
structures which more adequately deliver benefits to all electricity consumers.
On commencing the review of tariff structures the Commission set out a
number of principles which dealt with the obligations of the Commission under
legislation. In this paper the Commission has addressed these principles and
outlined how it has arrived at the proposed alternatives. Overall, the aims of
this evaluation are threefold.

First of all, this review has analysed existing and potential cost allocation
methods used to allocate regulated business costs to existing individual
customer categories. Within customer categories the structural components or
charging methods were considered bearing in mind the overall duties of the
Commission and the specific objectives of the review. To achieve such an aim it
was decided to explore the approach of setting tariff structures on the premise
of marginal electricity industry cost drivers rather than on the basis of the cost
allocation method currently in place. Tariffs based on marginal cost are
formulated on the basis of how costs would change if there were a small
increase (or decrease) in energy used in a given period, in demand in critical
hours and in the number of customers of a particular type. The results of the
cost allocation methodology used are published in a separate paper, Marginal
Cost Study, which accompanies this consultation.

Secondly, this review has looked at the adequacy of existing tariff offerings and
has suggested a number of changes that could be made to better reflect
current customer characteristics and metering technology.

Many of the existing tariff elements, including those deployed by ESB PES,
have been formulated over the years as a result of available technology. In
reviewing the electricity tariff structures it is therefore important to consider
some of the developments in technology particularly with respect to metering
which may facilitate a greater variety in tariff structures now or in the future.
In particular the Commission has examined the use of tariffs which vary with
time across the day (or season) to more accurately reflect the costs imposed by
different usage patterns by consumers. This paper examines the impact and
implications of moving to Time of Use (TOU) tariffs.

Naturally any review of tariff structures is likely to result in changes to tariffs

and, equally, any changes to tariffs will result in winners and losers relative to
the status quo. The outcome to the study undertaken at this time has resulted
in some changes for customers on a category-wide basis. The proposals
outlined in this paper assume the adoption of alternative technology, which
would result in introducing a time of use component to electricity charging.
The consequences of this approach are that customers who use electricity at

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system peak hours will end up paying more for their electricity during those
hours. Where customers use their electricity predominantly in off-peak hours
this will result in paying lower charges at those times. In essence what this
means is that customers who contribute most to the cost of the system will
result in paying more for the system. It should be pointed out that this report
does not aim to make any exceptions and that all customers are treated on an
equitable basis. The final results and tariffs which will be adopted will be
influenced naturally by consumers, industry and also the special provisions
that have been made under the legislation which the Commission will be
obliged to have regard to before making any final decisions.

Any changes to tariffs structures have to be considered in light of the changing

technology required to support such changes. The proposal to adopt time of
use tariffs, while it may result initially in changes for some customers, will also
facilitate customers where they are capable and willing to change their
consumption patterns. These tariffs will facilitate customers in reducing their
overall electricity bill throughout the year. In simple terms customers can
contribute to reducing the overall cost of electricity by moving their electricity
consumption from peak time hours to shoulder or off-peak hours. This will
substantially reduce their electricity bill and thereby contribute to a more
efficient electricity system for all customers.

Finally, the Commission has also, at this time, reviewed the existing charging
policy with respect to network connection charges. The current policy deployed
by ESB Networks and ESB National Grid have been developed many years ago
and it is worth considering at this stage whether these policies are appropriate
in the current climate. The current connection charging policies were
formulated at a very different time with respect to financial products available
to both industry and domestic customers. The Commission now wish to review
the structure of connection charging policy in the light of current financial
products that are available to all customers and it poses the question as to
whether the current connection charging policies are appropriate or the most
efficient means of recovering the cost of connections. In this paper the
Commission outlines a number of alternative approaches to the current policy
including the introduction of full up-front payment for connections.

Overall this paper analyses the pros and cons of various alternative tariff
structures and connection charges, and uses the results of the marginal cost
study to quantify a selection of illustrative tariffs using promising alternative
tariff structures. This paper also presents the results of these alternative tariffs
structures and the potential impact these would have on customer categories if
implemented.

It should be noted that the alternatives tariffs presented in this paper are
illustrative, and the resulting class revenue allocations and bill impacts are only
approximate. More detailed analysis is required if tariffs are actually set on
these models. This analysis will be undertaken during the implementation stage
of this review.

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ACKNOWLEDGMENT

National Economic Research Associates, Inc. assisted the Commission in the

preparation of this paper. In particular, NERA directed the marginal cost
analysis, developed the tariff screening models, and advised the Commission
on the evaluation process.

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 TABLE OF CONTENTS

SUMMARY ............................................................................................... II

1. INTRODUCTION .............................................................................. 7
1.1 Background and Purpose of Project .............................................7
1.1.1 Commission’s Duties in Setting Electricity Tariffs...........................7
1.1.2 Existing Tariff Structures...............................................................7
1.1.3 Tariff Structure Review ..................................................................7
1.1.4 Structure of this Paper ..................................................................8

2. TARIFF STRUCTURE DESIGN PROCESS........................................ 10

2.1 Objectives & Aims .....................................................................10
2.1.1 Broad Objectives of the Review .................................................... 10
2.1.2 Specific Aims of the Review .......................................................... 10
2.2 Cost Basis for Allocation and Tariff Design: Embedded or Marginal
11
2.2.1 Embedded Costs & Marginal Costs as the Basis of Tariffs ............ 11
2.2.2 Present Cost Allocation Policy – Average Costing .......................... 14
2.2.3 Evaluation of Cost Allocation Methodology ................................... 14
2.3 Reconciliation of Marginal Cost Revenue & Allowed Revenues...18
2.4 Identification of Alternative Structures .....................................19
2.4.1 Alternatives – Connection Charges ............................................... 19
2.4.2 Alternatives – Tariffs – Categories & Structural Components ........ 19
2.5 Identification of Tariff Constraints ............................................27
2.5.1 Current Metering Capabilities ...................................................... 27
2.5.2 Future Metering Arrangements .................................................... 28
2.5.3 Metering and Billing .................................................................... 29
2.5.5 Individual Category Cost/Benefit Thresholds ............................... 30
2.5.6 Benefits of TOU tariffs for customers............................................ 32
2.6 Customer Impact: Screening of Alternatives..............................35

3. TRANSMISSION CHARGING .......................................................... 36

3.1 Introduction ..............................................................................36
3.1.1 Transmission Costs ..................................................................... 36
3.1.2 Impact of the new Market Arrangements in Electricity (MAE) on
Transmission Network and Non-network costs........................................ 37
3.2 Transmission Revenue Requirement & Marginal Costs ..............39
3.2.1 Revenue requirement................................................................... 39
3.2.2 Transmission Marginal Costs....................................................... 39
3.2.3 Transmission Marginal Cost Revenue Gap ................................... 40
3.3 Transmission Connection Charges (Demand & Generation)........41
3.3.1 Present Policy .............................................................................. 41
3.3.2 Options ....................................................................................... 41
3.3.3 Screening/Evaluation .................................................................. 42
3.3.4 Potential Alternative .................................................................... 44
3.4 Transmission Use of System (TUoS) Tariffs ................................45

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 3.4.1 Generation/Demand Allocation.................................................... 45
3.4.2 Generation TUoS Categories & Detailed TUoS Structure............... 49
3.4.3 Demand TUoS Categories & Structure ......................................... 58

4 DISTRIBUTION CHARGING ............................................................... 71

4.1 Introduction ..............................................................................71
4.1.1 Role of the Distribution System Operator (DSO) ........................... 71
4.1.2 Distribution Revenue & Costs ...................................................... 71
4.2 Distribution Revenue Requirement & DUoS Marginal Costs .......73
4.2.1 Distribution Marginal Costs ......................................................... 73
4.2.2 DSO Revenue Requirement & Marginal Cost Revenue Gap ........... 77
4.3 Distribution Connection Charges...............................................78
4.3.1 Generator (Embedded) Connections ............................................. 78
4.3.2 Demand Customer Connections................................................... 80
4.3.3 Screening/Evaluation .................................................................. 82
4.3.4 Proposed Alternative .................................................................... 82
4.4 Distribution Use of System (DUoS) Charges................................84
4.4.1 Generator/Demand Allocation ..................................................... 84
4.4.2 DUoS Customer Categories.......................................................... 84
4.4.3 DUoS Structural Components...................................................... 87

5. PES SUPPLY.................................................................................. 93
5.1 Introduction ..............................................................................93
5.1.1 Role of PES.................................................................................. 93
5.2 PES Retail Revenue Requirement & Retail Marginal Costs.........95
5.2.1 PES Marginal Retail Costs ........................................................... 95
5.2.2 PES Revenue Requirement & Marginal Cost Revenue Gap ............ 96
5.3 PES Tariffs ................................................................................98
5.3.1 Present PES Categories & Structure............................................. 98
5.3.2 Alternative PES Categories & Structure...................................... 100
5.3.3 Screening of PES Alternatives .................................................... 102

6. TARIFF STRUCTURE IMPLEMENTATION PROCESS..................... 106

APPENDICES – CONTENTS.................................................................... 107

APPENDIX A: DUOS – EXISTING & ALTERNATIVE TARIFF STRUCTURAL

COMPONENTS ...................................................................................... 108

APPENDIX B: PES – EXISTING & ALTERNATIVE TARIFF STRUCTURAL

COMPONENTS ...................................................................................... 114

APPENDIX C: ANNUAL PES REVENUES BY CUSTOMER CATEGORY UNDER

EXISTING AND ALTERNATIVE TARIFF STRUCTURES ........................... 126

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1. INTRODUCTION

This consultation paper documents analysis of a number of alternative tariff

structures that have been investigated as part of the Electricity Tariff
Structure Review. This review concerns tariffs and charges in the following
areas:

Transmission Use-of-System (TUoS) and connection charging;

Distribution Use-of-System (DUoS) and connection charging;
Supply (PES) tariffs faced by final customers

1.1 Background and Purpose of Project

1.1.1 Commission’s Duties in Setting Electricity Tariffs

Under the Electricity Regulation Act, 1999 (ERA), the Commission is charged
with approving the form and basis of charges to be applied for the
connection to and use of the transmission and distribution system.

Regulation 31 of Statutory Instrument No. 445 of 2000 also requires the

Commission to approve the form and basis of ESB PES tariffs for the period
to 19th February 2005. It is anticipated that this requirement will continue
under new legislation expected later this year.

1.1.2 Existing Tariff Structures

Since 2000, the Commission has reviewed transmission use of system

(TUoS) and distribution use of system (DUoS) and PES customer tariffs on
an annual basis with the aim of providing cost reflective tariffs for full
market opening in 2005. Distribution and transmission connection charges
policy has also been reviewed and approved during this period.

The primary focus of the annual tariff reviews has been on the overall level of
tariffs rather than on the underlying structure of the tariff costs, categories,
and structural components.

This Tariff Structure Review represents the Commission’s first opportunity

for a comprehensive review of tariff structures since market liberalisation in
2000.

1.1.3 Tariff Structure Review

The review commenced in December 2003 with the publication of a first

consultation paper on the structure of existing charges and tariffs. Proposed
underlying objectives and principles governing the formulation of tariffs and
the allocation of costs to different customer categories were also discussed in
this document.

Comments received in response to this paper were published and responded

to by the Commission in March 2004. At the same time, the Commission
published an information paper documenting research on tariff charging
policies in existence in a selection of other countries. The main purpose of

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this paper was to inform market participants and customers of some of the
alternatives in use elsewhere.

This consultation paper is the fourth paper of the Tariff Structure Review and
will be followed by a position paper that will inform the implementation
phase of the review, which will begin in the Autumn of 2004.

This paper is also accompanied by a marginal cost study of costs facing ESB
National Grid, ESB Networks and ESB PES. The results of these analyses
have informed the formulation of alternative tariff structures.

Overall, in the process of this review the Commission has:

invited comment on the structure of existing tariffs;

consulted on the objectives and principles that should be employed in
determining alternative tariff categories and structures;
published research on tariffs in use in other countries;
conducted analysis of marginal costs faced by ESB National Grid,
ESB Networks and ESB PES;
investigated metering and billing system constraints on choice of tariff
structures;
developed illustrative alternative tariffs with preliminary customer
impact results.

The design stage of the review will be completed with the publication of a
Commission position on future tariff structures, after which the
implementation stage will commence.

The Commission would like to point out that the implementation stage
is likely to take a considerable period of time and we are mindful of
the many changes presently underway in the industry. Therefore the
implementation of any changes will require significant further
consideration.

1.1.4 Structure of this Paper

Section 2 of this consultation paper outlines the methodology employed by

the Commission in reviewing tariff structural design objectives and project
aims, review of underlying costs and how these costs are measured and
allocated to customers, how customers are categorised into separate tariff
groups based on shared characteristics, how costs are recovered from these
categories and, finally, what impact different tariff structures have on these
customer categories and individual customers.

Section 3 applies this methodology to transmission charging for new

connections and ongoing transmission Use-of-System charges. Alternative
tariff structures are identified along with indicative customer impacts that
would result from the introduction of these alternatives vis-à-vis present
tariffs.

Section 4 is similar to section 3 of the review except it applies to

distribution charges.

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Section 5 considers the current PES Supply tariffs faced by all customers
not served by independent suppliers.

Section 6 previews the next steps of the project, namely the publication of a
decision on alternative tariffs and the process of implementation.

The Appendices present detailed results and impacts of the tariff options
screened as part of the review process.

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2. TARIFF STRUCTURE DESIGN PROCESS

2.1 Objectives & Aims

In December 2003, the Commission published objectives and principles/aims

for the review of existing and alternative tariff structures in respect of
transmission UoS and connection charges, distribution UoS and connection
charges and PES supply tariffs.

2.1.1 Broad Objectives of the Review

As outlined in the first consultation paper, the objectives of the review are as
follows:

General
- To avoid cross-subsidies;
- To gain transparency and simplicity within the tariff structure;

Competition
- To facilitate wholesale competition without creating artificial
barriers for any generator or supplier;
- To facilitate retail competition without creating artificial
barriers for any supplier;

Efficiency
- To develop efficient price signals to consumers to guide short-
run and long-run consumption decisions and choice of
supplier;
- To encourage efficient consumptions patterns across the day
and year

Non-discrimination (Equity)
- To avoid unnecessary bill impacts;
- To develop charges which are just and reasonable and not
unfairly discriminatory;

Consistency
- To gain consistency with new market arrangements, including
incentives for efficient location of new generators;

Renewables
- To gain consistency with government policy related to support
of renewables

2.1.2 Specific Aims of the Review

In addition to identifying broad objectives, this paper outlined the process of

arriving at new or revised tariff structures, in particular the specific aims of
the review i.e. to identify the following:

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 Cost Allocation & Non-Discrimination
- Are costs being allocated appropriately according to causer
pays principle?
- Are prices reflecting marginal cost signals?

Existing & Alternative Tariffs and Connection Charges

- What other, alternative, tariffs and connection charges might
better achieve the objectives of tariff setting?
- What tariff structures are well suited to the Irish retail market?
- How will embedded generation, in particular CHP generators
and autoproducers, be facilitated?

Tariff Constraints: Metering & Billing Capabilities

- How would metering and billing technology and investment
affect the choice and implementation of alternative tariffs;

Alternative Screening & Customer Impact

- How would the introduction of alternative tariff structures
impact customers?

2.2 Cost Basis for Allocation and Tariff Design: Embedded or

Marginal

Because one of the objectives of the tariff review is to ensure cost-based tariff
structures, the first step in reviewing tariff structures is to decide upon the
appropriate cost basis. The cost basis is used for allocating costs to classes,
designing tariff structures, and setting the levels of each tariff component for
each class of consumers.

There are two types of cost studies that can be used for these purposes:
average/embedded costing and marginal costing.

2.2.1 Embedded Costs & Marginal Costs as the Basis of Tariffs

An embedded cost (sometimes called an average historical cost) tariff analysis

starts with the total revenue requirement of the utility for a given year and
takes the following steps:

The functionalisation step attributes costs to the different business.

(In this case it was done through separation of ESB accounts);

The classification step defines costs as demand-related, energy-

related or customer-related using a variety of classification methods.
For example, the fixed-variable method classifies fixed costs as
demand-related and variable costs as energy-related.

The allocation step apportions the functionalised and classified costs

to the various customer classes using a variety of allocation factors
that depend upon the type of cost being allocated. For example,
energy-related costs can be allocated on the basis of category annual
energy use, or weighted energy use in various seasonal and time-of-
day costing periods. Demand-related costs might be allocated on the

11
 basis of class contribution to system annual peak, the average of the
three highest monthly peaks, the average of the 12 monthly peaks, or
any of a large number of other methods.1

The tariff-setting step divides the allocated costs by class billing

determinants (kWh, billing demand, number of customers, etc.) to
determine tariff charges. These charges are often adjusted because of
bill impacts and other policy decisions.

Since the revenue requirement is in large part a function of investments

made in the past, an embedded cost study essentially attempts to define
each class’ responsibility for historical costs.

In contrast, a marginal cost2 study analyses how the system is planned and
operated in order to determine how costs would change if there were a small
increase (or decrease) in energy used in a given period, in load in critical
hours, in number of customers of a particular type, etc. It is a forward-
looking and hypothetical exercise – as it looks at the cost of the next unit
produced (or the savings from a small decrement in expected use).3 A
marginal cost tariff analysis includes the following steps:

Unit Cost Estimation: Changes in costs generation, transmission,

distribution and supply costs that vary with level of service (kW; kWh;
number of customers) given a sufficient time horizon is estimated. All
non-marginal costs are ignored.

Marginal Cost Revenue: The unit marginal costs per kWh, kW and
customer identified in the first step are multiplied by the
corresponding units for each customer class to establish category
(and total) marginal cost revenue. Because marginal costs are
forward-looking, whereas the revenue requirement is largely
determined by decisions made in the past, it would be only by
coincidence that charging marginal costs would produce the allowed
revenue. Consequently, an additional step is required.

Revenue Reconciliation: The unit marginal costs are adjusted to

produce charges that will generate the revenue requirement and meet
other tariff objectives (see section 2.3).

A marginal cost tariff analysis is a bottom-up exercise that begins with time-
differentiated unit costs per kWh and per kW of monthly peak demand, and
monthly costs per kW of contract demand and per customer. These unit

1 Sometimes embedded cost studies include a time-differentiation step, but the costs are
simply assigned to periods using somewhat arbitrary assignment factors, with the outcome
highly dependent on the assignment approach chosen.
2 Marginal Cost is the change in total cost incurred to supply a very small increment of
service.
3 Note that all customers are responsible for the utility’s marginal costs; every customer is a
marginal consumer. If load growth requires expansion of the network, existing customers
are just as responsible as new customers for the new investment because they choose to
continue to consume at their prior level. Moreover, an industrial customer that consumes at
a steady level across the hours of the day consumes energy in the peak hours of the day
when market price are high and should face tariff charges that reflect these high market
prices. This customer will benefit from it purchases of large amounts of energy in the off-
peak hours, when market prices are low.

12
costs are then multiplied by class billing determinants to determine class
marginal cost revenues, and adjusted as necessary to create a set of tariffs
that will yield the allowed revenues.

According to economic theory, when marginal costs are used as the basis for
pricing, customers have incentives to make economically efficient decisions
about their use of electricity and related goods and services because the
price they pay reflects the resource costs of their decisions. Pricing above
marginal cost discourages consumption that would be valued more by
consumers than it costs to supply. The result is a loss of welfare. Likewise,
pricing below marginal cost encourages consumption that would not take
place if consumers faced a (higher) marginal cost price. Since the cost of the
excess consumption exceeds the value that consumer place on it, resources
are wasted.

Because the process of estimating marginal cost involves analysing the likely
cost effects of hypothetical changes in load or customers, an assumption
must be made about the degree of flexibility that the utility has in
responding to the assumed load change. In the terminology of economics, a
long-run marginal cost reflects changes in costs in a situation in which all
factors of production can be altered. Thus a long-run marginal cost is the
cost actually incurred to provide an additional unit of electricity only when
the system is optimal, and includes the cost of capacity added to return the
system to optimality. A short-run marginal cost is estimated assuming that
not all factors of production can be modified. Usually this is interpreted as
meaning that capacity cannot be expanded in the short-run and the utility
must provide the additional service with existing facilities. However, if load
grows but capacity does not, there is a higher probability of outages, and the
cost of this reduced reliability to consumers is an element of short-run
marginal cost. Higher load on the transmission system increases losses and
congestion, which requires running higher cost generators than when there
is no congestion. Since electricity systems are rarely optimal, it is short-run
marginal costs that are actually incurred when load changes.

Note that the distinction between short-run and long-run marginal costs is
not a matter of time horizon, but rather of flexibility to respond to load
changes. There is an important connection between short-run and long-run
marginal costs. When the reliability, losses and congestion components of
short-run cost become large enough, it is cost-effective to add capacity – and
marginal costs computed in these situations include the cost of new
capacity.

Marginal cost studies conducted for use in tariff development often develop
short-run cost estimates for several years into the future, taking into
account capacity additions that are expected over that time period, but not
assuming that the system is always in optimality. This approach, since it
does have a time dimension, is referred to as a long-term marginal cost
study.

Although short-run marginal costs give the most precise price signals to
guide efficient consumption decisions, it is sometimes difficult to estimate
the reliability component of short-run marginal costs, particularly for
distribution and transmission. The MAE will produce market prices of
generation that reflect short-run marginal costs of generation (including

13
shortage costs) because the price will rise when capacity is constrained. In
lieu of short-run marginal costs of transmission (other than congestion and
losses included in the LMPs) and distribution, marginal cost analysts
typically compute, as a proxy, the average expenditure on load-related
capacity additions per unit of peak load growth (annualised), along with
associated operation and maintenance expenses and marginal overheads.
This approach uses the relationship between short-run marginal costs and
investment decisions, discussed above, to substitute the average incremental
cost of projected capacity additions for the difficult-to-measure reliability
component of short-run marginal transmission and distribution costs (see
sections 3.2.2, 4.2.1, and 5.2.1 for a summary of the marginal cost methods
used for this review.)

2.2.2 Present Cost Allocation Policy – Average Costing

At present, transmission, distribution and supply costs are allocated to

different customer groups in a way that resembles the average/embedded
cost approach.

In the current approach for DUoS and TUoS (and PES), capital costs in the
allowed revenues are determined on an average replacement cost basis –
historical costs are revalued to what it would cost to replace them were they
to be invested in today. Models have been developed that allocate the
replacement costs to customer categories using assorted allocation factors,
with the choice based on an assessment of the assets required to serve them.
Operating costs are then allocated by these models to customer categories
based on the same cost drivers. Although the revaluing of assets is similar to
a marginal cost approach, the current models include all costs, and do not
focus on costs that vary with amount of service provided.

In reality, the allocation of costs to customer categories and levels of charges

for the structural components in the tariffs have not been set on the basis of
comprehensive cost analyses. For example, the transmission revenue
requirement has been allocated between generation and demand users using
an arbitrary split and the amount recovered in energy vs. capacity charges
also determined using an arbitrary split.

2.2.3 Evaluation of Cost Allocation Methodology

The main advantages of embedded/average cost studies are:

Ease of implementation (the costs are all available in the books and
records of the companies.);
Match to Revenue Requirement more easily (the allocated costs sum
to the allowed revenues.);
Minimal change in tariff structures (Given the fact that existing tariffs
are based to some extent on average costs, a comprehensive average
cost tariff design might not result in wholly different tariff structures.
However since the present tariff structure does rely on many arbitrary
allocation factors, a full use of average costs might require significant
changes in tariff structures).

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The principle disadvantage is that there is:

Poor cost signals for efficient consumption and investment decisions

Subjective choice of allocation factors since there is no theoretically
“right” way to allocate or time-differentiate the costs. There is a
greater number of allocation factors associated with the average cost
methodology.

The main advantages of marginal cost pricing are:

Prices signal the economic costs of consumption and investment

decisions;
Regulated tariffs mimic the cost structures faced by competitive
suppliers;
Marginal cost studies provide the information needed for detailed
time-differentiated tariffs.

The main disadvantages of marginal cost pricing are:

The forward-looking nature of a marginal cost study means it is more

difficult to implement than a study that relies on the historical books
and records of the company;
Because marginal cost analysis is a bottom-up exercise, there is
almost always a need to reconcile marginal cost revenues to the
allowed revenues when setting tariffs.

The Commission is of the view that a marginal costing approach can result
in straight-forward tariffs, despite the fact that it may be not be as simple as
an average cost approach. In addition, the need to adjust marginal revenues
to the revenue requirement can be done in a manner that does not overly
distort the efficiency signal to customers.

Both approaches were evaluated against the objectives published in the first
consultation of this review:

Table 2.1: Pricing Evaluation

Objectives Marginal Pricing& Average

Pricing
General To avoid cross-subsidies; Both methodologies may be used
to define objective measure of
class cost of service.
To gain transparency and Both approaches can be used to
simplicity within the tariff make tariffs that follow cost
structure; structure and are
understandable to consumers.
Competition To facilitate wholesale and Marginal cost pricing should
retail competition without enhance competition, whereas an
creating artificial barriers for average cost basis may create
any generator or supplier; distortions. For example, if PES
supply tariffs allocated costs to
categories on the basis of average
costs, this might result in some
customer categories paying more
than marginal cost of service and

15
 others paying less. Those paying
less than marginal cost would
tend to stay with PES.
Efficiency4 To develop efficient price Marginal Pricing is a better signal
signals to consumers to guide of the true resource cost of
short-run and long-run consumers’ electricity decisions,
consumption decisions and and a better signal of the relative
choice of supplier; efficiency of PES as a supplier.
To encourage efficient Marginal Pricing with time-
consumptions patterns across differentiation is the best way to
the day and year encourage efficient consumption
patterns. While average costing
can be time differentiated, the
costs must be ‘assigned’ to
periods and there is no
theoretically correct way to
choose the assignment factors.
Equity To avoid unnecessary bill Adjustments can be made to
impacts tariffs based on either costing
approach to limit unacceptable
bill impacts.
To develop charges which are Marginal costing signals to all
just and reasonable and not consumers the implications of
unfairly discriminatory their decisions to increase or
reduce consumption. Average
costing has the potential to be
controversial because the results
are so dependent on the
allocation factors chosen.
Consistency To gain consistency with new The marginal cost approach for
with market market arrangements, TUoS is more likely to be
including incentives for consistent with new market
efficient location of new arrangements because it is
generators consistent with the marginal
nature of short-run marginal
transmission costs included in
LMPs. Locational signals for new
generators are more a function of
connection charge policy and
TUoS structure, than choice of
embedded or marginal cost basis.
Renewables To gain consistency with Both approaches can be
government policy related to consistent with renewables
support of renewables policy.

Overall, the Commission is of the view that marginal costs, rather than of
embedded or average costs, are the best basis for tariffs that achieve these
objectives.

The Commission therefore, as part of this review process, undertook the

study of the marginal costs faced by ESB PES, DSO, TSO and TAO. This
Marginal Cost Study has been used to develop cost-based alternative tariff
structures. These options are outlined in the transmission, distribution and
supply sections of this paper.

4 The term efficiency here refers to Allocative Efficiency which is promoted by pricing at the
economic cost of the electricity supply.

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The Commission invites comment on the cost basis for cost allocation and tariff
design.

17
2.3 Reconciliation of Marginal Cost Revenue & Allowed
Revenues

Revenue collected from tariffs should match the allowed revenue

requirement of the regulated entity. As tariffs based on marginal costs alone
rarely match allowed revenue, some form of adjustment or reconciliation
must be made. The goal of these adjustments is to preserve as much as
possible the efficient price signals that are the goal of marginal cost pricing.
The reconciliation approach for one type of tariff (e.g., TUoS) may not be
suitable for another type of tariff (e.g. PES Supply).

Adjustments reconciling marginal revenue to allowed revenue may be made

in a number of ways (and combinations of ways), including:

a) Fixed Cost Adjustment

Making adjustments to fixed tariff elements, such as fixed monthly

charges, is preferable for this purpose as this method is unlikely to
affect customers’ decisions about how much electricity to use.

b) Energy Charge Adjustment

If the bill impacts from making all the adjustment in fixed charges are
unacceptable, adjustments can be made in the per kWh charges as
well or instead. For example, blocked charges are often used for this
purpose, with the adjustment made in the first block, leaving the tail
block fairly close to marginal cost.

c) All Category Adjustment

Another approach is to make any needed adjustment in the usage

charges consistently, preserving the marginal cost relationships
between energy and demand, and among the various seasonal and
time-of-day pricing periods.

d) Fixed Uplift

Reconciliation may be accomplished by increasing energy or demand

charges by an absolute amount. For instance a 10c/kWh energy
charge for domestics and 12c/kWh charge for businesses could rise
by the same absolute amount. It the reconciliation amount was
0.5c/kWh then the domestic and business unit charge would become
10.5c and 12.5c per kWh.

Several methods of uplift have been tested and are presented in sections
3.4.3.6, 4.4.3.3, and 5.3.3.

The Commission invites comment on methods for reconciling marginal costs

with allowed revenues [appropriate methods may differ depending on size of
gap and type of costs.]

18
2.4 Identification of Alternative Structures

The distribution and transmission businesses recover most of their costs

either through upfront charges for new connections or through ongoing use-
of system (UoS) charges. ESB PES charges for supply costs, supply margin
and pass-through costs in its tariffs.

2.4.1 Alternatives – Connection Charges

At present ESB Networks as DSO and ESB National Grid as TSO charge
customers connecting to the networks part or all of the attributable5 cost of
connection. The DSO and TAO/TSO collect remaining connection costs and
most other network and non-network costs through Distribution Use-of-
System (DUoS) and Transmission Use-of-System (TUoS) charges respectively.
Therefore, the extent of the connection charging directly affects the amount
to be recouped from tariffs and other charges.

2.4.2 Alternatives – Tariffs – Categories & Structural Components

Once connection revenues are determined, remaining distribution and

transmission costs to be recovered in use-of-system (UoS) charges should be
allocated based on the cost of serving different customer categories.
Furthermore, the structure of tariff components (energy, capacity, fixed, etc.)
should reflect the structure of the cost of service.

2.4.2.1 Tariff Categories

Tariff categories are classes of customers with common/shared

characteristics that are grouped together for ease and consistency of
charging.

While categories may be based on a number of shared characteristics, tariff

categories are usually defined by one or more of the following criteria:

a) type of consumer (e.g., domestic, commercial, industrial, street

lighting);
b) usage characteristics (e.g., load factor, percent of use on-peak);
c) quality of service (e.g., firm or interruptible; type of distribution
layout);
d) voltage level of service;
e) location (e.g., geographical area)

Transmission tariffs normally apply to broader groupings of customers than

distribution or supply tariffs. Supply tariffs vary considerably by customer
type, particularly in deregulated markets such as the UK. However, in

5 The Attributable Cost is a proxy for the incremental cost of connecting a new customer or
group of customers to the networks, including network reinforcement costs. The
attributable cost is the estimated cost of the portion of the network that has to be built or
existing capacity expanded to provide capacity to the connecting customer. Where standard
or average charges exist, all new customers in the category pay these generic charges,
rather than individually-determined connection costs.

19
Ireland regulated supply and distribution tariffs have until now been defined
according to:

a) voltage level (in general);

b) domestic/commercial use (of connected premises at LV level);
c) metering (also at LV level)

Low voltage customers are divided by the domestic and commercial use of
the connected premises. Business customers are often sub-categorised
according to their size and what metering is in place – electromechanical
metering or Maximum Demand metering. Larger Customers, on the other
hand, are associated with the voltage level at which they are connected.

2.4.2.2 Tariff Components

Tariff components refer to the number and nature of the charges applicable
to customers in a given customer category. Components can be fixed
monthly charges or depend on customer usage during the billing period, can
be blocked, and can be time-differentiated in various ways.

Cost-Components

Tariff components should be primarily based on the cost structure of

providing service. Typical components include:

a) Fixed Customer Charges (per customer per month)

Fixed Charges are charges that are not a function of the customer’s
usage during the billing period and are often used to recover costs
that vary with the number of customers being served.

Examples of such costs include:

Meter and meter services;

Customer billing and accounting expenses;
Customer information and service expenses

b) Generation (Market Price) Charges (per kWh)

Energy charges, with the commencement of the new market, will be

based on the MAE spot price.

c) Capacity Charges (per kVA of MIC)

Capacity charges (as the term is used in Ireland) are another form of
fixed charge as they are assessed on the customer’s kVA of MIC
(Maximum Import Capacity6), a cost that does not vary unless
additional investment is made to increase or reduce MIC.

The term capacity charge may also be associated with maximum

demand at peak. At present, customers in DUoS DG6 category and

6 Maximum Import Capacity (MIC) is the capacity that a customer contracts when seeking a
connection to the networks. ESB Networks construct the networks to provide this capacity.

20
 upward are charged a capacity charge per kVA of MIC in any given
month in their DUOS tariff component These customers are not
charged demand or maximum demand charges for their network
usage. However, the PES tariff for the same customers does include a
charge on the basis of kW of maximum demand.

Customers’ maximum demand is monitored and, where a customer

(DG6 and larger) exceeds its MIC, the customer is subject to penalties.

d) Network Energy Charges (kWh)

Network facilities are sized to handle their expected peak loads and to
ensure that customers’ capacity requirements can be met on an
ongoing basis, assuming that peak load is the more significant driver.
It is important to note that it can occur at different times in different
parts of the network, and at times other than the time of the peak
demand on the system as a whole. Since load growth at times when
capacity is adequate does not require additional capacity, it is
important to recover these network costs on a time-of-day usage basis
for customers with time-of-use metering, and on a seasonal basis for
customers with simple metering. Because the exact time of the peaks
on various facilities cannot be predicted with complete accuracy, it is
appropriate to recover these costs on the basis of energy used within
the critical periods when the peaks are likely to occur.

As distribution substations and the transmission network is built for

local or system peak their costs should be recovered based on usage
or contribution to peak conditions, and not on the basis of a
customer’s MIC.7 These costs can be charged on the basis of time-
differentiated energy throughput (kWh) or by maximum demand (kW
used) at during the peak period.

e) Demand Charges (per KW of metered peak demand during the billing

period)

An alternative to time-differentiated per-kWh network charges is time-

differentiated (or seasonal) charges per kW of monthly-metered
demand. ‘Maximum’ demand charging i.e. charging customers on the
basis of their maximum demand in any given, say, quarter hour in a
billing period has traditionally been used as a means to recover
capacity costs described above in (d), the idea being that the
maximum usage of a customer in a billing period is a proxy for that
customer’s contribution to the need to invest in capacity to cover peak
demand.

However, the problem with this approach is that a customer’s peak

demand does not necessarily coincide with peak demand on the
transmission, and higher voltage distribution systems. Also, once max
demand has been reached in a billing period, the customer has little

7 For example the Marginal Cost Study accompanying this paper identified 5 time periods – a
peak, shoulder and off-peak for the four winter months and a shoulder and off-peak for the
eight summer months.

21
 incentive to restrain demand at other times, which may be equally or
more critical for the system.

A time-differentiated marginal cost study shows that responsibility for

capacity costs lies in many hours – not just the peak hour -- because
of uncertainty over loads and capacity availability. As such, charging
for all capacity costs on the basis of use in one hour during the billing
period does not follow cost-causation. Time-differentiating demand
charging (billing on the basis of maximum kW demand in various
pricing periods is a better approach, but requires meters capable of
recording peak demand in particular periods (see constraints).8

In essence, the more pricing periods there are, the more similar are
billing on a per-kWh and a per kW-basis.

f) Other Charges: Low Power Factor Penalties

Certain types of loads and generators consume (or produce) reactive

power in addition to real power. The relationship between real and
reactive power is called “power factor.” The network operators must
compensate for power factors outside a normal range in order to keep
voltage within safe limits. The DSO and PES currently charge or
penalise larger customers with a low power factor.

In terms of potential customer impact, the higher the fixed components of a

customer’s bill (and by inference the lower the variable components), the less
the incentive to reduce usage. Of course, if the objective is to give efficient
price signals, the variable components of the tariff should be set as close to
marginal cost as possible, even if this means encouraging additional use.
Efficiency is achieved when customers make consumption decisions based
on the underlying economic (marginal) cost. There is a welfare loss if
additional consumption is discouraged by pricing above marginal cost.

Energy or Demand ‘Blocks’

Instead of a fixed price for each kWh or kW used in a particular pricing

period, sometime the price varies with blocks of kWh or kW.

a) Energy Blocks

To encourage energy efficiency or to discourage overuse where

marginal cost is above average revenue requirement, an increasing
energy block prices the first quantity of kWh used in a given period at
a lower rate, with the price for remaining kWh set higher (closer to
marginal cost).9 Increasing energy blocks are also used to assist lower
income customers who use fewer units than the average customer.
Conversely, to encourage use when marginal cost is below average
revenue requirement, to recover fixed costs not included in the fixed
charges, or to increase revenue certainty for the supplier, a declining

8 At the extreme of hourly prices, a charge per kWh is the same as a charge per kW - a kW of
demand imposed over an hour is a kWh.
9 This description limits the blocks to two, but additional blocks are also common.

22
 energy block structure prices the first units used at a higher rate than
all subsequent units.

b) Demand Blocks

It is also possible to design increasing (or decreasing) metered

demand charges, in which the first block of demand is priced below
(or above) the second block.

c) Load Factor Block

Load factor blocks define the size of energy blocks in terms of kWh per
kW of metered peak demand, instead of simply in terms of kWh.
Declining load factor blocking is another means to incentivise
customers to increase their load factor.

Time Differentiation

Another important characteristic of tariff structure is time-differentiation,

i.e., to apply different charges to usage in different time periods to reflect
underlying cost differences. Charges can be time-differentiated using
multiple periods with a billing period, or simply changed seasonally.

As discussed above, marginal costs of generation, transmission and high

voltage distribution vary by time-of-day and season. Costs are higher in
hours when load growth is likely to require additional capacity, or when
high-cost generators must be dispatched to meet load. Customer-related and
local distribution facilities charges do not vary with use and require no time-
differentiation. The charges currently faced by most customers do not vary
by time of day because a significant proportion of existing installed metering
does not measure consumption on a time-of-use basis. This situation has
changed somewhat in recent years with the proliferation of new metering
technology and meter data processing structures.

a) Non Time-Differentiated Charging

Non-time-differentiated charging imposes the same charges

irrespective of the time of use or season.

b) Seasonal Charging

Seasonal charging, as the name suggests, refers to charges that

change across the year. This form of charging is easily executed and is
inexpensive to implement because it requires no special metering. It
could be used to signal the higher winter cost of service in Ireland.
However, the cash flow issues associated with charging more in winter
than in summer may adversely affect some customers.

In countries that have seasonal tariffs, customers are often permitted

to pay their bills under a “budget billing” plan that smoothes out the
payments over the year. The annual bill is estimated and divided by
12. Any deviation of the actual charges from the estimate is ‘trued-up’
(charged or refunded) at the end of the year. Under these plans the
bill shows the actual costs incurred each month, along with the

23
 (levelised) amount due. While this may lead to more complicated
billing systems it maintains price signals to customers while at the
same time smoothing cashflow considerations.

c) Time of Day (TOD)

TOD charging improves the efficiency of price signals because the

charges vary for consumption in pre-defined periods within the billing
period. The requirement for more complex metering means that the
implementation of TOD charging to customers who lack the necessary
meters is only cost-effective if savings from load shifts from peak to
off-peak periods (or reductions in peak period use) are sufficient to
cover the added metering costs.

TOD pricing periods are selected by grouping contiguous hours with

similar costs (all costs that vary by time of day) together. The number
of TOD periods selected is ultimately a trade-off between, on the one
hand, the accuracy that is conveyed by having a large number of
periods, and on the other, customer understanding and billing and
metering constraints. Another factor is the likely response of
customers to new time-differentiation. If the shifts from the peak
period are very large, they may create a new peak outside the defined
peak period. This is called “peak chasing.” It may be necessary to
model customer response and resulting changes in cost patterns to
iterate to a set of pricing periods that will be appropriate for an
extended period of time.

Below is a table containing system peak, shoulder and off-peak periods

identified by the Marginal Cost Study undertaken for purposes of this tariff
study.

Table 2.2: System Time Periods

Summer: March-October (8 months)
Shoulder Monday - Friday
08.00 – 21.00
Off-peak All remaining hours

Winter: November-February (4 months)

Peak Monday - Friday
17.00 – 20.00
Shoulder Monday - Friday
08.00 – 17.00
20.00 – 21.00
Saturday 17.00 – 21.00
Sunday 17.00 – 18.00
Off-peak All remaining hours

As can be seen from the table below, peak charges apply from 17.00 to 20.00
on weekdays in winter. Peak/shoulder charges combined apply from 08.00
to 21.00 in winter. The same time period 08.00 to 21.00 accounts for
weekday shoulder hours in summer. This consistency would facilitate the
introduction of time-of-use charging for customers not accustomed to it.

24
Table 2.3: Peak/Shoulder/Off-Peak Time Periods
Hour Ending W eekday Saturday Sunday Hour Ending W eekday Saturday Sunday

1 O O O 1 O O O
2 O O O 2 O O O
3 O O O 3 O O O
4 O O O 4 O O O
5 O O O 5 O O O
6 O O O 6 O O O
7 O O O 7 O O O
8 O O O 8 O O O
9 S O O 9 S O O
10 S O O 10 S O O
11 S O O 11 S O O
12 S O O 12 S O O
13 S O O 13 S O O
14 S O O 14 S O O
15 S O O 15 S O O
16 S O O 16 S O O
17 S O O 17 S O O
18 P S S 18 S O O
19 P S O 19 S o O
20 P S O 20 S o O
21 S S O 21 S o O
22 O O O 22 O O O
23 O O O 23 O O O
24 O O O 24 O O O

At the implementation stage, many practical issues require consideration.

For example, what periods should be used to time-differentiate tariffs for
customers with meters that can record usage in only two periods? The set of
periods illustrated below, developed as part of the marginal cost study,
defines a peak period (16:01 to 21:00 on Weekdays) that is the same in the
Winter and the Summer, as these meters cannot differentiate between
seasons. (Note that the values used for the two-period definition are not the
same as for the three-period definition.)

Table 2.4: Shoulder/Off-Peak Time Periods

C O S T IN G PE R IO D : W IN T E R C O S T IN G PE R IO D : SU M M E R
H our E nding W eekday S aturday Sunday H our E nding W eekday S aturday Sunday

1 O O O 1 O O O
2 O O O 2 O O O
3 O O O 3 O O O
4 O O O 4 O O O
5 O O O 5 O O O
6 O O O 6 O O O
7 O O O 7 O O O
8 O O O 8 O O O
9 O O O 9 O O O
10 O O O 10 O O O
11 O O O 11 O O O
12 O O O 12 O O O
13 O O O 13 O O O
14 O O O 14 O O O
15 O O O 15 O O O
16 O O O 16 O O O
17 S O O 17 S O O
18 S O O 18 S O O
19 S O O 19 S O O
20 S O O 20 S O O
21 S O O 21 S O O
22 O O O 22 O O O
23 O O O 23 O O O
24 O O O 24 O O O

25
Other Components

In the first paper of this review, the possibility of interruptible tariffs for
Distribution and PES customers was raised. An interruptible tariff offers
customers a discount from the standard tariff in return for willingness to
interrupt consumption when requested to do so. This flexibility allows the
utility to build less network capacity and to contract for less peak-period
energy in the (future) MAE.

The Commission invites comment on the structural components described

here.

26
2.5 Identification of Tariff Constraints

An evaluation of alternative tariff categories and time-of-use10 pricing, must

consider available or/and possible new metering and billing infrastructure.

This section outlines the types of meters that are currently in use, the form
in which consumption data is recorded, and a breakdown of the present
installed metering per DUoS customer category. This information is
presented in three parts:

Current Metering Capabilities;

Future Metering;
Metering, Billing & Settlement;
Individual Category Meter Cost Thresholds;
Benefits of Time-of-Use for Customers

2.5.1 Current Metering Capabilities

At present, customers have one of five types of metering:

1. Flat Rate meters – These meters are electromechanical and collect a

single element of consumption data, namely consumption between
two dates on which the meter is read. Therefore, only one data
register is required in such meters. These meters are by far the most
common, particularly in the domestic sector.

2. Day/Night meters – These meters are similar to flat rate meters,

except that they collect two streams of data, the amount of electricity
consumed by day and by night. These meters are also electro-
mechanical and a timer is used to switch between the day and night
meter registers.

3. Basic Maximum-Demand (MD) meters – The most basic type of MD

meter is also electro-mechanical and is similar to the flat rate meter
described in one above. However, in addition to the data collected in
the standard meter an additional component is added to measure the
maximum demand (integrated consumption over a 15 minute period).

4. Multi-function meters (MFM) – With the advent of newer technology,

MD metering has also advanced and at present all new customers
with contracted capacity greater than 50kVA have digital, interval
meters that can provide consumption data in a number of ways
depending on how the data are processed. For example, MFM may
provide MD and energy consumption data for several defined tariff
periods, or it may provide data on 15 minute intervals. Such metering
is reasonably flexible and will have a bearing on the types of tariff
structures that can be offered to the market.

5. On-line multi-function meters – this type of metering utilises MFM

metering technology which collects the volume of electricity consumed
in each 15 minute interval. However, this type of metering also has a

10 Time-of-Day and Seasonal.

27
 communication link that allows the meter to be read/downloaded
each night. This results in up-to-date information being available to
the market. At present, such metering is only installed for customers
whose MIC is greater than 100kVA or who have 300MWhrs
consumption per annum.

6. Unmetered supplies – there is a sixth category of customers that are

presently not metered, including public lighting, which has a
predictable load.

It should be noted that the discussion above centres on consumers;

naturally generators and autoproducers are also metered and such metering
may utilise meters which measure both imports and exports.

2.5.2 Future Metering Arrangements

2.5.2.1 Consistency between Metering Arrangements and Categories

At present, the policy for installing meters depends on the expected

customer consumption and tariff category of the customer as well as
technical requirements (e.g. single or 3 phase metering etc.). Generally
MFMs are installed for new customers with a maximum import capacity
(MIC) greater than 30kVA that are on a retail MD tariff. Where metering is
already in place, the installation may have depended on the expected
consumption of the original customer. Over time the actual consumption
may have varied from that envisaged when the meter was installed. Some
MD customers may have relatively low consumption levels, while some
general purpose customers may have relatively high maximum demand
levels (e.g. MIC>=50kVA).

As a result there are at present some anomalies in the metering of DG5 and
DG6 customers. If customers have MD meters, they are free to choose
between being an MD customer (DG6) or a General Purpose customer (DG5),
provided there are no stranded costs or the customer pays any stranded
costs. If the premises do not have an MD meter installed, the customer does
not have the option of the MD tariff. The Commission is looking into this
issue, as underlying costs may not be fully recovered if certain customers
switch to a GP tariff, depending on their consumption patterns.

MD tariffs were introduced in the past as a proxy for measuring

consumption at certain times, since the installed meters were not capable of
recording kWh consumption in more than one period within the billing
period. The introduction of Time-of-Use (TOU) tariffs would eliminate the
need for MD tariffs.

The Commission is also investigating the costs and benefits of installing

MFM meters in order to ascertain a threshold level for their introduction (see
section 3 below). It is also expected that, as a result of this study, the
anomalies between the DG5 and DG6 groups will be clarified and rules on
customer categories will be made. Customers will be categorised according to
their consumption patterns and installed metering and should not be able to
switch to a category that is not designed for their consumption levels if this

28
leads to inconsistencies between tariffs and underlying costs of serving the
customer.

2.5.2.2 Prepayment Meters

The domestic distribution and supply categories will need to be expanded to

incorporate prepayment meter customers. The DUoS charges on these
customers may be different from other domestic customers to reflect the
different costs they impose. It is envisaged that these meters will also have a
number of tariff registers, enabling suppliers to offer basic time-of-use tariffs
(e.g. one or two peaks periods, as well as shoulder and off peak periods with
different summer and winter charges).

2.5.3 Metering and Billing

The implementation of different tariffs is dependent on the installed

metering. For instance, time-of-use tariffs cannot be charged to customers
with single register EM meters. However, if the savings resulting from the
introduction of Time-Of-Use (TOU) tariffs are greater than the cost of
installing meters capable of supporting TOU), then it will be worthwhile to
introduce such meters. Where this is not the case, more advanced metering
should be introduced on a replacement basis. However the underlying
economic case for such metering should still stand before more expensive
metering is installed.

While this approach makes sense in terms of metering and associated costs
it may lead to situations where customers within the same category group
will face different charges solely due to their installed meters and the
replacement cycle. Equity issues may arise as a result, since only some
customers will be able to save money by altering their consumption pattern.
This could be addressed by placing an obligation on ESB Networks to change
the metering on request from the customer, thereby allowing the customer to
benefit from any new tariff structure. The phasing out of old tariffs, such as
the MD tariff, will partly be dependent on the rollout costs of meters that
support the new tariffs, or the ability of old meters to be adjusted to support
new tariffs. This issue will need to be addressed and quantified, and is very
much dependent on the cost of replacement meters.

Furthermore, any change in the structure of tariffs may affect the billing
systems of suppliers. New tariffs may lead to implementation costs for
suppliers, which will ultimately be passed on to consumers. This needs to be
borne in mind so that new tariffs are introduced with minimum cost
implications for billing systems. However most new billing systems
incorporate significant flexibility and implementation costs associated with
supplier billing systems should therefore be minimal.

2.5.4 Time-of-Use & Settlement

In order for suppliers to be able to pass generation cost signals through to

customers, the settlement process will need to incorporate the recorded time
of use, rather than applying a consumption profile as is currently done for
domestic customers. Otherwise the opportunity to exploit the ability of these

29
meters to influence usage patterns will be reduced, and the customer will be
unable to gain from the reduction in costs imposed on the system.

2.5.5 Individual Category Cost/Benefit Thresholds

At present all customers with an MIC greater than 100kVA or annual

consumption greater than 300MWh should have an online multi-function
meter installed. This is the only threshold that currently exists regarding
appropriate metering. As part of this tariff structure review, the Commission
has looked at this issue of appropriate threshold levels for different types of
metering.

Time-of-Use pricing improves the efficiency with which resources, both fixed
and variable are used. The quantity of electricity consumed in each pricing
periods under TOU pricing is different from that demanded under a flat
pricing structure. It is possible to evaluate the losses and benefits arising
from such changes in consumption, and therefore to decide if such benefits
outweigh the costs of installing meters capable of supporting TOU tariffs.

The costs used for this analysis were limited to the annual unit and
installation costs of the meters. The annual costs of different meter types
were calculated by using a methodology for calculating the annual economic
carrying charges associated with fixed assets, such as meters. The
preliminary cost of introducing TOU meters is the difference between the
annual material costs associated with non-TOU and TOU meters. Further
possible costs arising from administrative and maintenance differences were
not calculated. These points are addressed at the end of this section. As
such, the findings below give initial cost-benefit indications only. A
comprehensive cost-benefit analysis encompassing all extra costs would
need to be undertaken before any decision on the timing and scale of the
introduction of TOU metering could be taken.

Using a model that evaluates the annual benefit, per customer group
(General Purpose and Domestic), of TOU pricing by calculating the changes
in consumer and producer surpluses brought about by the introduction of
TOU pricing, the Commission arrived at a number of threshold levels where
TOU metering should be installed.

For single-phase customers, the costs of TOU meters are above those
associated with 24hr metering. The extra annual costs of TOU meters are
also due to the fact that they have a shorter life span (approximately 10
years, compared to 30 years for 24hr meters). Nevertheless, the benefits
accruing from TOU pricing outweighed the extra costs for annual
consumption levels above 5,000 kWh. The Commission is of the view that
the installation of TOU meters for customers with single-phase connections
should be further investigated. These benefits were based on the standard
profile used by the DSO for domestic customers.

Metering costs for three-phase connections are significantly higher than for
single-phase connections. However, there is only a relatively small cost
difference between three-phase TOU and EM meters without MD
measurement functionality. As a result, the benefits of installing TOU
metering outweigh the associated extra costs at all levels of annual

30
consumption over 10,000 kWh. This is higher than the threshold level for
domestic customers, as lower elasticity values were used for GP customers.
These benefits were based on the standard profile used by the DSO for GP
customers.

It is also important, for connections of a significant capacity, that the

installed meters are capable of recording the maximum demand in any
period. This is to ensure that the contracted MIC is not exceeded and to
ensure that in cases where the MIC is exceeded that appropriate penalty
charges can be applied. Monitoring of the MIC is critical from a DSO
viewpoint, especially at connection points with higher capacity needs, to
ensure the system is being used according to its design. A threshold
therefore is also needed for meters that are capable of recording the
maximum demand in any period. The benefit of such a threshold cannot
easily be quantified, since its use is only for monitoring purposes (in the
absence of MD charges) and therefore is of value only in cases where the MIC
has been exceeded. The Commission is of the view that it is appropriate that
meters with MD capabilities be installed at locations with an MIC of 50kVA
and above. In many cases, however, TOU meters with a lower threshold level
may have MD capabilities, and these should be used for MD monitoring
purposes.

Table 2.5 MFM Meter Threshold

Threshold at
Annual Extra which TOU
Current customer category Material Cost benefit>cost
Domestic, single phase €12.20 5,000 kWh
General Purpose 3-phase €12.40 10,000 kWh

These threshold levels in the table may be on the conservative side. As part
of the calculations, electricity price elasticities were used for the General
Purpose and Domestic customer groups. The values used were conservative,
and as a result the benefits may be understated. Nevertheless, any
assumptions around customer responsiveness to pricing structures are
inherently difficult to quantify and are subject to qualification. For example,
the price differentials between pricing periods, the length of those periods,
the amount of discretionary consumption, customer awareness and the type
and number of appliances at a site will all influence consumption behaviour.
The volume of literature on the subject illustrates the wide range of results
that can be achieved according to different circumstances.

The exercise was repeated to evaluate the benefits of meters with two tariff
registers, such as the current Day-Night meters. This type of meter can
support a peak/off-peak tariff structure. NERA identified peak hours in such
a structure as being weekdays from 16.00 - 21.00. The annual cost of a two-
register meter is only slightly higher than that for a 24hour meters, but the
price differentials over two periods are less than the differentials over three
period; as a result, the benefits of introducing two-register meters equalled
the extra costs of such meters at threshold levels similar to those for TOU
meters.

31
In light of these findings it is clear that the slightly higher costs of TOU
meters may not be a major deterrent to their introduction. These extra costs
can be outweighed by the benefits brought about by the change in
consumption patterns that TOU tariffs incentivise.

Beyond the higher cost of TOU meters there are a number of further areas
where the introduction of TOU tariffs may impose additional costs. The DSO
has informed the Commission that the extra administration costs can be
broken down to the following areas:

Upskilling of Network Technicians – A requirement to train NTs in the

installation, operation and reconfiguration of these meters.

Purchase of Additional Hardware – Laptops and software required to

support TOU meters

Enhancement and Data Configuration of IT systems

Meter Reading Process – There may be a need to introduce probe

reading in parallel with TOU tariffs.

Increased back office procedures – The more complex data will require
a more complex business process to support additional validation and
DUoS Billing.

In addition, the timing of any installation program for TOU meters would
have different cost implications. A gradual “new for old” approach avoids
stranded assets but imposes costs from supporting both systems during the
transitional phase. A wholesale replacement program involves significant
one-off installation costs as well as the costs of stranded assets.

The Commission intends to explore these matters further with industry and
the DSO in order to quantify the costs described above. It will then be
possible to carry out a thorough cost-benefit analysis that will inform
subsequent decisions on the introduction of TOU metering to the market.

The Commission invites comment on the above described metering and billing
constraints.

2.5.6 Benefits of TOU tariffs for customers

Under a TOU tariff, all customers are in a position to reduce the energy
component of their bill by shifting their consumption pattern. One of the
proposed PES TOU tariffs was analysed from an individual customer’s point
of view, and it was found that the energy component of the bill could be
reduced by 5%-10% by shifting the consumption pattern of the customer.
TOU tariffs, unlike flat tariffs, give the ability to price sensitive customers to
reduce their bill. The likelihood of a customer shifting their consumption
pattern will depend on the price incentives on them and also on their ability
to change their consumption pattern.

32
The incentive to change consumption pattern will depend on the difference
in the unit price in the different periods; the larger the difference, the greater
the incentive. The ability to change consumption pattern will depend on the
length of the period and the type of end-use. To illustrate these points, we
can take the case of a typical domestic customer.

Let us first of all assume that the peak period price is four times greater
than the shoulder price, and that the customer is aware of the large
difference in price. Consumption behaviour may then change in two ways.
Firstly, the customer may choose to postpone the use of some electrical
appliances to shoulder or off-peak hours, rather than use them during peak
hours. Examples could include the use of the washing machine, hot water
heater or dishwasher. This will be dependent on the timing of the peak
period. If the peak period extends to midnight, for example, it would be
impractical to do some of the tasks that require electrical appliances after
this time. However, if the peak period is reasonably short (ending at 9pm for
example), it will still be possible to perform many tasks in the shoulder or off
peak periods. A customer who chooses to do so will then avoid the peak unit
price and instead pay the shoulder or off peak unit price for the equipment
being used, thereby reducing their bill. Commercial customers have less
scope for changing their consumption patterns since most of their
consumption is non-discretionary – more equipment needs to be running at
certain hours, and cannot simply be delayed for a later stage.

Secondly, consumption may be eliminated rather than being shifted to

another period. When an average price of electricity is used, there is less
incentive to turn off lights or other unused equipment during peak hours.
With higher prices in peak hours, customers may achieve significant savings
simply by turning off electrical appliances that are not being used.
Investment in more efficient light bulbs and appliances in response to time-
of-day pricing would also result in an absolute reduction in peak (and
perhaps other period) consumption.

Under the assumption that the flat average price reflects the costs of the
average consumption pattern, a customer with an average profile who does
not change their consumption pattern will have the same energy charges
under flat and TOU tariffs. Customers who have different profiles will have
higher or lower charges under TOU tariffs, depending on the exact shape of
their consumption profiles. However, all customers on TOU tariffs will have
the possibility of reducing their energy charges by changing their
consumption pattern.

Furthermore, under a flat tariff structure, the price during peak hours is
below the actual cost in those hours. As a result, peak time use will be
higher than if customers were charged the actual cost in those hours. This
results in higher average unit prices for all customers, including those with
relatively low peak time use. In this sense, TOU tariffs remove cross
subsidies and may be viewed as more equitable and in line with the “causer
pays” principle.

Table 2.6: Example of savings from consumption pattern shift under TOU
tariff
Flat rate: 4000 units x .086 = €342

33
 Winter Summer

4000 units: Peak Shoulder Off Shoulder Off Peak Energy

Peak Charges
(€):
Unit price .43 .12 .05 .09 .04

Old 205 549 797 1063 1385 342.46

consumption
pattern
New 143 510 847 1059 1458 316.17
consumption
pattern
(All unit prices have been rounded) Saving: -26.29
(-7.7%)

The table above reflects consumption patterns over one year. The drop in
winter peak consumption of 62 units in this example is the equivalent of 3.6
units per week. Domestic appliances typically have ratings of 2-2.5 kW, so a
reduction in the use of such an appliance in the peak period of one hour per
week translates into a weekly saving of 2-2.25 units, or an annual saving of
43 peak period units. Similarly, a single 50W light bulb in a vacant room, if
turned off for the four peak hours for each of the five weekdays translates to
a reduction in use of 1 unit per week or 17 units per winter period. Both of
these scenarios are realistic and achievable by customers if they chose to do
so.

Such savings are in theory possible under flat tariffs, but there is little
incentive and more effort required on the part of the customer to reduce
their bill. A TOU tariff with a well-defined peak period greatly increases the
likelihood of customers changing their consumption pattern, thereby saving
themselves money and reducing peak time demand.

34
2.6 Customer Impact: Screening of Alternatives

The Commission selected a large number of tariff structures for evaluation,

and identified advantages and disadvantages of each11. Key elements taken
into account in this analysis included:

Consistency between TUoS and DUoS structure and the charges

reflected in PES;
Consistency with marginal cost structure and incentives for efficiency;
Avoidance of cross-subsidies;
Administrative simplicity; and
Other objectives noted in section 2.1.1

The purpose of screening these tariffs structures is to investigate if the

advantages of changing from existing structures outweigh the disadvantages.

Suitable, or promising, alternatives were then screened for impact on

customers’ bills. 2004 billing determinants were used and 2004 revenue
requirements inflated to 2005 to be consistent with the marginal costs,
which are stated in 2005 values. In scenarios that involve a change in
connection charge policy, assumptions were made assumptions about the
change in revenue that would need to be recovered in UoS charges (see
section 4.2).

In the marginal cost analysis preliminary pricing periods were selected. Two
sets of periods were developed – one for customers with MFM meters which
can accommodate multiple periods each month, and another set for
customers whose meters can handle only two periods within a month. (See
section 2.4.2.2 above).

11 Alternative tariffs are appraised in sections 3, 4 & 5.

35
3. TRANSMISSION CHARGING

3.1 Introduction

The transmission system comprises high voltage networks used for the bulk
transport of electricity from generating stations to substations, from
generating stations to other generating stations, from substations to other
substations, to or from interconnectors or to final customers. There are over
5800km of transmission lines and cables at voltage levels of 400kV, 220kV,
and 110kV. At the 110kV level12 there are interface stations or exits points
between the transmission and distribution system and directly connected
customers. There are approximately 1.8 million distribution customers and
20 large directly connected transmission customers. Generators are
connected to transmission system at all transmission voltage levels.

ESB National Grid, in its capacity as the Transmission System Operator

(TSO), is required to operate, ensure the maintenance of, and develop a safe,
secure, reliable, economical and efficient transmission system. ESB
Networks, in its role as Transmission Asset Owner (TAO), is responsible for
maintaining the transmission system and carrying out construction work in
accordance with the TSO’s transmission development plan. The costs
incurred in carrying out these duties form the basis of the transmission
allowed revenues and Transmission Use of System (TUoS) tariffs.

This section on transmission charges (Section 3) discusses:

transmission marginal costs;

present transmission connection charging policy and potential
alternative options;
present structure of transmission use of system (TUoS) tariffs and
potential alternative options.

This section also provides an overview of the screening and evaluation of the
potential alternatives.

For a detailed discussion of the present structure of transmission charges

the reader should refer to the paper entitled, Existing Structure of Tariffs in
Ireland: Transmission, Distribution, Supply, CER/03/298.13

3.1.1 Transmission Costs

Transmission costs are currently recovered through a combination of

upfront connection charges and annual transmission tariffs:

3.1.1.1 Connection Charges

Connection related charges are predominantly in the form of upfront

payments (capital contributions) designed to recover the shallow costs or a

12 Interface stations between the transmission and the distribution system also exist at the
220kV level in the Dublin region.
13 This paper can be downloaded from http://www.cer.ie/cerdocs/cer03298.pdf

36
portion of the costs14 of network assets that are specifically installed to
provide access to users (or small group of users) to the network.

In addition an on-going annual service charge, which covers the annual

Operating and Maintenance (O&M) costs of the relevant elements of the
customer’s connection equipment and the transmission station, is levied on
transmission connected generation and demand customers. .

3.1.1.2 Annual Transmission Tariffs

TUoS tariffs recover the costs of all assets that are not recovered through
connection charges. The transmission costs currently recovered through
TUoS tariffs are categorised under two headings: ‘network’ and ‘non-network’
costs (also known as ‘wire’ and ‘non-wire’ costs).

Non-network costs of the transmission business are associated with system

operation. Network costs are associated with the physical transmission of
electricity and are treated as an internal cost of the transmission business.

Non-network costs include the following TSO External Operating Costs:

Constraints
Ancillary Services (Operating Reserve, Black Start, Reactive Power)
Insurance
Regulatory Levy (TSO & TAO)

Network costs include:

TSO and TAO Internal Operating Expenditure; and

TSO and TAO Capital Expenditure.

In 2002 the network costs of the transmission business amounted to 71% of

the overall approved revenue requirement, with non-network costs therefore
constituting 29%. In 2003 and 2004 this split was 72:28 and 77:23,
respectively.

3.1.2 Impact of the new Market Arrangements in Electricity (MAE) on

Transmission Network and Non-network costs

The MAE is expected to replace the current interim electricity trading

arrangements and is expected to come into effect in 2006. Under the MAE
certain non-network costs will no longer be recovered through the TUoS
tariff. In addition a change in the recovery method of certain network costs
may be warranted under the new market arrangements.

3.1.2.1 Non-Network Costs

It is anticipated that the non-network costs to be recovered through the

TUoS tariff will exclude constraint payments and operating reserves to the

14 Demand customers currently pay 50% of their shallow connection costs upfront.

37
extent that generators pay for them.15 These costs may be dealt with through
the MAE settlement arrangements. However, in the absence of any detailed
assessment of reserve requirements caused by demand at this point, this
has been omitted from the base-case revenue requirement used for the
purposes of screening tariff alternatives.

3.1.2.2 Network Costs

Some TSO costs, related to system and market schedule and operation, may
vary directly with the number of market participants. These costs should
ideally be excluded from network costs and levied directly on all market
participants (generators and suppliers).

However, at the moment no detailed cost data is available to estimate the

portion of these costs that is fixed and the portion that varies with the
number of participants.

15 Reserve costs caused by demand load will continue to be recovered from demand via the
TuoS tariff where appropriate (for example in the case of regulation reserve).

38
3.2 Transmission Revenue Requirement & Marginal Costs

Two key inputs to the evaluation of alternative transmission tariff structures

are the transmission revenue requirement and the marginal cost of providing
the transmission service.

3.2.1 Revenue requirement

The revenue requirement used to analyse various TUoS tariff alternatives

was based on the 2004 revenue requirement as allowed by the Commission,
adjusted by an inflation factor of 3.5% and with separate adjustments for:

the removal of operating reserve costs and constraints from TUoS

(recovered through the MAE settlements, as explained above); and
a change in connection policy for demand users (100% shallow
connection costs paid upfront, as opposed to current 50% policy).

These adjustments result in a TUoS revenue requirement for the purposes of

this analysis of €226.9 million shown above, which is about 80% of the
current TUoS revenues.

3.2.2 Transmission Marginal Costs

Short-run marginal transmission cost is the additional cost of supplying a

small increment of transmission service with no addition to transmission
capacity. This cost consists of marginal losses and congestion costs, where
the latter are the costs of having to dispatch generators out of merit order to
get around transmission constraints. An increment of load at certain hours
may also trigger longer-term transmission capacity expansion.

Locational Marginal Prices (LMPs) reflect the short-run marginal costs of

transmission. LMPs do not reflect the full marginal costs of transmission
usage in so much as the long-term marginal transmission costs are not
reflected in LMPs and therefore should be recovered through the TUoS tariff.

The marginal transmission costs can be categorised as follows:

short-run marginal costs of the transmission system (the congestion

costs and losses reflected in LMPs)
marginal costs associated with general expansion of the transmission
network (depreciation, return on investment, operation and
maintenance expenses, taxes);
marginal costs of reactive power;
marginal costs of new connections (assumed to be recovered in 100%
shallow connection charges);
TSO’s settlement, market operation and administrative costs.

The typical marginal investment in transmission network capacity was

estimated by dividing growth-related incremental investment cost by the
kilowatts of peak transmission load that is driving the need for the
investment. This typical investment was then annualised and assigned to

39
hours or periods within the year based on a probability of peak analysis that
determines each hour’s likelihood of being the peak hour. The results by
period (in 2004 inflated prices) are shown in Table 3.1 below:

Table 3.1: Marginal Transmission Costs by Period

Time-of-Use Cent
Winter peak 11.173 cent per kWh
Winter shoulder 0.312 cent per kWh
Winter off-peak 0.006 cent per kWh
Summer shoulder 0.001 cent per kWh
Summer off-peak No marginal network cost

Costs associated with other ancillary services (i.e., black-start capability and
reactive power) will still be recovered through TUoS charges. Black-start
capability is not a marginal cost because the need for this service does not
change with marginal changes in electricity consumption. To estimate the
marginal cost of reactive power, annual payments by the TSO to generators
was divided by energy transmitted at the transmission level in 2001 and
200216, and the two figures were averaged. The result was 0.06 cent per kWh
transmitted (2004 inflated prices).

Some TSO internal costs, such as ‘Customer Records and Billing’,

settlement, participant training, telecoms, etc. are likely to vary with the
number of market participants (generators and suppliers) who are the direct
customers of the TSO. However, at present no detailed cost data is available
to estimate the portion of these costs that is fixed and the portion that varies
with the number of participants. As a result a marginal cost estimate was
not developed for this element. Additional information will be gained as the
market develops.

3.2.3 Transmission Marginal Cost Revenue Gap

If marginal costs were to be charged directly as tariff components, the

resulting revenue would fall short of the revenue requirement used for the
purposes of this rate structure study. Table 3.2 below shows the marginal
cost revenues, the assumed TUoS (after the adjustments mentioned in
3.1.3), and the gap. This gap must be closed when tariffs are set to ensure
that the transmission revenue requirement is met. The approach for revenue
reconciliation is explained in Section 2.3.

Table 3.2: Transmission Marginal Revenue Gap

T ra n s m is s io n 2005 TU oS
M a rg in a l C o s t R e v e n u e
M a rg in a l C o s t R evenue
Gap
R evenues R e q u ire m e n t
2005 € 000 2005 € 000 2005 € 000 %
1 2 (2 )-(1 )
1 3 0 ,5 2 9 2 2 6 ,8 8 8 9 6 ,3 5 9 4 2 .5 %

16 TSO Revenue Submissions, 2000 and 2003.

40
3.3 Transmission Connection Charges (Demand & Generation)

Generally connection charges are levied on connecting parties by way of

either a deep or shallow connection charging policy. Under a shallow
connection policy the connecting customer is charged directly for its
respective portion of new assets required to connect it to the transmission
system. Under a deep connection policy the connecting customer is charged
for both the assets required for connection to the system and all wider
system development costs incurred as a result of its connection.

Shallow and deep connection charges are often in the form of an upfront,
one-off charge. A deep connection charging policy results in higher upfront
charges for the customer and as a result reduces the transmission revenue
to be recovered through the TUoS tariff.

3.3.1 Present Policy

Currently generation, transmission-connected demand customers and the

Distribution System Operator (DSO) connecting directly to the transmission
system are required to pay connection charges. The DSO is treated as a
demand customer because the points of connection between the
transmission and distribution networks (DSO Exits) impose the same effects
on the transmission system as a transmission-connected demand customer.

Historically ESB employed a deep connection charging policy for generation

and demand customers. However, the Commission’s direction in December
1999 instructed ESB to move to a shallow connection policy. This resulted in
transmission-connected demand customers paying 50% of the shallow
connection costs upfront, with 50% included in TUoS charges, and
transmission connected generators paying 100% of shallow connection costs
upfront. In addition generators and demand customers pay an ongoing O&M
charge for their connection.

As shallow connection costs are specific to each individual connecting

customer, the connection charge levied on an individual customer will
depend on the specific configuration required to connect that customer to
the transmission system.

Deep or reinforcement costs associated with demand and generation

connections and 50% of the demand customer’s shallow connection costs
are recovered through the TUoS tariff and spread among all users of the
network.

3.3.2 Options

The Commission is considering the following options in relation to the future

connection charging policy:

a) Status Quo

100% shallow connection for generators, 50% for demand customers.

41
 b) Alignment of Demand and Generation Policies

This alternative option involves a change from the present policy to a

100% shallow connection charging approach for both generation and
demand customers.

The options for implementing this are as follows:

- a gradual increase from 50% to 100% for demand customers; or

- an immediate increases from 50% to 100% for demand customers.

3.3.3 Screening/Evaluation

3.3.3.1 Advantages and Disadvantages

a) Status Quo

The status quo socialises new customer costs and provides a cross-subsidy
to the DSO’s connections and large new demand customers from existing
customers. 50% is an arbitrary figure and the recovery of only 50% of costs
from new demand customers connecting to the transmission system is not
necessarily representative of true cost causation, as a result marginal cost-
based signals may not be provided and efficiency of connection decisions
may be distorted. However, most new transmission-connected demand
customers (and the DSO) may be relatively inelastic regarding their choice of
location – i.e. electric connection charges may be a small component of the
overall operating costs for large demand customers.

b) 100% shallow policy for all customers

A considerable advantage of moving to a 100% shallow connection charging

approach for both generation and demand is that it better aligns
responsibility for cost with cost causation. This alternative approach should
lead to better long-term economic efficiency to the extent that it influences
customer location decisions (e.g. the decision as to how close to the grid exit
point a new factory should be built).

In addition, with the absence of cross-subsidies (from the high-connection

cost users to low-connection costs) the TUoS charges, that now recover the
residual fifty percent of connection costs, should fall over time, and the TUoS
revenue requirement should better reflect marginal network costs.

If a 100% shallow policy were implemented, there could be two possible

mechanisms:

- An Immediate Change to 100% Shallow Connection Policy:

The advantage of an immediate increase from a 50% to a 100%

shallow connection charging approach for load is that it would
alleviate the efficiency and fairness concerns of the current policy, and
the option has no direct rate impact on existing customers who are
already connected. The disadvantage of a 100% shallow connection-

42
 charging approach to both generation and demand customers is that
it may have a large bill impact for potential new transmission-
connected customers with high connection costs. However, the
expected number of new transmission-connected demand customers
is small.

- Gradual Change to 100% Shallow Connection Policy

The advantage of a gradual increase from a 50% to a 100% shallow

connection charging approach for demand is that the impact would be
scaled back and result in a lower financial burden as compared to
having to pay all the costs up-front. The disadvantage is that it might
add unnecessary complexity and might unnecessarily delay the
efficiency and fairness improvements. It might also provide perverse
incentives to accelerate connection dates of future projects to fall
within the timeframe before the connection charge increases take
place.

The effect of changing from 50% shallow to 100% shallow connection

charges for demand users is reflected in Table 3.3 below, which shows
the estimated reduction in the revenue requirement for TuoS charges
over the next 5 years. The increase in demand contributions from
transmission customers and the DSO, is based on historical capital
expenditures for the years 2001-2005 applied over the period 2005-
2009. The higher connection charges should reduce TuoS revenue
requirements and this effect will grow over time.

Table 3.3: Effect in Reduction of Connection Cost Recovery through

TUoS charges Under a 100% Demand Shallow Connection Policy
Estimate of Shallow Connection Costs to be excluded from TUoS
revenue requirement 100% Shallow Connection Policy
4

3
(2005 Prices)
€million

0
2005 2006 2007 2008 2009
Year

43
3.3.4 Potential Alternative

The subsidy removal effect for other transmission users is likely to result in
a small efficiency improvement effect at first, although the effect should grow
over time as the cumulative effects of higher connection revenues put
downward pressure on the TUoS revenue requirement. The effect is likely to
be diluted when spread over all TUoS charges, as the amounts of money
involved with connections are likely to be small relative to the total
transmission revenue requirement.

Nonetheless given the efficiency, equity and consistency benefits of this

change, the Commission favours the adoption of a 100% shallow connection
charging policy for demand customers, including the DSO.

The Commission invites comments on the alternative transmission connection

charges outlined above.

44
3.4 Transmission Use of System (TUoS) Tariffs

The TUoS charging regime is designed to recover the total allowed costs of
the transmission business (net of connection charges revenue) from all users
of the transmission network. The allowed revenues comprise the network
and non-network costs of constructing, operating and maintaining the
transmission network in Ireland.

3.4.1 Generation/Demand Allocation

Harmonisation of transmission tariffs across Europe, and in particular

within European regions, in terms of the generation and load components, is
currently being pursued at a European level to promote the internal market
in electricity and cross border trade. Ireland, Northern Ireland and England
& Wales17 currently have a similar split in generation and load components
of the transmission tariff. In light of Ireland’s commitments to work towards
the achievement of this goal the Commission does not propose any changes
to the present policy, as discussed below.

3.4.1.1 Present Policy

As mentioned in Section 3.1.1.2, in the existing transmission tariff structure

the costs of the transmission system are split into two distinct categories:
network and non-networks costs.

Of network related costs 25% are recovered from generation and the
remaining 75% are recovered from demand users (via suppliers) through
both capacity and energy-based charges.

In addition, approximately 99.5% of non-network related costs are recovered

from demand users through a System Services Charge. The small proportion
of these costs recovered from generation is by means of a generation direct
trip charge and fast wind down trip charge.

3.4.1.2 Options Affecting the Split of Costs between Generation and

Demand

Notwithstanding the Commission’s decision to continue with the existing

allocation of network costs among generation and demand users, there may
be changes in the specific cost elements defined as “network costs” for which
an alternative allocation may be appropriate, or alternative allocations of
non-network costs between generation and demand. Alternative options are
set out below:

a) Status Quo

The current allocation of transmission costs – a 25%/75% split of

network and a 99.5%/0.5% split of non-network costs.

17 Refer to Section 2 of CER/04/101 at http://www.cer.ie/CERDocs/cer04101.pdf for international

comparisons.

45
b) Defining some of the current network costs as “Market-Participant
costs”, and recovering them through a separate Market Participant
Charge.

This option involves the introduction a separate charge to recover

market-participant (generator and supplier) related costs, on a
monthly basis. These costs, discussed also in Section 3.1.2.2, are not
directly related to the physical network and are considered to vary
with the number of market participants (e.g. customer records and
billing, settlement, telecoms, participant training costs etc.) A market
participant charge should be structured to capture the marginal
market-related costs from all participants in an equitable and cost
reflective manner.

At present no detailed cost data is available to estimate the portion of

these costs that is fixed and the portion that varies with the number
of participants. Additional information will be gained as the market
develops. Therefore this charge has not been screened at this point.

However, the Commission welcomes comments on the following policy

issues:

What is the appropriate allocation of market participant costs

between generation and supply?
Should all generators be considered market participants or
should a de minimus threshold be applied?
Should market participants incur the cost as a fixed or variable
charge? For example should it be a fixed standing charge, a
fixed capacity charge or a variable energy charge, or some
combination thereof?

c) Allocate part of the network costs related to reactive power equipment

to generators through a power factor surcharge.

This option involves allocating the amount of reactive power costs to

generators. This could take the form of a low power factor surcharge,
a charge or penalty for the excess amount of reactive power that is
consumed. The surcharge or penalty would be designed to recover the
marginal cost of reactive power equipment such as Static Var
Compensators (SVCs) or capacitors incurred as a result of the
absorption of reactive power by generators.

d) Allocate other non-network costs (in addition to reactive power) to

Generators.

This option looks at an alternative allocation of the remaining non-

network costs (under MAE), e.g. Black start, TSO insurance etc.

46
3.4.1.3 Evaluation of Alternatives as compared to Status Quo

a) Allocation of part of current ‘network costs’ to generators, through a

Market Participant Charge

The main advantage of recovering market-related operation costs in the

same way as other network costs, that is the status quo, is that it is simple.
The main disadvantage of the status quo is that some market and system
operation costs are inevitably a direct function of the number of participants
in the market.

The advantage of setting a separate market participant charge that intends

to recover these costs is that it can result in an efficient and fair allocation
since it charges the marginal cost of participation

The disadvantage arises if market operation costs are largely fixed18 (and
many of them are: software costs, hardware costs, billing systems, staffing
levels, credit costs, and so on) as the average cost per participant is likely to
be much higher than the marginal cost per participant. Charging the average
cost to each participant would put small participants at a distinct
disadvantage which could discourage new entry of small participants an
outcome which the Commission is not in favour of. Therefore, any market
participant charge would need a rigorous analysis of the incremental costs
related to access to the market. This analysis should be possible as the
market develops.

b) Allocation of part of Reactive Power costs to Generators through a

Power Factor Surcharge

It is likely that there is some scope for allocation of certain reactive supply
and voltage control costs to generators because generators can be directly
responsible for the system operator incurring additional reactive power costs
on the margin. Allocation of some reactive power-related costs to generators
has precedents in other countries. For example, it is relatively common for
the market rules to specify:

A “leading power factor” and “lagging power factor”, which are

measures of target production and absorption of reactive power by a
generator; and

Payments that a generator must make whenever it operates outside of

these ranges when not instructed to do so. These payments reflect the
expectation of extra costs the system operator will have to bear as a
result of the generator operating outside of the target range.

c) Allocation of other non-network costs to generators

The advantage of the status quo regarding the allocation of non-network

costs (approx. 99.5% on demand) is that it is a relatively simple and efficient

18 Or alternatively, related generally to the size of the market and not the number of
participants in the market.

47
means of allocation, and keeping the status quo would minimize rate impact
effects.

In addition, recovery of non-network costs from both demand and generators

may only improve efficiency if:

the costs are a function of participant behaviour;

the charges are levied on the same basis that they are incurred (i.e.,
per participant or per kWh or per kVarh) and
the charges for generators do not exceed the level of marginal cost
(e.g., generators’ contribution to market operation costs and reactive
power costs.)

Other than some of the marginal cost of reactive power, the Marginal cost
study did not find the costs related with the remaining non-network costs to
be marginal with regard to any measurable billing determinant. Some
reactive power requirements are caused by demand load and generators,
while some are a function of the transmission system design. For the most
part, black start and reactive power costs are not directly proportional to the
activities of individual participants.

The disadvantage of allocating non-marginal network costs to generators is

that it would impose additional fixed cost on them which would be passed
through to demand load via the market price in any event. However, such a
mechanism could potentially run the risk of changing generator behaviour,
and thus distorting dispatch decisions and consequently market prices.

3.4.1.4 Screening

The Commission is minded that non-network costs should continue to be

levied on demand users through a System Services Charge. The
quantification of this charge and its preferred structure is covered in Section
3.4.3.

In addition to the system services charge, recovery of the market participant-

related costs (currently recovered as network costs) would be recovered
through a market participant charge through both generators and suppliers,
once the appropriate cost levels are assessed. This charge has not been
screened at this point.

The Commission invites comment on the allocation of transmission network

and non-network costs between generation and demand.

48
3.4.2 Generation TUoS Categories & Detailed TUoS Structure

3.4.2.1 Present Policy

The TUoS charges applicable to generators are set out in the Generation
Transmission Service (GTS) schedule in ESBNG’s annual Statement of
Charges.19 The GTS schedule recovers 25% of the annual transmission
network costs and recognises two distinct categories of generators:

Tariff Schedule GTS-T applicable to generators connected directly to

the transmission system; and
Tariff Schedule GTS-D applicable to generators greater than or equal
to 10MW connected indirectly to the transmission system via the
distribution system.

Generators face TUoS charges on the basis of their contracted Maximum

Export Capacity (MEC) and connection location. This charge is referred to as
the ‘Generation Network Location-Based Capacity Charge’ and is calculated
using the Reverse MW-mile approach.

This approach allocates a share of the annual costs of the network20 to the
generator based on its usage of the transmission system, reflecting the fact
that cost depends on the distance and direction that power is being
transmitted as well as the level of power being transmitted. The methodology
rewards generators that offset network flows and allocates the cost of
unused capacity that exists in the network across all users.

The Commission understands that the approach allocates approximately

12% to 15% of network costs to generators. Therefore, there is an uplift
required to recover the 25% of costs allocated to generators, meaning that
approximately 40% of the generation TUoS charge is non-locational.

Generators under the above schedules also pay a small portion of non-
network costs via a direct trip and fast wind-down trip charge. This charge is
levied on per MW basis of trip output in excess of 100MW.

3.4.2.2 Options - Categories

The Commission is considering the following options:

a) Status Quo

As discussed in section 3.4.2.1 above – separate categories for

transmission-connected generators and one for distribution-
connected generators >10MW.

19 The 2004 Statement of TUoS Charges can be downloaded from:

http://www.eirgrid.com/EirGridPortal/uploads/Regulation%20and%20Pricing/TUOS%20-
%20statement%20of%20charges%202004.pdf
20 The Costs include Depreciation, Operations and Maintenance and a Rate of Return.

49
 b) Combined Generation Category

Under the current tariff structure the GTS-T schedule and the GTS-D
schedule are not substantially different. In fact the single difference is
the threshold of 10MW applied to distribution-connected generators.
All generators are subject to the same trip charges and reverse MW
mile methodology used to derive the capacity charge. Furthermore, a
participant-related cost would be incurred by both types of
generators. For this reason it may not be necessary to differentiate
between categories of transmission and distribution connected
generators.

3.4.2.3 Evaluation

Status Quo compared to a combined generation tariff

The marginal cost study assumes that the transmission marginal costs to be
recovered through TUoS tariffs are not marginal with regard to generation
export capacity, but rather to the growth in system peak demand. Therefore,
the nature of the costs charged to generators should not vary with the
voltage level they are connected to. A combined generation TUoS class seems
appropriate.

The Commission invites comment on the transmission generator categories as

outlined above.

3.4.2.4 Options – Generator Structural Components

The Commission is considering the following options in relation to the

structure of the Generation Transmission Tariff:

a) Status Quo

As discussed in section 3.4.2.1 above - locational tariffs based on

MEC, plus trip charges.

b) Locational Tariff with adjustments

This option assumes that the existing reverse MW mile based

locational tariff remains. In addition to this, the Commission is
considering measures to reduce the variability of the annual charge.
The Commission is considering three options to implement this:

i) a rolling 4-year average tariff: 21 or

ii) a once-off locational tariff determined by the TSO at the time of
connection; or
iii) a cap or ceiling on the change in any one year.

c) Postalised Charge

21 For example, using 2001 to 2004 Generation tariffs to set charges for 2005.

50
 This option involves the introduction of a postalised or flat capacity
charge with no geographic, seasonal or time-of-day (TOD)
components.

d) Other elements of the GTS schedule

These options propose changes to individual elements of the GTS

schedule

i) Applicable Threshold
ii) Trip Charges
iii) Unauthorised Usage Charge
iv) Market Participant Charge
v) MEC Administration

3.4.2.5 Evaluation & Screening – Generator Structural Components

a) Status Quo: Locational Capacity Charge

One advantage of a maintaining a locational-based tariff is that it preserves

the status quo and could therefore minimise regulatory uncertainty on the
part of generators.

One disadvantage is that a locational-based tariff based on a dynamic

transportation model may be difficult for a generator manage in terms of risk
if it varies considerably on a regular basis. If the total (long-run) marginal
cost of transmission is also charged, implicitly by virtue of the way the
transportation model works, then costs would be double counted. New
Zealand has used locational based transmission charging with LMP. Some
US regions have intra-regional differences in the load TUoS equivalent,
however, these are a legacy of historic costs of vertically integrated utilities.
However, implementing a locational approach that gives signals regarding
location-related long run marginal costs may be difficult to achieve.

The current policy adjusts the results of the transportation model so that
total capacity revenue from generators matches the 25% allocation of
network-related TUoS revenue requirement to generators. Given this uplift
the result is a somewhat diluted set of locational charges.

b) Locational Charge with adjustments

i) Rolling Average: The variability of the locational capacity charge

would be spread over 4 years by way of a weighted or simple
average. However, even if smoothed as a 4-year rolling average the
cost to a generator could change substantially from year to year
and the generator could not easily hedge those cost changes.

ii) Once-off Charge: Another variation of the locational option is that

the system operator could calculate the charges at the time of
connection. Whatever charge that was in place in a location the
year a generator was connected at that location would apply for
the life of that generator. This would solve the price uncertainty
issue.

51
 However, this approach would raise a number of other issues that
would need to be considered. For example, the system operator, in
setting the locational charge each year, would need to take an
expectation of how the locational value would change in
subsequent years; this in turn would be a function of who builds
what, where they build it and when they build it. It would be
much as if the system operator was taking a position in the
market by guessing how market participants will react to its
decisions. Rather than have market participants take locational
risks – which is one of the key reasons for competition in the first
place– the central planner would be taking these risks, which
would result in an inefficient market outcome. Consumers would
receive the benefits of good central planning decisions, and
consumers (not generators) would pay the cost of bad central
planning decisions. Another problem with the once-off setting of
capacity charges is what charge to apply to existing generators.

iii) Cap on Increase: Similar to the rolling average method a cap

would still expose the generator to some, albeit limited, risk. A cap
on percentage increases or one linked to ranges of absolute
changes could be used. There may also need to be a floor placed
on decreases in applicable tariffs to ensure adequate recovery of
transmission revenues. However, the decision on the size of the
cap or floor would be necessarily arbitrary. Given the level of
detail required this option has not been quantitatively screened.

Table 3.4 shows the impact of adopting options i) and ii) on the existing
generation tariff. For the analysis of the rolling average option a weighted
average was used, with greater weight placed on the most recent years’
tariffs. For the screening of the once-off tariff option 2001 generation tariffs
were assumed to represent the once-off locational tariff. For generators who
have connected after 2001 the first applicable tariff was used.

c) Postalised Capacity Charge for Generators

The main advantages of a postalised tariff are that it is simple, transparent,

and predictable. The postalised generation tariff is also the structure
followed in Northern Ireland.

One disadvantage of a postalised tariff is that there would be a difference in

approach between Britain’s transmission pricing and Ireland’s.

The customer currently pays for deep reinforcements on the transmission

system but has no control over these costs. This would suggest that there
should be a signal providing a disincentive to generation locating in
unsuitable (e.g. congested) areas. The removal of such a signal from the
TUoS generator charges is another disadvantage, but to the extent that LMPs
are able to capture geographical differences, the economic incentives for
efficient generation location would be preserved.

Table 3.5 shows a comparison of the annual 2004 locational capacity

charges for each Generator (above 10 MW) compared to what the annual
capacity charges would be under a postalised capacity charge (all figures in
2005 Prices). The tariff screening exercise resulted in a postage stamp

52
capacity TUoS charge for generators of €751.09. It is important to note that
as the locational charges have been variable, a one-year comparison does
not provide a complete picture.

Table 3.4: Locational Capacity Charge with Adjustments

Once-off
Existing 4-Year Rolling
Locational
Locational Average of Change from Change from
Station Capacity Tariff
Tariff Locational Existing Tariff Existing Tariff
(2001 Charge*)
(2005€) Tariff (2005€)
(2005€)

(MW) €/MW/Month €/MW/Month €/MW/Month €/MW/Month €/MW/Month

Aghada 528 672.59 654.99 17.61 715.24 -42.65
Ardnacrusha 85.5 -30.67 -24.93 -5.74 25.99 -56.66
Bellacorick 36.8 9.56 -527.52 537.08 -810.01 819.57
Edenderry 117.6 416.69 536.80 -120.11 551.27 -134.58
Erne 45 78.47 -874.88 953.35 -1312.09 1390.56
Erne 20 112.41 -534.92 647.33 -1278.98 1391.39
Golagh 15 342.45 100.72 241.73 342.45 0.00
Great Island 114 256.07 186.67 69.40 171.81 84.26
Great Island 112 340.58 306.46 34.12 317.60 22.98
Huntstown 352 593.07 324.42 268.65 593.07 0.00
Irishtown 400 800.75 715.99 84.75 625.71 175.03
Lanesboro 128 288.64 -198.30 486.93 -511.53 800.16
Lee 8 434.04 302.50 131.55 304.71 129.34
Lee 19 513.99 340.07 173.92 283.69 230.30
Liffey 30 585.47 551.34 34.13 521.29 64.18
MARIG1 112.3 415.85 398.78 17.07 431.92 -16.07
Moneypoint 862.5 1154.15 1075.29 78.85 1038.74 115.40
Northwall 44 522.49 354.18 168.32 156.16 366.33
Northwall 227 1304.48 1074.74 229.74 804.83 499.65
Poolbeg 486 1077.32 1064.43 12.89 1068.88 8.45
Poolbeg 457 815.99 724.63 91.36 626.03 189.96
Shannonbridge 37 10.69 -71.03 81.72 -93.99 104.68
Shannonbridge 77.5 144.95 11.77 133.18 -36.74 181.69
TARBG1 114 741.51 677.20 64.31 698.04 43.47
TARBG3 481.4 822.05 734.12 87.92 732.57 89.48
Turl_Hil 292 914.18 852.22 61.96 802.40 111.78
Cunghill 23.8 0.00 0.00 0.00 0.00 0.00
Derrybrien 60 277.80 81.71 196.10 69.45 208.35
Meentycat 43.6 250.80 73.76 177.03 62.70 188.10
Seorgus Wind 15 373.99 312.23 61.76 373.99 0.00
Cark Wind 15 156.35 156.35 0.00 156.35 0.00
Culliagh Wind 11.9 156.35 156.35 0.00 156.35 0.00
Carnsore Wind 11.9 72.21 72.21 0.00 72.21 0.00
Arklow Wind 25.5 334.83 334.83 0.00 0.00 334.83
Raheen Barr Wind 18.7 0.00 0.00 0.00 0.00 0.00
Moanmore Wind 12.6 0.00 0.00 0.00 0.00 0.00
Gartnaneane 10.5 42.50 42.50 0.00 10.63 31.88
Beam Hill Wind 14 183.76 183.76 0.00 45.94 137.82
Sorne Hill Wind 31.5 183.76 183.76 0.00 45.94 137.82
Richfield Wind 20.3 72.21 72.21 0.00 18.05 54.16

Aghada 52 675.00 675.00 0.00 675.00 0.00

Tawnaghamore 52 27.11 27.11 0.00 27.11 0.00

* Or year of commissioning if after 2001

53
Table 3.5: Postalised Capacity Charge for Generators
Existing
Proposed
Locational
Postalised
Station Capacity Generation Impact from Postalised Charge
Charge
Tariff
(2005€)
(2005€)

(MW) €/MW/Month €/MW/Month (%) €/MW/Month

Aghada 528 672.59 751.09 11.7% 78.49
Ardnacrusha 86 -30.67 751.09 -2548.9% 781.76
Bellacorick 37 9.56 751.09 7759.5% 741.53
Edenderry 118 416.69 751.09 80.3% 334.40
Erne 45 78.47 751.09 857.2% 672.62
Erne 20 112.41 751.09 568.2% 638.68
Golagh 15 342.45 751.09 119.3% 408.64
Great Island 114 256.07 751.09 193.3% 495.02
Great Island 112 340.58 751.09 120.5% 410.50
Huntstown 352 593.07 751.09 26.6% 158.01
Irishtown 400 800.75 751.09 -6.2% -49.66
Lanesboro 128 288.64 751.09 160.2% 462.45
Lee 8 434.04 751.09 73.0% 317.04
Lee 19 513.99 751.09 46.1% 237.10
Liffey 30 585.47 751.09 28.3% 165.61
MARIG1 112 415.85 751.09 80.6% 335.23
Moneypoint 863 1154.15 751.09 -34.9% -403.06
Northwall 44 522.49 751.09 43.8% 228.59
Northwall 227 1304.48 751.09 -42.4% -553.39
Poolbeg 486 1077.32 751.09 -30.3% -326.24
Poolbeg 457 815.99 751.09 -8.0% -64.90
Rhode
Shannonbridge 37 10.69 751.09 6922.8% 740.39
Shannonbridge 78 144.95 751.09 418.2% 606.14
TARBG1 114 741.51 751.09 1.3% 9.58
TARBG3 481 822.05 751.09 -8.6% -70.96
Turl_Hil 292 914.18 751.09 -17.8% -163.09
Cunghill 24 0.00 751.09 751.09
Derrybrien 60 277.80 751.09 170.4% 473.28
Meentycat 44 250.80 751.09 199.5% 500.29

Seorgus Wind 15 373.99 751.09 100.8% 377.10

Cark Wind 15 156.35 751.09 380.4% 594.73
Culliagh Wind 12 156.35 751.09 380.4% 594.73
Carnsore Wind 12 72.21 751.09 940.2% 678.88
Arklow Wind 26 334.83 751.09 124.3% 416.26
Raheen Barr Wind 19 0.00 751.09 751.09
Moanmore Wind 13 0.00 751.09 751.09
Gartnaneane 11 42.50 751.09 1667.1% 708.58
Beam Hill Wind 14 183.76 751.09 308.7% 567.33
Sorne Hill Wind 32 183.76 751.09 308.7% 567.33
Richfield Wind 20 72.21 751.09 940.2% 678.88

Aghada 52 675.00 751.09 11.3% 76.09

Tawnaghamore 52 27.11 751.09 2670.7% 723.98

5620

54
d) Other elements of the GTS schedule

i) Applicable Threshold

TUoS tariffs are not levied on generators connected to the

distribution system below 10MW. This option looks at the basis
for the 10MW threshold level. This threshold was based on the
dispatch threshold of 10MW for generation as set down in the
Trading and Settlement Code. 22

It can be argued that there should be consistent treatment for

transmission-connected generators in order to preclude any
potential bias towards the distribution system and ensure the
equitable treatment of all generators. However, given that
distribution connected generators pay deep distribution
connection costs (not transmission deep costs) and in most cases
make less use of the transmission system for their power output it
can be argued that a consistent policy with the transmission
system is not necessarily an appropriate one.

It can also be argued that the 10MW threshold should be set at a

lower level. This may be a means to recover a greater portion of
the deep transmission costs caused by increased penetration of
small-scale generation on the distribution system.

An alternative method to ensure recovery of deep transmission

costs caused by distribution-connected generators is to charge the
Distribution System Operator (DSO) for the associated
transmission deep costs. This could in turn be levied on
distribution-connected generators through a once off connection
charge or Distribution Use of System (DUoS) tariff. Under this
scenario distribution-connected generators would not be required
to pay separate TUoS tariffs. However, they may be subject to the
market participant charge, the merits of which are discussed in
section 3.4.1.2(b) and in item iv) below.

ii) Trip Charges

The issues regarding generator trip charge, currently applicable to

all generators with a trip output in excess of 100MW, will be
considered by the Commission within the MAE process.

iii) Unauthorised Usage Charge (UUC)

Currently demand users (under the DTS-T and the DTS-D1

schedules) are subject to an unauthorised usage charge of
€600/MWh of energy transferred in excess of contracted
Maximum Import Capacity (MIC). This charge does not currently
apply to generators. This option would involve the introduction of
an unauthorised usage charge for generators whose maximum
output to the network exceeds their contracted MEC.

22 Paragraph 1.4 Trading and Settlement Code, Version 1.0.

55
 An advantage of this option is that it should encourage generators
to choose an appropriate MEC and help the TSO to plan the
network efficiently. It is also consistent with the treatment of
transmission connected demand users who exceed their MIC.

There are two scenarios in which generators will exceed their

MEC. They will be either be instructed by the TSO to do so or they
will do so of their own accord. In the former circumstance it would
be anticipated that the generator would need to be exempt from
the penalty to ensure it is not deterred from providing required
additional output, although the MEC should be increased to
provide up-to-date information for TSO planners.

Two options are being considered:

a) Generator UUC

Under this option the charge would be extended to

generators.

b) MIC UUC (Similar to Distribution)

A capacity per kVA MIC charge, as opposed to the current

energy based charge, would apply to transmission customers.
Such a capacity based charge currently applies to
distribution-connected customers under the DUoS structure.

iv) Market Participant Charge

Market participant costs are incurred by the TSO in providing

billing, scheduling and settlement services. The purpose of a
market participant related charge would be to ensure that the
marginal market costs of market settlement and billing are
recovered on a cost reflective basis. A separate charge to recover
market-participant related costs as discussed in section 3.4.1.2(b)
would apply to generators (and suppliers) who are responsible for
these costs being incurred.

v) MEC Administration

ESBNG's Maximum Import capacity (MIC) administration policy

was approved by the Commission in 2003. This allows
transmission connected demand customers to reduce their MIC as
their requirements reduce over time but incentivises that
sufficient notice be given before doing so. This policy is designed
to avoid unnecessary stranding of transmission assets by
encouraging demand customers to reserve capacity that is
legitimately required. The policy also acts as a means of protecting
the general TUoS customer from additional costs incurred as a
result of MIC reductions.

However, the principles of this policy do not currently apply to

generators seeking a reduction in MEC. This option involves

56
 extending a similar policy to cover transmission-connected
generators.

MEC requirements can change over time and in the absence of a

clear mechanism to address changes the need for an MEC
administration policy should be addressed. The purpose of
implementing a formal policy would be to reduce the exposure of
the general TUoS customer from unanticipated revenue under-
recoveries which feed through to higher tariffs. The policy would
also act to ensure consistency with the treatment of transmission-
connected demand customers.

The Commission invites comment on the alternative transmission generator

structural components.

57
3.4.3 Demand TUoS Categories & Structure

3.4.3.1 Present Policy

The TUoS charges applicable to demand users are set out in the Demand
Transmission Schedule (DTS) of ESBNG’s Statement of Charges. The DTS
recovers 75% of the annual network costs and approximately 99.5% of non-
network costs. For billing purposes the DTS associated charges are levied
directly on suppliers. The DTS schedule has three categories:

Tariff Schedule DTS-T applied to suppliers serving demand users

connected directly to the transmission system;
Tariff Schedule DTS-D1 applied to suppliers serving demand users
connected to the distribution system and having a MIC of 0.5MW or
above;
Tariff Schedule DTS-D2 applied to suppliers serving all other demand
users connected to the distribution system not served under DTS-T or
DTS-D1.

Demand TUoS charges are levied through capacity and energy charges
according to the user’s category. Capacity charges are based on the
maximum import capacity (MIC) of the demand user (measured in MW),
whilst the energy charge relates to actual usage (measured in MWh).

In terms of network cost recovery, suppliers with customers under DTS-DT

and DTS-D1 face both a flat capacity charge (the Demand Network Capacity
Charge), and an energy based charge (the Demand Network Transfer
Charge). The capacity based charge constitutes 60% and energy 40% of the
network costs allocated to this group. However, suppliers with customers
under DTS-D2 face a pure energy charge as a proxy for an MIC based
capacity charge as a result of the absence of MIC values. This charge is
based on metered energy consumption during day hours.23 (68% of
distribution delivered energy is transferred during day hours). DTS-D2 is
levied based on profiles of demand customers.

The current demand capacity charge contains several elements that

recognise that total network capacity will not always be required. This excess
capacity is built into the system for contingency purposes to provide security
of supply. The following adjustments are made to the capacity determinant
of the demand capacity tariff:

Switching Capacity Surplus There is additional capacity built in at

exit points from the transmission system for the purpose of
distribution contingency switching. Therefore, this means that the
sum of all MICs of distribution-connected demand customers does not
equal distribution transformer capacity at the transmission exit
points or bulk supply point (BSP). Currently BSP capacity is
estimated to be 6813MW for the distribution system. An arbitrary
switching factor adjustment of 28% is applied to arrive at 4905MW,
the base capacity for which distribution connected demand customers
are billed, with two additional adjustment as described below.

23 08:00 to 23:00 Hours

58
 Charging Bandwidth Adjustment: A transmission and distribution
demand user reducing its overall demand either temporarily or
permanently and thus not using its full MIC will pay lower capacity
charges as a result of the structure of network capacity charge which
incorporates a bandwidth. The bandwidth rules provide a range of
tolerance24 in respect of the total capacity charges which users are
liable to pay under periods where demands are less than their MIC.

Distribution Diversity Factor: A forecast load or capacity factor is also

calculated and used to arrive at the final distribution capacity charge.
The factor is calculated by means of the Bary curve which estimates a
relationship between a demand user’s load factor and its individual
maximum demand coincidence with the system maximum demand.
The result is a coincidence factor of 0.889, which reduces the base
capacity charge.

In terms of non-network cost recovery, suppliers are charged on an energy

basis through a System Services Charge (SSC).

In addition, customers under DTS-T are also subject to an unauthorized

usage charge. For planning purposes it is important for the TSO to have an
accurate estimate of the maximum demands imposed by large customers.
This charge provides an incentive for large customers to keep the TSO
informed of any growth in their peak demands.

3.4.3.2 Options – Categories

The Commission is considering the following options with respect to demand

categories:

a) Status Quo

As discussed above, there is one category for transmission-connected

demand users and two for distribution–connected customers, based
on metering functionality.

b) Bill DSO and transmission connected demand users as direct demand

customers

This option involves treating the DSO as a demand customer of the

transmission system for TUoS charging purposes. This would mean
that the DSO would be charged directly under the DTS-DT or similar
schedule based on the contracted capacity and/or metered energy of
each exit point from the transmission system. In turn the DSO would
apply this charge to suppliers through DUoS tariffs. Transmission
connected demand customers would continue to be charged directly
by the TSO.

24 A demand user whose MIC is less than 20 MW and highest metered demand is less than
80% of their MIC will be charged based on 80% of their MIC. A demand user with an MIC
value greater than 20 MW will be charged based on their MIC value minus 4 MW, providing
highest metered demand does not exceed this.

59
 c) Amalgamate DTS-D1 and DTS-D2 Schedules into a single DTS schedule
(revision of metering technology required).

This option would allow all distribution-connected demand users to

be charged on a consistent capacity or energy basis.

3.4.3.3 Screening - Customer Categories

a) Status Quo

The advantage of maintaining the status quo is that it reduces the cost
impact of changes in metering equipment that may be required to implement
changes of customer categories. The disadvantage of maintaining the status
quo is that the perception of an unnecessarily complex demand tariff
structure may remain if capacity charges are in place. In particular, the use
of energy charges as a proxy for capacity charges in the case of DTS-D2
users has been highlighted in the Commission’s consultation on the existing
tariff structure as a source of confusion and unclear price signals. 25

b) DSO and transmission connected demand users as direct demand

customer for billing purposes

This option would provide clear signals to the DSO with respect to
investment decisions concerning its exits from the transmission system. It
would also reduce the administrative burden of TUoS tariffs for small
suppliers, which may be of some benefit to suppliers.

The alternative of establishing two categories of demand customers,

transmission-connected users and DSO interface points, would also simplify
billing from a TSO perspective, but would make it very difficult to effectively
pass TSO costs through to the DSO and in turn to suppliers.

c) Amalgamate DTS-D1 and DTS-D2 Schedules into a single DTS schedule

(revision of metering technology required)

The advantage of this option is that it ensures the consistent treatment of all
distribution connected demand users. However, combining the two
distribution-connected user categories would either require complex
metering (demand metering or some form of TOU metering) of all customers,
or would limit the TSO structure options that could be applied to the
combined class.

3.4.3.4 Potential Alternative – Categories

In the screening of alternative structures as discussed in section 3.4.3.6

below current demand categories are assumed to continue, with a minor
modification. There would be two major TUoS categories:

25 Refer to Existing Structure of tariffs in Ireland: Response Paper, CER/04/100, 09 March 2004. This
paper can be downloaded from: http://www.cer.ie/cerdocs/cer04100.pdf

60
 a) Transmission-connected demand users; and
b) Distribution-connected customers – divided into two sub-categories,
depending on the type of metering equipment:
i. Distribution-connected customers with interval (TOU) energy
metering, and
ii. Distribution-connected customers with no TOU metering
capability.

The Commission invites comment on the transmission demand categories

outlined.

3.4.3.5 Options – Structure

The Commission is considering the following options with respect to the

structure of the demand TUoS Tariff:

Network Charges

a) Status Quo

As discussed above, a combination of capacity and energy charges for

DTS-T and DTS-D1 customers, and energy-only charges for DTS-D2
customers with no seasonal or time-of-day (ToD) components.

b) Alternative 1 (T1): Time-differentiated Energy Charges

This tariff structure would incorporate both seasonal and time of day
components in an energy only charge. Customers without TOD
metering would pay only seasonally differentiated per-kWh charges.
The charges would be based on marginal costs and would signal the
relative cost of consumption in the various pricing periods.

c) Alternative 2 (T2): Time-differentiated Maximum Demand (MD) Charge

Tariff

This tariff structure would incorporate both seasonal and time of day
components for Maximum Demand (MD) customers and seasonal and
time-of day energy charges (or seasonal-only energy charges) for
remaining customers (refer Section 2.4.2.2 (e) for a discussion on
demand charges).

d) Alternative 3 (T3): Maximum Demand and Energy Charges

This tariff structure would incorporate both seasonal and time-of-day

Maximum Demand and Energy charges. An arbitrary split would be
required, for example 70% energy/30% demand. In the case of
customers with no maximum demand meter, only seasonal and time
of day energy charges would apply (refer Section 2.4.2.2 (e) for a
discussion on demand charges).

61
 e) Alternative 4 (T4): Flat Capacity Charge and Time-differentiated Energy
Charges

This tariff structure would incorporate both a flat capacity charge per
kW of MIC, and an energy charge with a seasonal and time of day
component (or seasonal energy component only for customers with
no TOD metering capability). An arbitrary split would be required, for
example 70% energy/30% demand.

Non-network Costs

a) System Services Charge: This charge is currently designed to recover

all non-network costs of the transmission business, including
operating reserves and constraints. Under the MAE operating reserves
and constraint costs are assumed to be excluded for the purposes of
the screening of this tariff. This option assumes that remaining non-
network costs continue to be recovered through a flat per kWh charge
applicable to all demand users, as in the current TUoS. The System
Service charge is shown in Table 3.6 in the screening section below.

b) Low Power Factor Surcharge:

This proposed penalty is in addition to the system services charge

applicable to transmission-connected demand users. The option
examines placing a penalty on transmission-connected demand users
when reactive power consumption exceeds a certain level. Currently
the DSO levies a low power factor surcharge on distribution-
connected demand on a kVArh basis. This option examines a
consistent approach for transmission connected demand users.

3.4.3.6 Screening and Evaluation

b), c), d) & e) The four marginal cost-based demand tariff options (T1 to T4)

To quantify the charges applicable to the four proposed demand-user

categories under each of the network charge structures described above, the
applicable marginal costs were taken as a starting point.26 The marginal
costs were then adjusted to match the various elements of the revenue
requirement.

The reactive-power marginal cost per-kWh (system service charge) was

raised to recover the revenue requirement related to External Cost, by
multiplying the marginal cost by a constant factor across each customer
class.27

The network-related marginal costs were adjusted to meet the network-

related transmission revenue requirement, by making equal adjustments to
energy and maximum demand (where they exist) charges, preserving the
relative marginal costs for peak, shoulder and off-peak hours and for the
winter vs. summer seasons.

26 Refer to Section IV of the Marginal Cost Study

27 Net of operating reserves and constraint costs.

62
It should be noted that, in those screened options where the structure calls
for both energy and demand/capacity charges (T3 and T4), it was
determined as an ex-ante constraint that 70% of the demand-user revenue
requirement would be allocated to classes on the basis of energy, and the
remaining 30% would be allocated on the basis of either peak demand (T3)
or MIC (T4) charges.

The Marginal Cost Study indicated that transmission long-term marginal

capacity costs vary across the hours of the day and year. The time-
differentiation analysis assigned the costs to each of these hours based on
probability of peak. Thus, a marginal cost-based demand TUoS structure
that maximises efficiency would be time-differentiated and could recover
costs on an energy-only basis.

On the basis of this principle the marginal cost based tariff option T1 could
be argued to be the most favoured because it best tracks the marginal cost
structure and has comparable effects on each of the demand user classes
(all other options have a relatively high bill impact on DTS-D2].

Alternatively, the current combination of MIC/energy charges could be

retained, with the 70% energy and 30% capacity split used for Options T3
and T4 improving the marginal price signals as compared with the current
40% energy 60% capacity split.

A summary of both demand and generation options screened is shown in

Table 3.8 below. The results from this screening exercise are shown in
Tables 3.9 to 3.15. The tables show the tariffs developed under each of the
four options, assuming a Market Participant Charge is levied (Options T1 to
T4). The generation options are also summarised.

a) System Service Charge

A significant proportion of the current non-network costs are assumed to be

dealt with outside of TUoS tariffs (mainly, operating reserves28 and
constraint costs, which account for about 70% of the total current non-
network costs). Therefore, even without any reallocation of these costs to
generators, and keeping the same structure, the screening model assumes
that TuoS charges that currently recover the non-network costs recover a
smaller amount of required revenue.

The proposed charges would recover the remaining non–network costs such
as costs of black start, TAO insurance, and CER Levy currently recovered
through the system service charge. For screening purposes non-network
costs are assumed to continue to be levied on demand users through a
System Services Charge. Table 3.6 below compares the tariffs that would be
required to recover the remaining non-network costs (estimated for screening
purposes to be €20.5m) to the existing tariff, which recovers all non-network
costs (i.e. including operating reserves and constraints approx. €62.6m).

28 Operating reserve or regulation reserve required as a result of demand loads will continue
to be recovered through the TUoS tariff. This has been excluded for tariff screening
purposes given that there is no detailed historical data for this figure.

63
Table 3.6: System Services Charge
Existing Proposed
Non-Network Non-Network
(1) (2)
(System Service Charge) Related Charges
Day Night (no TOU)
(€ per MWh) (€ per MWh)
Demand Users (1) (2) (3)

DTS-T € 2.476 € 2.476 € 0.987

DTS-D1 (MIC >0.5 MW) € 2.549 € 2.538 € 1.009

DTS-D2 € 2.712 € 2.675 € 1.044

Notes:
(1) Charges for D1 and D2 are adjusted by current day/night Distribution Loss Adjustment Factors
(2) Charges for D1 and D2 are adjusted by distribution losses factor from MC study. These charges
are set to recover the 2005 External Cost except for Operating reserves and Constraints.

b) Low Power Factor Surcharge

The advantage of this option is that it sends appropriate cost signals for
reactive power utilisation. At present there is no signal to transmission-
connected demand users (there is for distribution connected customers).
Customers connected to the transmission system previously saw a
surcharge under old ESB tariffs and maintained their power factor
accordingly therefore this charge is not expected to have material bill
impacts, given the existing behaviour of transmission-connected demand
users.

It would give incentives for appropriate behaviour on behalf of new

customers and prevent a deterioration of the current good practice by
existing ones. The surcharge would also mean closer alignment with existing
DUoS tariffs29 by providing a Low Power Factor Surcharge to transmission-
connected customers thereby eliminating a perverse incentives for choosing
a transmission connection.

ESBNG have proposed two options to the Commission in relation to the

possible structure of this surcharge:

i) Charge on a trading period basis when Reactive Power exceeds a

certain level and demand load exceeds a certain threshold. In other
words if the metered kVArh in any trading period is more than

29 For non-domestic customers, a Low Power Factor Surcharge of 0.699 - 0.574¢/kVArh applies when the
metered kVArh is more than one third of the metered kWh in any two month period. The charge is
applicable to the kVArh in excess of one third of the kWh.

64
 32.87% [i.e. pf lower than 0.95) of the metered kWh and energy
consumption is greater than 50% of MIC then apply LPFS of 0.32
c/kVarh on the kVarh in excess of one third of the kWh.

This is consistent in structure with the Grid Code which states that a
Grid Connected Customer shall ensure that at any load above 50% of
Maximum Import Capacity the aggregate power factor as determined
at the Connection Point in any half-hour period shall be within the
range 0.90 lagging to unity. While the Grid Code provides an absolute
technical limit to power factor, it is appropriate for the tariff (which is
designed to be cost reflective and not punitive) to commence at the
level of 0.95 as this is the assumed power factor when converting
parties MICs from MVA to MW.

ii) Adopt similar methodology as DSO for the Low Power Factor
Surcharge. This would ensure consistency. The low power factor
surcharge applies when the metered kVarh is more than 32.87% [i.e.
average pf lower than 0.95) of the metered kWh in any monthly period
[DSO use 2 monthly period]. The charge is applicable to the kVarh in
excess of one third of the kWh

MVars are currently provided by a variety of sources including network

components and generators. ESBNG makes payments to generators for
leading and lagging MVars as required and makes capital investment in
reactive devices such as SVCs30 [and capacitors.

When the payment schedule to generators was originally formulated the cost
of providing MVarh from static devices was used as the basis for the cost.

The resulting charge is shown in Table 3.7 and could be described as

follows: If MVArh > MWh*0.3287 then apply LPFS of 0.30 c/kVarh to the
kVarh in excess of 32.87% of the kWh.

Table 3.7: Low Power Factor Surcharge

Reactive Power Surcharge 2005 Prices

Reactive Power payments to

13.8
generators (€million)
Total MVarh 4.3

€/MVarh 3.2
Cent/Mvarh 0.32

30 Static Var Compensators

65
 Table 3.8: Summary of Alternative TUoS Tariffs
TUoS Demand Options

- T1: Energy Charge only (seasonal and TOD)

- T2: Max Demand Charge only (seasonal and TOD) for MD customers;
(Seasonal and TOD Energy charge for the rest)
- T3: Split between Seasonal and TOD Energy Charge and Seasonal and
TOD Demand Charge (for those with no demand meter: Seasonal and
TOD Energy Charges)
- T4: Split between Seasonal and TOD Energy Charge and flat Capacity
(MIC) Charge (no TOD)

TUoS Generation Options

Flat capacity charge (MEC) – same all year round

The tables below shows the charges developed under each of the four options
(Options T1, T2, T3 and T4). Although a specific market-participant charge
was not screened, a proxy for the annual market-related costs (€1.15) was
used that would be separately recovered through market participant
charges.31

The generation options are also summarized.

31 The proxy for annual market-participant costs was based on the 2002 TSO “Customers
Records and Billing”, plus a portion of administrative overheads, converted to 2005 prices.

66
Table 3.9: Option T1
PROPOSED TUOS CHARGES OPTION T1
Customer Category (100% Energy allocation for Network-related costs)

System Network-Related Charges

Service
Charge WINTER SUMMER
Seasonal- Seasonal-
(no TOU) P S Off Equivalent S Off Equivalent

(€/ MWh) -------------------------- (€ per MWh) ----------------------------

Demand Users
DTS-T € 0.99 € 117.950 € 4.994 € 1.873 € 12.380 € 1.778 € 1.769 € 1.774

DTS-D1 (MIC >0.5 MW) € 1.01 € 122.400 € 5.117 € 1.877 € 12.787 € 1.779 € 1.769 € 1.774

DTS-D2 € 1.04 € 130.483 € 5.342 € 1.885 € 16.504 € 1.779 € 1.769 € 1.774

Table 3.10: Option T2

PROPOSED TUOS CHARGES OPTION T2
Customer Category (100% Demand allocation for Network-related costs)

System Network-Related Charges

Service Charges per MWh Charges per MW
Charge WINTER SUMMER WINTER
Seasonal- Seasonal-
(no TOU) P S Off Equivalent S Off Equivalent P S O Seasonal
(€/ MWh) ------------------ (€ per MWh) ---------------- ---- (€ per MW of Max Demand) ----
Demand Users
DTS-T 0.99 - - - - - - - 7,308.35 578.01 - 6,230.17

DTS-D1 (MIC >0.5 MW) 1.01 - - - - - - - 7,595.52 607.34 - 6,481.58

- - - -
DTS-D2 1.04 200.886 5.575 0.180 22.996 0.015 - 0.007 - - - -

Note: Charges per MW of Max Demand are zero in the Summer.

67
 Table 3.11: Option T3
PROPOSED TUOS CHARGES OPTION T3

Customer Category Split of Max Demand Charge and Energy Charge

(70% Energy allocation for Network-related costs)

System Network-Related Charges
Service Charges per MWh Charges per MW

Charge WINTER SUMMER WINTER

Seasonal- Seasonal- Seasonal-
(no TOU) P S Off Equiv. S Off Equiv. P S O Equiv.

(€/ MWh) ------------------ (€ per MWh) ---------------- ----- (€ per MW of Max Demand) -----
Demand Users
DTS-T € 0.99 € 114.826 € 1.870 € 0.000 € 9.912 - - - € 1,871.53 € 0.000 € 0.000 € 1,447.41

DTS-D1 (MIC >0.5 MW) € 1.01 € 119.277 € 1.994 € 0.000 € 10.317 - - - € 2,158.69 € 0.000 € 0.000 € 1,669.50

DTS-D2 € 1.04 € 184.883 € 5.131 € 0.166 € 21.164 0.014 € 0.000 0.006 - - - -

Note: Charges per MW of Max Demand are zero in the Summer.

Table 3.12: Option T4

PROPOSED TUOS CHARGES OPTION T4
Customer Category Split of MIC and Energy (70% Energy allocation for Network)
System Network-Related Charges
Service Charges per MWh
Charge WINTER Monthly
Seasonal- Non-TOU MIC
(no TOU) P S Off Equivalent charge
(€/ MWh) --------------------- (€ per MWh) ------------------------- (€ / MW)

Demand Users
DTS-T € 0.987 € 114.826 € 1.870 € 0.000 € 9.912 € 280.27

DTS-D1 (MIC >0.5 MW) € 1.009 € 119.277 € 1.994 € 0.000 € 10.317 € 302.67

DTS-D2 € 1.044 € 127.359 € 2.218 € 0.000 € 14.046 € 322.95

Note: Charges per MWh are zero in the Summer.

Table 3.13 below shows the revenue the various alternative tariff structures
would generate from each tariff group and the percentage change as
compared with current revenues. One important consideration in evaluating
these changes is that all demand users see a negative percentage change in
their TUoS bills as a result of the removal of operating and constraint costs
to be recovered from TUoS charges. The average percentage change in TUoS
revenues under all scenarios results in -24% for demand users and –9.3%
for generators.

68
 Table 3.13: TUoS Alternatives – Impacts by Category
OPTION T1 OPTION T2 OPTION T3 OPTION T4

REV. FROM % CHANGE REV. FROM % CHANGE REV. FROM % CHANGE REV. FROM % CHANGE
PROPOSED IN TUOS PROPOSED IN TUOS PROPOSED IN TUOS PROPOSED IN TUOS
CHARGES REVENUES CHARGES REVENUES CHARGES REVENUES CHARGES REVENUES

(2005 €000) BY CLASS (2005 €000) BY CLASS (2005 €000) BY CLASS (2005 €000) BY CLASS

Demand Users
DTS-T 13,866 -22.13% 8,700 -48.88% 11,210.1 -35.94% 10,900 -37.51%

DTS-D1 (MIC >0.5 MW) 38,594 -34.32% 24,458 -58.08% 32,026.1 -45.39% 32,781 -44.10%

DTS-D2 122,630 -20.09% 141,931 -7.59% 131,853.4 -14.09% 131,409 -14.40%

Generator User

GTS-T 48,626 -9.80% 48,626 -9.80% 48,626 -9.80% 48,626 -9.80%

GTS-D 1,013 2.91% 1,013 2.91% 1,013.0 2.91% 1,013 2.91%

Autoprod. & CHP

ATS-T (as Gen.) - - - - - - - -

ATS-D (as Gen.) 1,013 2.91% 1,013 2.91% 1,013 2.91% 1,013 2.91%

Overall Change 225,742 -21.39% 225,742 -21.39% 225,742 -21.39% 225,742 -21.39%

Table 3.14 below shows the change in annual TUoS revenues by user
category after excluding the effect of the change in overall revenue
requirement. Therefore the revenue impacts reflect the effect of a change in
TUoS structure under each alternative and the proposed change in the
current connection policy for demand users (100% up-front payment, as
opposed to 50%). The overall TUoS revenue change from the revision of the
connection policy is estimated as -1.52%.

Table 3.14: TUoS Alternatives – Impacts by Category

O P T IO N T 1 O P T IO N T 2 O P T IO N T 3 O P T IO N T 4

% CHANGE % CHANGE % CHANGE % CHANGE

IN T U O S IN T U O S IN T U O S IN T U O S
REVENUES REVENUES REVENUES REVENUES

BY CLASS BY CLASS BY CLASS BY CLASS

D em an d U sers

D T S -T -1 .6 2 % -3 .5 7 % -2 .6 2 % -2 .7 4 %

D T S -D 1 (M IC > 0 .5 M W ) -2 .5 1 % -4 .2 4 % -3 .3 1 % -3 .2 2 %

D T S -D 2 -1 .4 7 % -0 .5 5 % -1 .0 3 % -1 .0 5 %

G e n e ra to r U se r

G T S -T -0 .6 7 % -0 .6 7 % -0 .6 7 % -0 .6 7 %

G T S -D 0 .2 0 % 0 .2 0 % 0 .2 0 % 0 .2 0 %

A u to p ro d . & C H P

A T S -T (a s G e n e r a tio n ) - - - -

A T S -D (a s G e n e r a tio n ) 0 .2 0 % 0 .2 0 % 0 .2 0 % 0 .2 0 %

O v e r a ll R e v e n u e C h a n g e -1 .5 2 % -1 .5 2 % -1 .5 2 % -1 .5 2 %

69
Finally, the bill impacts under each TUoS option assuming that the current
connection policy continues are shown in Table 3.15 below.

Table 3.15: TUoS Alternatives – Impacts by Category (Present

Connection Policy)
O PT IO N T 1 O PT IO N T 2 O PT IO N T 3 O PT IO N T 4

% CHANGE % CHANGE % CHANGE % CHANGE

IN T U O S IN T U O S IN T UO S IN TU O S
REVENUES REVENUES REVENUES REVENUES

B Y C LA S S B Y C LA S S B Y C LA S S B Y C LA S S

D em an d U sers

D TS-T -0.29% -0.65% -0.48% -0.50%

D TS-D 1 (M IC >0.5 M W ) -0.46% -0.77% -0.60% -0.59%

D TS-D 2 -0.27% -0.10% -0.19% -0.19%

G en erator U ser

G TS-T 1.36% 1.36% 1.36% 1.36%

G TS-D -0.40% -0.40% -0.40% -0.40%

A utoprod. & C H P

ATS-T (as G eneration) - - - -

ATS-D (as G eneration) -0.40% -0.40% -0.40% -0.40%

O verall R evenue C han ge 0.00% 0.00% 0.00% 0.00%

A comparison of bill impacts of alternative TUoS structures for a range of

customers within each customer category was not attempted because the
impact on customer bills depends upon the structures adopted for all cost
elements, not just TUoS.
The section on PES tariffs below provides information on bill impacts at the
individual customer level.

70
4 DISTRIBUTION CHARGING

4.1 Introduction

The distribution system supplies electricity to over 1,800,000 customers

connected at voltage levels ranging from low voltage to 110kV.

This section on distribution charging:

describes the DSO’s role in relation to tariffs;

briefly outlines network and non-network costs faced by the DSO;
documents existing connection as well as Use of System charges; and
identifies potential alternative charges, including customer
categorisation and individual tariff components;
presents screening results/impacts of these alternative tariffs in
comparison with existing structures

4.1.1 Role of the Distribution System Operator (DSO)

ESB Networks as Distribution System Operator is the owner and operator of

the Irish Distribution system, the network that connects most customers to
the transmission system.

As per S.I. 445, the DSO's functions are ‘to operate and ensure the
maintenance of and develop, as necessary, a safe, secure, reliable,
economical and efficient electricity distribution system, taking into account
exchanges with other interconnected systems, with a view to ensuring that
all reasonable demands for electricity are met and having due regard for the
environment’. Duties include security of supply, the offering of connection to
all applicants in line with existing legislation32, accountability for
distribution losses; metering, meter reading and meter data transfer; and
with suppliers and customers, responsibility for meter revenue protection33.

4.1.2 Distribution Revenue & Costs

The DSO recoups most of the costs of fulfilling these duties via distribution
connection charges and use-of system (DUoS) charges. The Commission
determines revenue requirements (normally for 5-year periods) for the DSO
at regular intervals based on the level of anticipated capital and operational
expenditure required in distribution networks. This five-year revenue
requirement, approved and adjusted on an annual basis for applicability
each January 1st, feeds through to annual DUoS tariffs.

Connection costs, or a portion thereof, are recovered via up-front charges.

There were over 76,000 new connections to the distribution system made in
2003, most of these at LV level. DUoS charges apply to all customers
connected to the distribution system.

32 For a more comprehensive account of the various DSO roles and responsibilities please see

DSO Performance Reports for 2001 and 2002.

33 The TAO is also responsible for the provision and maintenance of transmission connected

metering equipment.

71
The distribution allowed revenue for 2004 amounted to €549 million. This
translates into a distribution use-of-system charge that accounts for
approximately 35% of the domestic customer tariff and 15% of the final retail
tariff for MV customers.

72
4.2 Distribution Revenue Requirement & DUoS Marginal Costs

As described in section 2, for purposes of evaluating alternative DUoS

structures, distribution marginal costs were estimated and adjusted to
match estimated 2005 revenue requirements.

4.2.1 Distribution Marginal Costs

Distribution tariff structures should reflect the underlying structure of the

cost of providing distribution service. There are three distinct components of
the distribution system which require separate marginal cost analysis34:

Local Marginal Facilities Costs (LV/MV);

Demand-Related Marginal Costs (38kV/110kV);
Customer Related Marginal Costs (Meters/Administration)

In addition, if the DSO is required to purchase energy to cover distribution

losses, there will be a fourth component of distribution marginal cost:

Distribution energy losses

4.2.1.1 ‘Local’ Marginal Distribution Costs

Local distribution systems (from the customer’s meter up to the feeder

coming from the distribution substation) are typically built using engineering
design standards that take into consideration the number of customers and
the expected maximum loads (MIC) of those customers.

In short, the local distribution system is designed based on the design load
of the customers to be served, not specifically on the number of customers or
their actual loads at any given moment.

Because the local marginal distribution costs are incurred based on the
design load of the customer, and do not vary with the customer's actual
peak load from month to month, it makes sense to recover these marginal
distribution costs in a fixed monthly charge imposed on the customer's
design load, or maximum import capacity (MIC). Likewise, since these costs
are not saved if a customer chooses to invest in a demand-side management
device or a more efficient appliance, it is important to keep these costs out of
the usage-sensitive components of marginal or avoided cost estimates.

Estimates of local distribution facilities marginal costs were estimated using

reproduction costs for three typical MV 3-phase feeders, provided by DSO.
The three feeders represent dense urban underground development, a mix of
urban underground and rural overhead, and rural overhead. The marginal
cost estimates used for evaluation of tariff structures in this report include
only 50% of the cost of distribution facilities. This approximates the marginal
distribution costs that need to be recovered in DUoS if a policy of recovering
50% of distribution facility costs in upfront connection charges is in place.

34 The methodology used to calculate these components is contained in the Marginal Cost
Study.

73
4.2.1.2 ‘Demand-Related’ Marginal Substation and Sub-Transmission
Costs

MV 3-phase (‘Trunkline’) feeders, distribution substations (38kV and above),

and higher voltage lines owned by the DSO are typically sized based on
expected near-term peak demands. Thus these costs are marginal with
respect to added loads in hours when load is close to capacity and are
referred to as the demand-related marginal distribution costs. These costs in
the Dublin region are somewhat different from the costs in other parts of
Ireland because of the different voltages used for distribution in the Dublin
region. In the case of DSO, it was not possible to separate trunkline feeders
from other primary feeders, so the trunkline feeders are included in the
distribution facilities component of marginal distribution cost.

The marginal cost of distribution substations and the lines and cables that
feed them, does belong in the usage portion of rates. If a customer uses more
in an hour when its distribution substation is peaking, additional capacity
will likely be required. If the customer reduces usage in such an hour,
capacity is freed up for use by other customers.

Because detailed budgets were not available, to estimate the marginal

investment in substations and high voltage lines and cables, we used the
reproduction cost estimates for cables/lines and substations (both 38 kV
and 110 kV), and divided the costs by estimates of total peak loads at the
various voltage levels. The estimates of marginal investment must then be
annualised and assigned to hours or periods within the year based on a
probability of peak analysis that determines each hour’s likelihood of being
the peak hour.

4.2.1.3 Marginal Customer Costs

Meters and service drops, and related expenses, are dedicated to a single
customer (or building) and are treated as marginal customer costs.

DSO provided the 2002 installed cost of a typical meter and service
investment and the relative cost of meter reading and other customer-related
expenses for each customer category. The investments were annualised
using the same approach for other types of plant. Only 50% of the meter and
service drop investment was included in the marginal customer cost
estimates, consistent with a 50% connection charge policy.

4.2.1.4 Marginal Distribution Losses

If the DSO is given responsibility for acquiring energy to cover losses on the
distribution system, it will need to purchase energy for this purpose. The
marginal cost study includes an estimate of these marginal energy loss
costs; however, since the current DSO revenue requirement does not include
these costs, the illustrative tariffs developed for this review do not include an
energy loss component of the DUoS. The cost of distribution losses is
included in the marginal generation costs incorporated in the illustrative
PES tariffs.

The Commission has recently published a draft decision on this issue

outlining its proposed approach, which indicates the intention to continue

74
the present arrangements with regards to distribution losses. Assuming the
present arrangements continue, losses will not form part of distribution
revenues and therefore will not have to be accommodated within the DUOS
tariff.

4.2.1.5 Summary of DSO Marginal Costs

The plant-related marginal costs must be adjusted by peak demand losses to

convert a marginal cost at, for example, the distribution substation, to a
marginal cost at a customer’s primary or secondary meter. Furthermore,
customers served at primary voltage do not use transformers and secondary
lines that secondary customers require. Thus, the marginal distribution
costs vary by voltage level of service.

The tables below summarise the substation and high voltage lines/cables
marginal costs by voltage level of service and costing period. The first table
expresses the costs in terms of cents/kWh. The second expresses the same
costs in terms of monthly peak demand by voltage level and time period.

Table 4.1: Distribution HV kWh Costs (allocated to lower voltages)

H igh V o ltage D istribu tio n Lin es & S tatio n M argin al C osts
2 0 0 5 cents p er k Wh

W in ter S um m er
V oltage
P eak S h ould er O ff-P eak S h ou lder O ff-P eak
LV 9 .1 2 0 .7 4 0.34 0.4 7 0 .0 1
MV 6 .7 1 0 .7 1 0.33 0.4 5 0 .0 1
3 8 kV 6 .3 7 0 .3 7 0.14 0.1 9 0 .0 1

Table 4.2: Distribution HV per month kW costs (allocated to lower

voltages)
H igh V o ltage D istribu tion Lines & S tation M arginal C o sts
2 0 0 5 cents p er k W

W in ter S u m m er
V oltage
Peak S h ou lder O ff-P eak S h ou lder O ff-Peak
LV 5 .8 8 1 .75 1.43 1 .3 4 0.06
MV 5 .6 0 1 .67 1.37 1 .2 8 0.06
3 8k V 4 .1 2 0 .88 0.58 0 .5 4 0.02

The two tables below summarise marginal distribution facilities costs (i) per
kVA and (ii) per customer as applied to a typical customer in each category.
Rural customers are not differentiated from urban customers.

75
Table 4.3: Distribution Facilities per kVA per month
M a r g in a l D is t r ib u t io n F a c ilit ie s C o s t
2 0 0 5 € p e r k V A o f M IC p e r m o n th

DG1 U r b a n D o m e s tic 3 .1 4
DG2 R u r a l D o m e s tic 3 .1 4
DG3 P u b lic L ig h tin g 3 .1 4
DG4 U n m e te r e d 3 .1 4
L V F R M eters
DG5 L V N o n -D o m e s tic - D T & G P M e te r 3 .1 4
A ll M D M e t e r s
DG6 L V N o n -D o m e s tic M a x D e m a n d 3 .1 4
DG7 M V M ax D em an d 1 .2 3
DG8 38kV Looped 0 .5 3
DG9 3 8 k V T a ile d 0 .5 3

Table 4.4: Distribution Facilities using Deemed kVA per connection

D is t r ib u t io n F a c ilit ie s k V A p e r C u s t o m e r

U rb a n D o m e s tic 3 .7 5
U rb a n D o m e s tic D / N 5
R u r a l D o m e s tic 3 .7 5
R u r a l D o m e s tic N ig h tS a v e r 5
P u b lic L ig h tin g 28
C&I GP 10
C & I G P N ig h tS a v e r 35
LVM D 127
MV MD 1395
38 kV M D 5482

The table below summarises marginal customer-related costs for each

customer category.

Table 4.5: Distribution Customer Cost per month

M a r g in a l D is t r ib u t io n C u s t o m e r C o s t
2 0 0 5 € p er cu stom er p er m o n th

DG1 U r b a n D o m e s t ic G P M e t e r (& S e r v ic e s ) 2 .4 6
U r b a n D o m e s t ic D T M e t e r 2 .9 0
DG2 R u r a l D o m e s t ic G P M e t e r 3 .0 0
R u r a l D o m e s t ic D T M e t e r 3 .8 0
DG3 P u b lic L ig h t in g (p e r c o n n e c t io n ) 1 .7 0
DG4 U n m e te re d n/a
LV F R M eters
DG5 L V N o n - D o m e s t ic - G P M e t e r - 1 - p h a s e 4 .4 1
L V N o n - D o m e s t ic - D T M e t e r - 1 - p h a s e 5 .2 6
L V N o n - D o m e s t ic - G P M e t e r - 3 - p h a s e 5 .9 0
L V N o n - D o m e s t ic - D T M e t e r - 3 - p h a s e 7 .4 6
A ll M D M e t e r s
DG6 L V N o n - D o m e s t ic M a x D e m a n d 2 8 .8 5
DG7 M V M ax D em an d 2 8 .3 5
DG8 38kV Looped 7 2 .1 9
DG9 3 8 k V T a ile d 7 2 .1 9

76
There is one more element of marginal cost included in the distribution
marginal costs. The market rules may require the DSO to purchase energy to
cover both technical and commercial losses on the distribution system. In
this case energy losses are a component of distribution service and will need
to be recovered in the DUoS. Marginal energy losses increase at each
successively lower voltage level. In addition at any given voltage level losses
increase with system load. Thus there is a different energy loss adjustment
factor for each hour and for each voltage level of service. Hourly losses were
calculated by means of an approximation of quadratic losses based on
variable losses at system peak load and a forecast of 2004 hourly loads.

4.2.2 DSO Revenue Requirement & Marginal Cost Revenue Gap

The starting point for the DSO revenue requirement used in the tariff
screening process was the 2004 DUoS charges multiplied by the 2004 billing
determinants. The 2004 DUoS charges were escalated to 2005 euros by
application of an inflation factor of 3.5%.

The table below shows the deemed 2005 DSO revenue requirement (for the
purpose of this review), and marginal cost revenues that would result if all
consumers paid the marginal cost of distribution service (net of connection
costs) for each element of distribution service, and the marginal cost revenue
gap. Note that charging marginal cost would not produce revenue sufficient
to cover the allowed revenue level.

Table 4.6: Distribution Revenue ‘Gap’

DUoS Revenue Marginal Estimated Percent Gap

Requirement Used35 Cost Revenue Gap
Revenues
2005 €000 2005 €000 2005 €000 %
566,223 590,346 -24,123 4.2

35 The figures used for 2005 should not prejudice and are simply uplifted from 2004 by
projected inflation.

77
4.3 Distribution Connection Charges

The existing distribution connection charging policy differentiates demand

customers and (embedded) generator customers – generators pay 100% deep
connection charges while demand customers pay 50% of the attributable36
cost of connecting to the distribution system.

4.3.1 Generator (Embedded) Connections

Connection policy for embedded generators is complicated because of the

different ways these generators use the distribution system. Distribution
connected or Embedded generation may be categorised as follows:

Stand-alone Embedded Generation: The term embedded generators

typically refers to generators that are largely stand-alone generators
and that, except for some small energy imports for station service
when the generator is not operating, use the distribution system only
to deliver energy to the network.

(Exporting) Autoproducers37: Other embedded generators primarily

serve on-site load and deliver excess energy to the network. These
generators use the distribution system for those deliveries and to
import energy when the generator is out of service.

Stand-by Generation: In another configuration, the embedded

generator supplies a portion of on-site load requirements, imports
additional energy in most hours, and imports all on-site load
requirements when the generator is out of service.

4.3.1.1 Present Policy

Under the present charging methodology, embedded generators pay on the

basis of:

100% Deep Connection Costs;

Ongoing Payments:
- On-going O&M charges on their connection facilities;
- No DUoS charges for exports

4.3.1.2 Potential Alternatives

All embedded generators, as outlined, have been obliged to pay 100% deep
connection costs. This provides a locational signal which encourages
embedded generation to connect to existing distribution facilities in
economically efficient locations.

36 The Attributable Cost is a proxy for the incremental cost of connecting a new customer or
group of customers to the networks, including network reinforcement costs. The
attributable cost is the estimated cost of the portion of the network that has to be built or
existing capacity expanded to provide capacity to the connecting customer.
37 As discussed in the first consultation paper of this review, Existing Tariff Structures,

exporting autoproducers are so defined as having a contracted MEC greater than contracted
MIC.

78
One alternative is to switch to a 100% shallow connection charge policy for
embedded generators. However, any move to shallow connection charging for
generation would reduce the locational signal.

Charging some fraction of deep connection costs less than 100% would, in
most cases, represent less of a distortion in the locational signal than a shift
to 100% shallow connection costs. A less-than-100% deep connection policy
could be combined with the introduction of DUoS payments for exports by
generators. Without this addition, a portion of the costs of deep
reinforcement would fall on DUoS demand customers. However, the amount
of the cost shifts would be small if deep connection costs are small and/or
the number of new embedded generators is small. Presently deep connection
costs represent a small portion38 of generator connection charges.

Any move away from 100% deep generator connection costs could be
accompanied by the incorporation of ongoing O&M charges into a generator
DUOS export charge. However there would be transitional issues related to
imposing these on-going charges on generators who have already paid 100%
deep connection costs. It should also be noted that moving to 100% shallow
connection charges, while introducing DUOS export charges to embedded
generators, would put such generators on a similar footing to Transmission
connected generators. However, the costs of deep reinforcements to
embedded generators are relatively small compared to transmission-
connected customers, although by their nature embedded generators are
relatively small in size compared to transmission-connected generators. In
addition, embedded generators may require less network investment at
higher voltages due to their embedded nature. Therefore, on balance,
adopting an alternative connection charging policy where embedded
generators pay less in connection charges may result in higher long-term
costs for embedded generators. Two options being considered are to:

continue with the 100% deep connection policy, in addition to the

ongoing O&M charge.
apply a 100% shallow connection policy with an ongoing O&M charge
that applies only to the shallow facilities and introduce an associated
DUoS charge for embedded generators.

The Commission is considering some means of addressing the benefits of

embedded generation, insofar as energy delivered to the network by these
generators may lead to reduced network investment at higher voltages. This
is discussed later in the document.

The Commission invites comment on the alternative distribution generator

connection charging policies outlined above.

38 This issue has not been examined in detail for a period of two years, however in 2002 deep
reinforcement costs to embedded generators consisted of 6% of total connection costs. This
was based on a sample of connections at that time.

79
4.3.2 Demand Customer Connections

4.3.2.1 Present Policy

Demand customers are categorised as being domestic or business in nature.

Domestic connections are divided into non-scheme (single home) and
scheme (residential subdivision). In general demand customers pay semi-
shallow connection charges based on average connection costs; however,
there are some exceptions. The connection policy is summarised hereunder:

Cost:
- 50% of standard dedicated connection costs, determined by an
analysis of the “least cost technically acceptable solution”
(LCTAS) or the minimum possible cost of a typical connection
for domestic, farm and business categories;
- Supplemental charges for very long network additions (with
“very long” defined differently for each type of customer);
- For customers with MIC above 500 kVA, a charge per kVA for
reinforcement of the existing system. In general the customer
is obliged to pay 50% of the attributable cost of the connection.

Refunds:
- Individual customers are entitled to a refund of part of the
connection costs (excluding the standard charge) if a new
customer connects to the same line extension within 5 years.
The amount of the refund is based on the relative capacities of
the users. The refund amount is included in the connection
charge of the new user.

4.3.2.2 Potential Alternatives

The recovery of only part of the connection costs in upfront charges means
that customers with high-cost connections may be subsidised by customers
with low-cost connections, as the remaining connection costs are recovered
from all customers through the DUoS. Alternatives include:

a) Distribution Connection Allowance

One alternative to this cross-subsidy is to introduce a system of

allowances based on the standard cost of connection within any given
(connection) category of customer. These should be consistent with
DUoS categories.

This Connection Allowance could take the form of a specific monetary

amount computed each year on the basis of the current installed cost
(materials, labour, transport, etc.) of the typical connection of that
type and size. The allowance may be 50% of the connection cost
which would maintain the status quo, or alternatively the allowance
could be reduced, thereby increasing the contribution made by
customers.

Upfront payments would recover the difference between the actual

costs of the connection in excess of the standard allowances. Refunds
would reimburse the original customer for new users connecting to

80
 the same beyond-allowance extension. Refunds would be computed as
a pro-rata share (either based on MIC or per meter of line used) of the
original contribution for the shared facilities, which is similar to the
present approach for business customers.

b) No Connection Charge

The transfer of connection costs to DUoS charges. This option would

increase cross-subsidies from customers with below-average
connection costs per kVA to customers with above-average connection
costs per kVA. This option may encourage inefficiencies, as the
connecting party would have no incentive to reduce the size of
connection unless the DUOS incorporated a capacity charge per kVA
of MIC.

c) Revenue Test

A third option would be to charge customers the difference between

the present value of the expected DUoS revenue (net of the cost
associated with non-connection costs) received over the lifetime of the
connection and the actual cost of the connection. While this may be
equitable, the uncertainties faced by the network operator would
mean that there may be a higher risk of cost shifting. In addition, this
method would add a level of administrative burden.

d) Gradual Increase to 100% Deep Connection Policy

Up-front payments for connection could be increased from the present

50% policy to 100%. The primary benefit of this would be to decrease
ongoing DUoS charges for customers. Any policy introducing higher
contributions (>50%) would have to be considered in greater detail at
implementation stage to ensure equity between existing and new
customers.

e) 100% Shallow Connection Policy

A move to fully shallow charging might simplify the formulation of

charges; however, it would not be as equitable as a deeper policy.
However, the level of deep costs in distribution connections is small
relative to shallow costs.

f) 100% Deep Connection Policy

While the present policy recovers 50% of attributable costs,

attributable costs are based on standard connection costs and do not
include all deep costs. The introduction of deep charging for demand
customers would be more equitable, but would add administrative
burden in setting charges, as ‘deep’ would have to be clearly defined
and measurable. The present approach is a practical compromise
with respect to the determination of “semi-deep” costs, which resolves
some of the difficulties of determining the true deep costs of demand
customers.

81
Any change in connection policy would affect how refunds are administered
and will require consideration of some the risk of cross-subsidies between
existing and future customers.

4.3.3 Screening/Evaluation

Apart from the obvious changes in upfront charges for new connections, a
change in distribution connection policy would affect the amount of revenue
to be recovered in the DUoS. The effect would grow over time. The
combination of depreciation and return on capital expenditure under the
present regulatory model would result in the following reductions in DUOS
revenue were the connection charging policy of 100% upfront payments to be
adopted. These figures assume the present level of connections continues
over the coming five years.

Table 4.7: 100% Demand Connection Charging & DSO Revenue

Year 2005 2006 2007 2008 2009

Reduction in €M
Revenue 7 14 21 28 35

These figures are indicative, based on the current depreciation policy and
allowing a rate of return of 6.5%.

4.3.4 Proposed Alternative

While the Commission sees the benefits of moving to 100% semi-shallow

upfront connection fees from a customer’s perspective this alternative does
raise a number of issues including:

It presents a risk of cross-subsidies between new and existing

customers;
It doubles the upfront connection fees if the policy is immediately
changed to 100% semi-shallow.);

The use of a connection allowance approach has the following advantages:

It eliminates cross-subsidies because all consumers pay for the same

amount of connection costs in their DUoS charges, and any additional
connection costs upfront.
It gives efficient locational signals because all consumers pay, one
way or another, for the cost of their connections.
It minimises the risk of cross-subsidisation while allowing the option
of a gradual move to 100% connection charging if required at a future
date.

While some of the above options are being given serious consideration, it
should also be borne in mind that separate connection allowance policies
may be implemented for different categories of customers. The screening of

82
DUoS alternatives, described below, assumes that the 50% connection policy
is in place.

The Commission invites comment on the alternative distribution demand

connection charging policies outlined above.

83
4.4 Distribution Use of System (DUoS) Charges

The DUoS tariff recovers most of the costs faced by the DSO, having taken
contributions for connection costs39 into account.

4.4.1 Generator/Demand Allocation

4.4.1.1 Present Policy

While transmission network costs are apportioned 75%/25% between

demand and generators, no such arrangement exists for the treatment of
distribution network costs. There are two reasons for this. First, generators
connecting to the distribution system already pay 100% deep connection
charges and therefore are exempt from on-going DUoS charges for exports to
the network. Second, the 75%/25% division is used by Transmission System
Operators across the European Union for reasons associated with
interconnection and the cross-border trade in electricity that do not apply at
the distribution level. The Commission does not favour the introduction of
an arbitrary generator/demand apportionment for DUoS.

4.4.2 DUoS Customer Categories

DUoS charges vary by customer category. DUoS tariff categories are defined
by type of customer, type of meter (maximum demand or not; standard or
day/night), voltage level, and location on the network (looped or tailed; rural
or urban). The categories, by-and-large, follow the voltage level at which the
customer is connected. However, categories also take account of metering
constraints at LV level. For this reason, smaller LV customers are charged
under a non-MD category while larger LV customers whose size warrants the
installation of a MD or MFM interval meter are categorised as LVMD
customers. All tariff categories, with the exception of unmetered supplies,
include charges for day and night time periods, applicable to customers with
the appropriate meter.

For more information on existing DUOS categories please refer to the ESB
Networks published schedule of charges.

Several tariff categories are sub-divided into demand customer and

autoproducer customer groups to reflect the fact that autoproducers and
CHP generator customers with MEC>MIC use electricity networks in a
different way from conventional customers. These customers, exporting
autoproducers, do not face fixed or capacity charges and are treated in a
similar way to generators with respect to DUOS and connection charges.
(Net) Importing Autoproducers (MEC<MIC) are categorised as other demand
customers and face fixed and capacity charges, where levied.

4.4.2.1 Alternative DUoS Categories

39 Refer to 2001-2005 Distribution Revenue Requirement for further information on ESB

Networks revenue recovery.

84
The Commission is of the view that the current categories are adequate and
do not require alteration. There are, however, some changes that could be
made that may or may not require new categories. Among these are the
following:

a) Embedded Generation

Embedded generation is addressed as two separate categories,

generators and autoproducers. For the purposes of this discussion,
we consider a generator as someone who is producing electricity for
the purpose of export onto the system. Autoproducers on the other
hand may be producing electricity for consumption on site, or a
combination of consumption onsite and export onto the system.

While significant embedded generation exists, much of it is installed

by customers for standby purposes in the event of power failure. It
seems reasonable that such standby generation, if it were economic to
do so, should be running at peak times. In considering such
generation standby generator are considered as autoproducers. While
a move to reflect true peak time prices with the use of time-of-use
tariffs would encourage such use, it may be argued that even this
approach does not reflect the true value of embedded generation
where such generation is stand-alone as opposed to autoproducing
generators. It has been noted that autoproducers may avail of the
benefits of time of use tariffs, however a normal embedded generator
is not afforded any commercial advantage which in theory should
accrue to them as a result of avoided network costs at higher voltage
levels. E.g. a generator exporting onto the medium voltage network at
peak times will lead to reductions in network investment at high
voltage levels. This assumes that such generation is actually
generating at system peak times and does in fact result in reduced
network investment.

A number of other jurisdictions consider that distribution-connected,

or embedded, generation may help to defer or avoid future investment
in transmission and higher voltage distribution networks because
they deliver energy to meet loads of other consumers without using
the higher voltage facilities. At present most embedded generators do
not pay TUoS because they fall below the 10 MW criterion. However,
avoided distribution network investment could potentially occur at
110kV (Distribution), 38kV and 3-phase MV voltage levels.

The Commission is, in principle, in favour of some means of

recognising the benefits of such generation, such as a rebate. Just as
customers connected at 38kV or 110kV voltage do not cause and
therefore do not face MV or LV-associated charges, embedded
generation connected at, say, 38kV voltage and delivering energy to
demand users nearby should not have to pay for 110kV investment if
it is not using that network. Of course embedded generators do not
pay DUOS as a result of their 100% connection charging policy,
therefore it may be argued that this should be sufficient incentive.
However this on its own does not reflect the avoided network
investment at higher voltages. This avoided network cost could accrue
to an embedded generator in the following ways:

85
 a) Rebate to embedded generators in the form of a payment per
kWh of energy exported to the network during peak hours.) The
rebate could be based on the full avoided cost of demand-
related distribution as identified in the Marginal Cost Study, or
alternatively, a percentage of this avoided cost. Ideally, the
rebates should vary by location, although the avoided costs by
sub-region might be difficult to estimate.

b) End-of-year rebate: based on actual peak usage. This rebate

could, for instance, be based on how often an embedded
generation customer produced its full MEC at system peak.

The design of an appropriate rebate for embedded generation must

consider a number of factors:

Firstly, the production of an embedded generator must be

consistent or reliable in order for it to help defer or avoid
network investment;

Secondly, this production should be at times of peak demand

on the affected facilities. If sites with embedded generators are
exporting, say, 80% of the time while importing at times of
peak, there are no savings in network investment vis-à-vis a
demand customer.

The problem of unpredictability of embedded generation exporting at

peak times would be eased by making the rebates on a time-
differentiated per-kWh basis.

b) Prepayment Domestic Customer Category

As discussed in section 2.5, the introduction and the availability of

prepayment metering, as has occurred in Northern Ireland and
Britain, will require either a new category for domestic customers or a
different standing charge to reflect the higher meter investment and
lower meter reading and bad debt costs associated with these meters.

In addition, modern prepayment meters are considered capable of

measuring usage at several intervals during the day – i.e. are capable
of measuring time-of-use. A prepayment tariff could have energy
charges (kWh) varying by peak, shoulder and off-peak.

The Commission has recently issued a consultation paper on this

issue and will review the role of prepayment metering over the next
year.

c) LV Customer 3-Phase/1-phase Sub-Categories

Low voltage customers pay tariffs on the basis of economic criteria

(business, domestic etc.) or on meter type (MFM or simple
electromechanical) regardless of whether they have a single-phase or
three-phase connection.

86
 The extra costs of supplying three-phase are primarily as a result of
the need for extra capacity. However, under the current tariff there is
no such differentiation.

As there is little reason why this cost should be shared, the

Commission therefore proposes the introduction of 3-phase and 1-
phase sub-categories.

The Commission invites comment on the alternative DUoS categories outlined

above.

4.4.3 DUoS Structural Components

As described in section 2.3 of this paper, the tariff components should reflect
the structure of the cost of service – i.e., costs that are fixed in nature
(metering costs and connection costs not recovered via connection charges)
should be collected through fixed charges, while variable costs such as those
caused by kWh use which in turn contribute to investment to cover system
use at certain times should be charged on a by-use basis.

4.4.3.1 Present DUoS Structural Components

Existing customer DUoS categories include some or all of the following types
of charges:

a) Fixed ‘Standing’ Charge based on Customer & Capacity Costs (DG5

and below)

This current standing charge includes customer or meter charges and

an implicit capacity charge for all general purpose or dual tariff
customers (DG5 or below), although it may be argued that such costs
are not accurately reflected in the tariffs.

b) Energy charge per kWh based on Demand-related Costs (All DGs

except Unmetered connections – DG4)

Under present structures, energy charges that recover costs that vary
with peak demand apply to all customer categories at different rates
and are time-differentiated (but not seasonally-differentiated) into
day/night periods for customers with Dual Tariff (day/night) meters,
maximum demand meters and MFM interval meters.

c) Explicit Capacity charge per kVA of MIC40

Larger customers with contracted (as opposed to deemed) MIC are

charged per kVA of MIC.

d) MIC penalty - when metered demand exceeds contracted MIC (DG6

and above)

40 Or MEC for Autoproducers with MEC>MIC

87
 Customers with contracted MIC pay a MIC penalty, in the event that
MIC is exceeded, to discourage breach of contracted MIC levels.
Metering in place measures maximum demand on a 15-minute basis.

e) Low (Reactive) power charge (per excess kVARh)

Larger customers with a low power factor are penalised as an

incentive to keep power factor above 0.95.

4.4.3.2 Alternative Structural Components

The Marginal Cost Study undertaken as part of the tariff structure review
identified potential alternative DUoS charges based on marginal costs. These
consist of the following:

a) Customer Charges based on Meter- and Service-related Costs (All

Categories)

As these occur on a customer-by-customer basis and do not relate to

the demand of the customer it is proposed that these should continue
to be recovered in the standing charge.

b) MIC-derived Capacity Charge based on Local Network Costs (All

Categories)

The study determined that local LV and single-phase MV networks41

are designed on the basis of aggregate MIC of customers – these do
not vary with peak demand. Therefore these costs are incurred on the
basis of design demand (MIC or MEC, whichever is the larger).

c) Time-Differentiated Energy kWh Charge based on 3-phase MV line,

38kV-MV substation, as well as Higher Voltage Costs (All Categories for
seasonal charging; All Categories with ToD metering for TOD charges)

Another premise of the study is that that networks above and

including 3-phase MV ‘trunk’ lines are built to cater for peak demand.
Therefore these charges would recover costs of investing in networks
to cater for peak and could be recovered either through time-
differentiated per kWh or per metered kW charges (depending on
metering). (See item (d) below)

Going forward, it is anticipated that all Low Voltage Maximum

Demand (LVMD) customers will have MFM meters, offline or on-line42.

41 Distribution facilities for commercial and industrial customers are generally designed on a
case-by-case basis, given the expected peak load of the customer. In short, the local
distribution system is designed based on the design load of the customers to be served, not
specifically on the number of customers or their actual loads at any given moment. We refer
to these costs as marginal distribution facilities costs, since the costs are both customer-
and (design) demand-related.
42 As stated in Section 2.5 almost all MV customers have on-line MFM or profile meters

capable of communicating meter data to the DSO via GSM. Those customers with off-line
MFM meters, i.e. those MFM meters that have to be read at the meter, are mainly installed
at LVMD customers’ premises.

88
 This means that all maximum demand customers will have MFM
metering capable of recording time-of-use kWh data43. In other words,
LVMD customers, indeed all maximum demand customers, may be
charged on the basis of kWh used at particular times of the day; e.g.,
that time-differentiated kWh charges levied say at peak, shoulder and
off-peak periods would have the same or a similar effect to charging
for capacity demanded at peak. Moreover, a time-differentiated per-
kWh charge would have an advantage in that it would measure more
time-periods than the two peak hours (17.00-19.00) measured at
present (in winter) by MD meters. In other words a time-differentiated
kWh should replace the MD charge.

d) Maximum Demand Related Charges (kW)

An alternative to per-kWh charges for demand-related costs would be

to charge on maximum kW demand. The disadvantages, however, are
that (i) the customer’s maximum demand may not coincide with the
most critical hours within the pricing period and (ii) once a customer
has reached what he/she expects to be the peak demand for the
month, there is little incentive to control demand because such
control will not reduce the bill.

e) MIC penalty - when metered demand exceeds contracted MIC (DG6 and
above)

MIC penalties, used to discourage customers from exceeding their

MIC and measured on the basis of MD, may continue.

The first alternative structure considered follows this marginal cost structure
(using per-kWh charges for substation and higher voltage costs). It must be
modified to fit the metering capability of some customer categories. Deemed
MIC can be used in place of a specific contracted MIC for customers without
MD meters. Seasonal energy and/or maximum demand charges can be used
for customers with no TOD capability. Customers whose meters can handle
only two day periods instead of the three used in the marginal cost study
can be charged energy charges that are recalculated for the two periods. This
alternative tracks cost causation most closely and would lead to the most
efficient DUoS tariffs.

Another alternative (shown in the table below) was considered. This second
alternative evaluated keeps the standing charge, but uses a different
combination of other charges, thereby sacrificing some efficiency of price
signal. Both alternatives were tested with two approaches to closing the
marginal cost revenue gap.

43 This would be subject to both the reconfiguration of existing MFM meters and the amount
of data an MFM can hold before being read – in cases where a meter reader must visit the
site this could be anything up to 13 months after the units are used.

89
Table 4.8: DUoS Alternatives

DUoS Base Structure Options

Seasonal and ToD Energy charge

DU 1: MIC charge
Standing charge Revenue Reconciliation Options
(a): Adjust usage charges only
(b): Adjust fixed charges only
Seasonal and ToD Energy charge
Seasonal and ToD Max D charge
DU 2:
MIC charge
Standing charge

For instance, a DUoS tariff structure, D-1 (a), would translate into a tariff,
based on marginal cost, with a time-of-use kWh charge, a fixed customer
charge, a fixed per kVA charge, with the difference between marginal revenue
and the revenue requirement accounted for by adjusting the time-of-use
kWh charge.

The Commission invites comment on the alternative DUOS structural

components outlined above.

4.4.3.3 Screening of DUoS Alternatives

Each of the alternatives used marginal costs as the basis for the charges.
Two approaches were used to close the marginal cost revenue gap: making
proportional reductions to standing and MIC (where they exist) charges; and
making equal adjustments to energy and maximum demand (where they
exist) charges. Adjusting the fixed charges is more efficient because it leaves
the charges related to usage closer to marginal cost. In cases where fixed
charges set above marginal cost would create unacceptable bill impacts on
small customers, adjustments to usage charges can be a second-best
solution. In the other approach, making comparable adjustments to all the
usage charges preserves the relative marginal costs for peak, shoulder and
off-peak hours and for the winter vs. summer seasons. Of course
combinations of adjustments to fixed and usage charges are also possible,
but were not tested for this study.

The table below shows the impact of the alternative structures and
alternative methods for closing the revenue gap on class revenue
requirements. Evaluation of selected alternatives’ effects on individual
customers is considered in the section on PES tariffs below. Revenue and
Customer impacts of the alternative tariffs are presented in the appendices.

90
Table 4.9: DUoS Alternatives – Bill Impacts by Category
D-1a D-1b D-2a D-2b
DUoS Customer Category Change Change Change Change
in Revenues in Revenues in Revenues in Revenues
By Class By Class By Class By Class
% % % %

DG1 Urban Domestic Customers

Standard Meter 18.3% 16.4% 14.5% 12.3%
Day & Night 32.4% 33.3% 25.9% 29.2%

DG2 Rural Domestic Customers

Standard Meter 2.5% 0.9% -0.7% -2.7%
Day & Night -28.2% -25.3% -33.3% -27.4%

DG3 Public Lighting 2.6% 3.4% -3.5% 0.2%

DG4 Unmetered Conenctions n/a n/a n/a n/a

Commercial and Industrial General

DG5 Purpose
Standard Meter 5.2% 3.6% 1.8% 0.0%
Day & Night -5.4% -4.7% -9.8% -7.9%

DG6 Low Voltage (Metered Demand) -28.7% -28.0% -13.8% -13.3%

DG7 Medium Voltage (Metered Demand) -9.8% -2.5% -5.9% -0.6%

DG8 & 9 38 kV (Metered Demand) -23.2% -8.0% 7.8% 26.2%

Figure 4.10: DUoS Alternatives: Bill Impacts by Category

40%

30%

20% D-1a
D-1b
10%
D-2a
0% D-2b

-10%

-20%

-30%

-40%
Ur Ur Ru Ru Pu LV LV LV MV 38
ba ba ral ra l b li C& C& M D MD kV
n Do nD Do Do cL I ID MD
me om me me ig h /N
sti est sti s ti tin
ic cD g
D/ /

Overall, resulting alternative DUoS revenues, when applied to current

customer categories, decline for most commercial categories, with LV Max
Demand revenues showing the greatest fall. It should noted that the decline
in rural domestic day/night tariffs and the corresponding increases in urban
domestic charges are mainly due to the use, for the sake of simplicity, of the
same per kVA figure as for urban and rural customers. In reality the kVA

91
marginal cost figure, and hence the kVA charge, for rural customers should
be higher (and lower for urban domestics) reflecting the larger network per
head required for rural customers.

4.4.3.4 Proposed Alternative

The Commission is of the view that an alternative should include an explicit

capacity charge per kVA of MIC. Customers are already paying such charges
(directly or indirectly) and recovering local facilities costs in usage charges
exaggerates the price signal applicable to marginal consumption or peak
demand.

Therefore there are merits in an alternative DUoS tariff structure for

customers with basic metering such as D1 (b) - Combination of Seasonal &
TOD Energy Charge (kWh) with flat (deemed) MIC Charge (with fixed
uplift).

This option provides clear signals to consumers as to the value of both

seasonal and peak time costs that they are ultimately imposing on the
system.

On balance any alternative tariff should also take full advantage of the time-
of-day capabilities of existing (or proposed) metering. Thus, all customers
with interval meters could face DUoS charges that are differentiated by time
of day as well as by season.

Time-differentiated per kWh charges give more efficient price signals than
time-differentiated maximum demand charges, and so the per kWh structure
for substation and higher voltage cost recovery should be preferred.

The Commission has a preference for a DUoS tariff that reflects the true
marginal cost structure and is of the view that the fixed charge adjustment
method for closing the revenue gap provides a better reflection of such an
approach. The alternative method might be appropriate if the revenue gap
required charging significantly more than marginal cost.

The Commission invites comment on the proposal outlined above.

92
5. PES SUPPLY

5.1 Introduction

As well as setting network tariffs, the Commission sets tariffs for the Public
Electricity Supplier (PES) on an annual basis. Regulation 31 of S.I. 445 of
2001 requires that the Commission set regulated supply tariffs for
customers of the ESB PES.

The Commission approves PES tariffs for various customer categories and
publishes these every October for application from January 1st the following
year. In so doing the Commission has to consider the impact that the level of
PES tariffs has on independent suppliers.

5.1.1 Role of PES

5.1.1.1 Current Role

The role of the PES at present is to operate as a Universal Service Provider.

The purpose of this role is to ensure that customers have all reasonable
requests for an electricity supply fulfilled by at least one supplier. The role of
universal service provider means that PES offers supply to customers on the
basis of a set of regulated tariffs.

In other countries, this role is fulfilled by former integrated monopolies. In

states where competition has been introduced for a number of years, such
as Britain, New Zealand and Australia to name a few, this obligation, in full
or in part, has fallen away as a result of the proliferation of supply offerings
available to customers.

Since initial market opening in 2000 this role of universal service provider
has applied to PES in its servicing of both eligible customers, customers by
law allowed to choose their electricity supplier, and franchise customers,
customers served by the ESB PES or by suppliers procuring energy from
renewable or CHP sources.

5.1.1.2 Future Role of PES (with Full Market Opening)

PES’ role as provider of a universal supply service is anticipated to continue

with full market opening when all customers will become eligible to choose
their electricity supplier.

As universal service provider, the tariff charged by the PES tariff will set the
benchmark against which other suppliers must compete. To this end the
PES tariff should be cost reflective and should reflect the underlying
transmission and distribution charging policy. This would have the effect of
facilitating retail competition, firstly, by increasing the transparency of the
cost inputs that make up the PES tariff, and secondly, by allowing for cost
reflectivity and recovery of costs caused by the use of a particular customer
category.

93
This policy translates into, on the one hand, maintaining the time-of-use and
other economic price signals that are inherent in the Transmission and
Distribution charges while, on the other hand, facilitating retail competition
from other suppliers vis-à-vis PES tariff offerings.

Overall, it is the view of the Commission that PES tariffs should be set at
levels and with structures that best achieve the objectives of the Commission
– facilitation of retail competition, encouragement of energy efficiency, the
pass-through of proper network and generation price signals, and the
protection of final customers.

94
5.2 PES Retail Revenue Requirement & Retail Marginal Costs

As with all suppliers, most costs faced by PES are ‘pass-through’ of DUoS,
TUoS and generation costs. In addition the Public Service Obligation (PSO)
levy, as well as capacity margin payments to ESB Power Generation, are
added to the PES tariff faced by customers.

Therefore the marginal costs of the PES business itself are made up of the
following:

PES Marginal Customer Cost;

PES Retail Margin

5.2.1 PES Marginal Retail Costs

5.2.1.1 Customer Costs

PES’ marginal customer-related supply costs consist of the costs that vary
with the number of customers on the system, independent of the customer’s
consumption. These include billing, revenue collection, customer service and
administrative costs, etc.

The Marginal Cost Study identified marginal customer-related expenses from

a detailed analysis of PES accounting data and assumed that appropriately
identified accounting costs would make a good proxy for marginal customer
expense. Each element of these accounts was assessed to determine if it is
likely to be marginal with respect to number of customers or load, and to
determine if it should be treated as a primary element of marginal cost or as
an overhead that is applicable to both marginal and non-marginal expense
categories.

PES writes off some bad debt each year. The study assumed that bad debt is
marginal with respect to revenue; i.e., as PES sells more or less service, its
bad debts will change proportionally.

5.2.1.2 PES Retail/ Supply Margin

Under Commission policy, PES is allowed a profit margin to mirror the

profits required by other suppliers to make them willing to enter the
electricity supply business in Ireland. The current formula for PES revenue
expresses this margin in terms of euros/MWh because the appropriate
margin is assumed to vary with the level of PES’ supply business. Thus the
margin was treated as a revenue-related marginal cost.

5.2.1.3 Summary of PES Marginal Costs

No marginal plant requirements were identified for PES, which has some
computer assets, but no significant expectation to invest in any further plant
and equipment. As a consequence, there is no capital component in the PES
marginal costs.

95
The table below summarises PES marginal customer-related and revenue-
related marginal costs:

Table 5.1 PES Customer & Revenue related Costs

M arginal
M onthly Cost R evenue-R elated
Tariff Category Per Custom er Cost
(2005 €) (% ) ^1
(1) (2)

-1 UrbD om Urban D om es tic 2.59 1.35%

-2 RurD om Rural D om estic 2.59 1.36%

-3 Com G PT Com m ercial G eneral Purpose 3.75 1.21%

-4 Ind G PT Industrial G eneral Purpose 3.75 1.21%

-5 PL Public Light 7.14 1.21%

-6 Com LVM D Com m ercial M D (LV) 11.07 1.21%

-7 Ind LVM D Industrial M D (LV) 11.07 1.21%

-8 Com 10kV Com m ercial M D 10 kV 11.07 1.21%

-9 Ind 10 kV Industrial M D 10kV 11.07 1.21%

-10 110kv M axim um D em and 110kV 11.07 1.21%

-11 38kV M axim um D em and 38 kV 11.07 1.21%

-12 CEU CEU 11.07 1.21%

Notes
1 Percent of Generation, TU oS, DU oS and other PES charges
Source:
PES M ARG INAL CO ST Study M arch 11 04.XLS.
Tab: PES M arginal Cost Allocation

5.2.1.4 PES Generation Costs

The Marginal Cost Study used as the basis for PES alternative tariffs uses a
forecast of generation prices that include estimates of VOLL (value of lost
load) and LOLP (loss-of-load probability) in the absence of a forecast of
market prices.

5.2.2 PES Revenue Requirement & Marginal Cost Revenue Gap

In an actual PES tariff review, the PES tariffs would be set to recover TUoS
and DUoS charges and generation costs, all of which would be marginal
costs for PES, on a pass-through basis. The only element of marginal cost
revenue gap would be the difference between PES’s own total costs and
marginal costs. As a result, there would be very little gap to close. For
purposes of analysing alternative PES tariff structures, we used the revenue
produced by the 2004 tariffs and the assumed billing determinants for 2005.
The current PES revenue requirement includes PES’ allowed generation
costs, which may be quite different from market prices PES will face in the
future. As there is no generation component specifically identified in each of

96
the PES tariffs, no adjustment for this mismatch was possible. In addition,
changes in TUoS and DUoS that would result from new policies for these
tariffs would change those elements of PES’ costs. Since the generation
component of PES revenue requirement is very uncertain, no effort was
made to modify the total PES revenue requirement assumed in the tariff
screening process.

In the development of the alternative PES tariffs, the difference between the
total PES revenue under current tariffs and the marginal cost revenue
(including marginal generation costs, TUoS charges and DUoS charges) was
spread proportionally to all tariffs and all tariff components to avoid
introducing a distortion that would affect the evaluation of the alternative
structures.

97
5.3 PES Tariffs

As stated above in section 5.1 above, the Commission is of the view that PES
tariff categories and structural components should reflect underlying DUoS
and TuoS tariff characteristics. Moreover PES tariffs should also reflect the
underlying costs of the relevant TUoS and DUoS categories, adjusted to
include generation costs, supply margin, supply costs and the PSO.44

5.3.1 Present PES Categories & Structure

5.3.1.1 Present Policy – Categories

Current PES tariff categories are divided by location (urban/rural), end use,
type of metering (standard, day/night, maximum demand/interval metering)
and voltage level. NightSaver service is optional for low voltage customers
with day/night meters but no demand meters. Urban domestic customers
without day/night meters pay the night price for energy used by night
storage heating devices on timers.

As a rule-of-thumb PES customer categories broadly follow underlying DUoS

customer categories. Categories in use at present are as follows:

Urban Domestic & Rural Domestic (Standard, Night Saver, Night

Storage)

These categories are based on the same criteria as the equivalent

DUoS customer categories. NightSaver tariffs apply to customers with
a Dual Tariff meter and measure day consumption between 08.00 and
23.00 in winter and 09.00 and 24.00 in summer (see section 2). Night
storage applies to customers who have electrical equipment that
stores electricity at night to use during the day.

As with DUoS, only domestic customers are charged based on a

rural/urban divide. The basis for the difference is the larger fixed
costs of rural network.

Residential Business Premises (Standard, Night Saver)

Residential Business charges are mixed premise-use customers and

therefore combine the application of both the domestic rate and the
commercial & industrial GP rate (below). At present, customers pay
for 1,500 units at domestic rate and the remainder of their 2-month
usage at the General Purpose business rate.

Commercial and Industrial General Purpose (Standard, Night Saver,

Night Storage) & Commercial and Industrial MD (LV)

PES Commercial & Industrial General Purpose tariffs apply to

customers in DUoS category DG5. PES Commercial & Industrial MD
tariffs apply to PES customers in DUoS category DG6.

44 Because the PSO would apply to all tariff alternatives, it has not been included in the
screening analysis.

98
 Maximum Demand (MV), Maximum Demand (38 kV) & Maximum
Demand (110 kV)

As the category titles suggest, PES customers connected above the LV

level are charged maximum demand charges.

Public Lighting and Unmetered Supplies

This category amalgamates DUoS categories DG3 and DG4 and

applies to unmetered connections such as public lights, kiosks,
shelters etc.

5.3.1.2 Present Policy – Structure

PES customers are billed customer charges, network demand-related (kW or

kWh) charges and network capacity (or MIC) charges, but the charges do not
always reflect underlying network costs that PES pays to TuoS, DUoS or the
market cost of generation. PES customers also pay for generation costs
(kWh) based on bulk power purchasing arrangements PES has with ESB
Power Generation and other contracted stations.

Currently PES charges do not mirror TUoS or DUoS charges. Any increment
in customer usage imposes a financial marginal cost to PES, reflected in the
TUoS and DUoS charges that PES is subject to. Therefore, PES charges
should mirror as close as possible the structure in TUoS and DUoS charges.
Currently, this is not the case for some categories. For example, DUoS DG6
(LV Non-Domestic Customers, Maximum Demand) are subject to a monthly
MIC charge, while the PES MD LV customers pay seasonally-differentiated
metered demand charges and load-factor based energy charges.

Where the supply tariff deviates from underlying cost structure is principally
in the following areas:

Energy Day/Night (kWh) charges

While the day rates of the day/night domestic DUoS tariffs (DG1 and
DG2) are higher than the unrestricted 24-hour domestic rate, the PES
domestic day rates are the same as the 24-hour rate. The equivalent
night rate for PES domestics is a fraction of the day rate. In addition,
the current TOD differentiation (day/night) in tariffs does not allow
customers to know in which hours their marginal usage imposes the
highest cost on generation, transmission and distribution systems; a
uniform average charge across 15 daily hours does not encourage
customers to make efficient electricity consumption decisions. Price
signals would improve with a clearer peak period definition.

Seasonal Differentiation

Seasonal differentiation (Winter/Summer) only applies to Maximum

Demand classes. No seasonal differentiation for the remaining
customers. Price signals would improve if the underlying differences
in the marginal costs of usage in Summer and Winter were reflected
in tariffs for all users.

99
 Maximum Demand Related Charges (kW) (LVMD and above)

Traditionally maximum demand charges have been applied to all PES

customers with MD meters for use at peak periods. This metered
demand acts as a proxy for any given customer’s contribution to peak
demand related investment. The problem with such a charge is that
once a customer breaches its normal MD, there is little incentive to
reduce usage at peak times.

Energy Block (kWh)

The PES applies an energy (kWh) block to General Purpose business

customers. This energy block is a declining block as the first 8,000
units used are charged a higher rate than all subsequent units. The
purpose of this energy block is to encourage customers to use more
units.

Capacity Block (kW)

The capacity block applies to Low Voltage Maximum Demand

customers and is based on the maximum capacity used by the
customer in any given 15 minutes between 17.00 and 19.00 in any
given month. This capacity block is charged on the basis of kWh per
kW maximum demand metered as described above.

5.3.2 Alternative PES Categories & Structure

5.3.2.1 Potential Alternatives – Categories

As discussed in section 2.4 there are many possibilities that may be

considered when designing supply categories. These possibilities include
alternative tariff categories for prepayment customers, embedded generation
and for LV customers based on connection type similar to those discussed in
section 4.4.2.1.

One of the impacts of the costing methodology employed during this review
is the resulting reflection of underlying costs of serving customers at a given
voltage level. As such, the differentiation between Domestics and General
Purpose customers for example may be reduced if the costs of serving these
customers are similar. This would in turn impact on the need for a
Residential Business Category.

Overall the Commission is satisfied with the number and nature of current
customer categories on offer.

The Commission invites comment on the continuation of existing PES customer

categories.

100
5.3.2.2 Potential Alternatives – Structure

As explained in previous sections on DUoS and TUoS, the marginal cost

study undertaken as part of the tariff structure review identified potential
alternative charges based on marginal costs. These should also apply to PES
tariffs as below:

a) Customer Charges (Costs based on customer numbers)

PES customers pay these at present. The fixed customer cost should
only reflect customer costs.

b) Capacity Charge (MIC Charge based on Local Network Costs)

This will require the introduction of deemed or actual capacity on all

customers including domestics and general purpose.

c) Time-Differentiated Energy (kWh) Charge

The Commission is of the view that costs that vary with usage would
be passed through as time-differentiated charges reflecting when they
occur. These should apply to network costs in the first instance. The
pass-through of generation costs will be considered during the
implementation phase of this review.

d) Maximum Demand Related Charges (kW)

Alternatively time-differentiated charges could be based on maximum

kW demand.

e) MIC penalty

The MIC penalty present in the DUoS ‘Maximum Demand’ charges

could also applied to PES MD tariffs.

f) Declining Energy & Capacity Blocks

The purpose of both blocks is to encourage efficient use of kWh units.

Therefore the introduction of efficiently priced time-differentiated
(kWh or kW) energy charges should remove the need for a capacity or
energy block in PES business charges.

Nevertheless as suggested in section 2, a declining or increasing

energy block may be used to reconcile marginal cost revenues with
the revenue requirement as such a block would not distort the
marginal price signal charged to customers.

g) Interruptible Tariff

In the first consultation paper of this review, the Commission put

forward proposals for an interruptible tariff. An interruptible tariff is a
tariff that has a price reflecting the ceiling value of the electricity to
the customer. If the price goes over a certain limit, the price is higher
than the value associated with it by the customer. Hence the supply

101
 can be reduced or foregone by the customer at these times. While this
issue is being addressed as part of the MAE as part of demand side
bidding, it should be noted that ESB PES tariffs are likely to include a
component of interruptible tariff to facilitate demand side bidding
options.

h) Mid Year Adjustment

In the first consultation paper of this review, the Commission put

forward proposals for PES tariff mid-year generation element
adjustments to reflect changes in MAE prices.

The Commission is of the view that, in order to foster competition, the

PES tariff level should be reviewed in line with typical contracts
issued by independent suppliers. This review did not look at mid-year
reviews of PES tariffs. A variation on mid-year reviews is to include an
index component in tariffs, e.g., a fuel or a market price index.
However this does present issues as to what extent a particular fuel’s
price change has affected PES generation costs/ index component.
This would allow ESB PES to pass through increases/ reductions in
fuel price within year. This has the added benefit of avoiding large
price correction transferring from one year to another, promoting
efficient demand response and encouraging retail competition. In
addition it would more accurately reflect the costs that independent
suppliers may face in the market.

The Commission invites comment on the alternative PES structural components

outlined above.

5.3.3 Screening of PES Alternatives

In developing alternative PES tariffs for screening, we started with PES

marginal cost components (including generation, transmission and
distribution, PES customer-related costs and PES revenue factor
adjustments). In the case of transmission and distribution costs, these are
simply the TUoS and DUoS charges which PES pays. Because of the large
number of TUoS and DUoS alternatives, only the most promising
combinations were screened quantitatively. The table below shows the TUoS
and DUoS combinations screened for each scenario.

102
Table 5.2: PES Alternatives

TUoS Base Structure Options DUoS Base Structure Options

Seasonal and ToD Energy charge

T1: Energy charge D-1: MIC charge

Market Participant Charge Standing charge DUoS Rev. Reconc. Options

(a): Adjust usage charges only
+
T4 Energy charge Seasonal and ToD Energy charge (b): Adjust fixed charges only

MIC charge Seasonal and ToD Max D charge

D-2:
Market Participant Charge MIC charge
Standing charge

Becau use the total PES revenue requirement used as a target for each set of
tariffs is not a precise figure, each PES marginal cost element was scaled up
proportionally to determine the charges under each combination of TUoS
and DUoS structures.

The series of charts below illustrate the effect of the alternative PES
structures on revenue allocation to the various customer categories. Also
shown in Appendix C is the share of the class’ revenue recovered in standing
charges, capacity charges, energy charges, etc. All of the computations
ignore PSO costs, which are common to all tariff structures. The specific
charges that make up the illustrative tariffs are shown below.

Table 5.3: PES Category Revenue Impacts – Options D1 and D2

combined with T1
T-A1 & D-1a T-A1 & D-1b T-A1 & D-2a T-A1 & D-2b
PES Cust om er Category Change Change Change Change
in Revenues in Revenues in Revenues in Revenues
By Class By Class By Class By Class
% % % %

Urban Do mestic Customers

Standard Tarif f 6.0% 5.5% 5.3% 4.0%
Nightsaver Tariff 25.4% 25.8% 24.1% 24.3%

Rura l D omestic Customers

Standard Tariff 0.7% 0.2% 0.1% -1.3%
Nightsaver Tariff -4.3% -3.4% -12.5% -4.0%

Commercial and Industrial General

Purpose
Standard Tarif f -8.1% -8.6% -8.7% -10.1%
Nightsaver Tariff -1.1% -1.1% -7.5% -1.8%

Public Lig hting 193.7% 198.0% 189.1% 196.1%

Maximum Demand (MD)

MD Low Voltage -10.9% -10.6% -6.3% -6.9%

MD M edium Voltage -5.0% -4.1% -0.6% -0.4%

MD 38 kV -7.6% -6.1% -4.7% -3.7%

MD 110 k V -3.2% -1.8% 0.8% 2.0%

103
Figure 5.1 PES Category Revenue Impacts – Options D1 and D2
combined with T1
30%
25%
20%
15% T-A1&D-1a
T-A1&D-1b
10%
T-A1&D-2a
5% T-A1&D-2b
0%
-5%
-10%
-15%

38

11
U

LV
ur

ur

&

&
rb

rb

0
M
IG

IG

kV
an

an

al

al

kV
D

D
P

P
D

M
D

M
om

om

D
om

om

ig

D
es

es

ht
es

es

tic

Sa
tic

N
N

ig
ig

h
h

Table 5.4: PES Category Revenue Impacts – Options D1 and D2

combined with T4
T-A4 & D-1a T-A4 & D-1b T-A4 & D-2a T-A4 & D-2b
PES Customer Category Change Change Change Change
in Revenues in Revenues in Revenues in Revenues
By Class By Class By Class By Class
% % % %

Ur ban Domestic Customers

Standard Tariff 6.8% 6.3% 5.4% 4.8%
Nightsaver Tariff 24.5% 25.1% 22.7% 23.8%

Rural Domestic Customers

Standard Tariff 1.4% 0.9% 0.1% -0.5%
Nightsaver Tariff -6.0% -4.9% -7.5% -5.7%

Commercial and Industrial General

Purpose
Standard Tariff -7.1% -7.6% -8.3% -9.0%
Nightsaver Tariff -0.8% -0.6% -2.1% -1.9%

Pu blic Lighting 188.1% 192.3% 181.5% 190.6%

Ma ximum Demand (MD)

MD Low Voltage -11.8% -11.5% -7.8% -7.7%

MD Medium Voltage -5.8% -4.9% -2.1% -1.2%

MD 38 kV -10.6% -9.2% -8.4% -6.7%

MD 110 kV -6.2% -4.8% -2.9% -1.0%

104
Figure 5.2 PES Category Revenue Impacts – Options D1 and D2
combined with T4
30%
25%
20%
15% T-A4&D-1a
T-A4&D-1b
10%
T-A4&D-2a
5%
T-A4&D-2b
0%
-5%
-10%
-15%

38

11
U

LV
ur

ur

&

&
rb

rb

0
M
IG

IG

kV
an

an

al

al

kV
D

D
P

P
D

M
D

M
om

om

D
om

om

ig

D
es

es

ht
es

es

tic

Sa
tic

N
N

ig
ig

ht
h

Overall, PES revenues, reflecting DUoS revenues somewhat, decline for low
voltage (LV) commercial categories, with LV Max Demand revenues showing
the greatest fall. It should noted that the decline in rural domestic day/night
tariffs and the corresponding increases in urban domestic charges are
mainly due to the use, for the sake of simplicity, of the same per kVA
marginal cost figure as for urban and rural customers. In reality the kVA
marginal cost, and hence the kVA charge, for rural customers should be
higher (and lower for urban domestics) reflecting the larger network per head
required for rural customers.

The Commission invites comment on the above results.

105
6. TARIFF STRUCTURE IMPLEMENTATION PROCESS

Over the next number of months the Commission will publish a draft
decision on tariffs and will subsequently look at how best to implement this
decision.

The implementation phase of the review, and the speed at which the
implementation takes place, will be guided by the potential impacts that the
alternative tariff structures proposed in this paper will have on all customer
categories.

In this light the Commission will be publishing an implementation plan in

later in 2004 and will discuss which new structures will be applied, if any,
from January 2005 and which will be applied a year later for 2006.

The timetable for alternatives proposed in this paper is:

End June: Consultation Paper

End July: Consultation Deadline & Receipt of Comments
Mid-August:
- Draft Decision on Alternative Tariff Structures
- Publication of Comments
- Publication of Implementation Plan

106
 APPENDICES – CONTENTS

The tables and figures presented here further demonstrate the results of
screening of distribution and PES supply alternative tariffs described in the
main document. For the purpose of comparison existing tariffs are also
included. However, caution should be taken when comparing existing tariffs
with alternatives screened as the costing methodology, cost components and
time periods differ entirely.

The following information is contained below:

A. DUoS existing & alternative tariffs structure Components;

B. PES existing & alternative tariff structural components;
C. Annual PES revenues by revenues by customer category under
existing & alternative tariffs;

It should be noted that the alternatives tariffs presented here are illustrative,
and the resulting bill impacts are only approximate. More detailed analysis is
required if tariffs are actually set on these models. This analysis will be
undertaken during the implementation stage of this review.

107
 APPENDIX A: DUoS – EXISTING & ALTERNATIVE TARIFF
STRUCTURAL COMPONENTS

The tables below show the DUoS charges for Options D1 (a) and D1(b), also
shown in the main body of the text, as well as Options D2 (a) and D2 (b).

Table 1: DUoS Summary of Alternatives

DUoS Base Structure Options

Seasonal and ToD Energy charge

DU 1: MIC charge
Standing charge Revenue Reconciliation Options
(a): Adjust usage charges only
(b): Adjust fixed charges only
Seasonal and ToD Energy charge
Seasonal and ToD Max D charge
DU 2:
MIC charge
Standing charge

108
Table 2: DUoS Existing Structural Components
Existing Com ponents Ex isting T ariff
T ariff
C ategory
D G -1 Custo m er S tan din g C h arge 24h r 3.41
(Urban (€ /m onth) Standin g C harge Peak/O ff- 3.96
D om estic) Cap acity kV A (M IC)

(€ /k V A)

Energy 24-h our 2.792

(€ /k Wh) D ay 3 .424
N ight 0.438
D G -2 (R u ral Custo m er S tan din g C h arge 24h r 5.48
D om e stic) (€ /m onth) S tandin g C harge Peak/O ff- 6.01
Cap acity kV A (M IC)
(€ /k V A)
(€ /k V A) 24-h our 2.792
D ay 3.424
N ight 0.438
D G -3 (€ /k V A) Flat 2.628
(Pu blic
Lighting)
D G -4 Custo m er S tandin g C h arge 268.27
D G -5 (LV Custo m er S tandin g C h arge 6.08
non-M D ) Standing C h arge Peak/O ff- 6.80
Peak (D /N)
Cap acity kV A (M IC)
Energy (k Wh) 24-h our 3.465
D ay 4.052
N ight 0.496
O ther Low Pow er Factor 0.765

D G -6 to D G -9
Existing Com ponents Ex isting T ariff
T ariff
C ategory
D G –6 (LV Custom er Standing Charge 58.27
M D) Cap acity kV A (M IC) 2.18
Energy (kWh) D ay 2.062
N ight 2.400
O ther Low Pow er Factor 0.699
D G –7 (M V Custom er Standing Charge 185.84
M D) Cap acity kV A (M IC) 1.36
Energy (kWh) D ay 0.648
N ight 0.096
O ther Low Pow er Factor 0.616
D G –8 & Custom er Standing C harge (Looped) 3,155
D G 9 (38 k V ) Standing C harge (Tailed) 887
Cap acity kV A (M IC) 0.67
Energy (kWh) D ay 0.141
N ight 0.010
O ther Low Pow er Factor 0.616

109
Table 3 (Non-MD & MD): DUoS Alternative D1
DG-1 to DG-5
Alternative Tariff
D-1
Existing Components Usage Charge Fixed Charge
Tariff Adjusted Adjusted
Category D-1(a) D-1(b)
DG -1 (Urban Customer Standing Charge 24hr 2.46 2.33
Domestic) (€/month)
Standing Charge Peak/Off- 2.90 2.75
Peak
Capacity kVA (MIC) 3.14 2.98
(€/kVA)
Energy WINTER Flat (St. meter) 1.12 1.26
(cent/kWh)
Peak 5.91 6.13
Off-Peak 0.25 0.40

SUMMER Flat (St. meter) 0.05 0.19

Peak 0.31 0.47
Off-Peak 0.00 0.14

DG -2 (Rural Customer Standing Charge 24hr 3.00 2.85

Domestic) (€/month)
Standing Charge Peak/Off- 3.80 3.61
Peak (D/N)
Capacity kVA (MIC) 3.14 2.98
(€/kVA)
Energy WINTER Flat (St. meter) 1.12 1.26
(cent/kWh)
Peak 5.91 6.13
Off-Peak 0.25 0.4

SUMMER Flat (St. meter) 0.05 0.19

Peak 0.31 0.47

Off-Peak 0.00 0.14

DG -3 (Public Customer Standing Charge 1.70 1.61

Lighting) (€/month)
Capacity kVA (MIC) 1.77 2.98
(€/kVA)
Energy WINTER Seasonal 1.12 1.26
(cent/kWh) SUMMER Seasonal 0.05 0.19
DG -5 (LV non- Customer Standing Charge 5.16 4.89
MD) (€/month)
Standing Charge Peak/Off- 6.36 6.03
Peak (D/N)
Capacity kVA (MIC) 3.14 2.98
(€/kVA)
Energy WINTER Flat 1.12 1.26
(cent/kWh)

Peak 5.99 6.13

Off-Peak 0.27 0.4
SUMMER Flat 0.05 0.19
Peak 0.33 0.47
Off-Peak 0.00 0.14

110
DG-6 to DG-9
Alternative Tariff
D-1
Existing Components Usage Charge Fixed Charge
Tariff Adjusted Adjusted
Category D-1(a) D-1(b)
DG –6 (LV MD) Customer Standing Charge 28.85 27.37
(€/month)
Capacity kVA (MIC) 3.14 2.98
(€/kVA)
Energy WINTER Peak 8.98 9.12
(cent/kWh) Shoulder 0.74
0.60
Off-Peak 0.21 0.34
SUMMER
Shoulder 0.33 0.47
Off-Peak 0.00 0.01
DG –7 (MV MD) Customer Standing Charge 28.35 27.37
Capacity kVA (MIC) 1.23 1.17
Energy WINTER Peak 8.53 8.67
(cent/kWh) Shoulder 0.57 0.71

Off-Peak 0.19 0.33

SUMMER
Shoulder 0.31 0.45
Off-Peak 0.00 0.01
DG –8 & DG9 Customer Standing Charge 72.19 68.5
(38 kV) Capacity kVA (MIC) 0.53 0.50
(€/kVA)
Energy WINTER Peak 6.25 6.39
(cent/kWh) Shoulder 0.23 0.37

Off-Peak 0.00 0.14

SUMMER
Shoulder 0.05 0.19
Off-Peak 0.00 0.00

111
Table 4 (Non-MD & MD): DUoS Alternative D2
DG-1 to DG-5
Alternative Tariff
D-2
Existing Components Usage Charges Fixed Charge
Tariff Adjusted Adjusted
Category D-2(a) D-2(b)
DG -1 (Urban Customer Standing Charge 24hr 2.46 2.24
Domestic) (€/month)
Standing Charge Peak/Off- 2.90 2.64
Peak
Capacity kVA (MIC) 3.14 2.86
(€/kVA)
Energy WINTER Flat (St. meter) 0.82 1.26
(cent/kWh) Peak 5.60 6.13
Off-Peak 0.00 0.40

SUMMER Flat (St. meter) 0.00 0.19

Peak 0.00 0.47

Off-Peak 0.00 0.14

DG -2 (Rural Customer Standing Charge 24hr 3.00 2.73

Domestic) (€/month)
Standing Charge Peak/Off- 3.80 3.46
Peak (D/N)

Capacity kVA (MIC) 3.14 2.86

(€/kVA)
Energy WINTER Flat (St. meter) 0.82 1.26
(cent/kWh) Peak 5.60 6.13
Off-Peak 0.00 0.40

SUMMER Flat (St. meter) 0.00 0.19

Peak 0.00 0.47

Off-Peak 0.00 0.14

DG -3 (Public Customer Standing Charge 1.70 1.55

Lighting) (€/month)
Capacity kVA (MIC) 1.77 2.86
(€/kVA)
Energy WINTER Seasonal 0.82 1.26
(cent/kWh) SUMMER Seasonal 0.00 0.19

DG -5 (LV non- Customer Standing Charge 5.16 4.69

MD) (€/month)
Standing Charge Peak/Off- 6.36 5.79
Peak (D/N)
Capacity kVA (MIC) 3.14 2.86
(€/kVA)
Energy WINTER Flat 0.82 1.26
(cent/kWh) Peak 5.69 6.13
Off-Peak 0.00 0.40
SUMMER Flat 0.00 0.19

Shoulder 0.02 0.47

Off-Peak 0.00 0.14

112
DG-6 to DG-9
Alternative Tariff

D-2
Existing Components Usage Charge Fixed Charge
Tariff Adjusted Adjusted
Category D-2(a) D-2(b)
DG –6 (LV MD) Customer Standing Charge 28.85 26.26
(€/month)
Capacity kVA (MIC) 3.14 2.86
(€/kVA)
Energy WINTER Peak 0.00 0.00
(cent/kWh) Shoulder 0.00 0.00
Off-Peak 0.00 0.00
SUMMER
Shoulder 0.00 0.00
Off-Peak 0.00 0.00
Max Demand WINTER Peak 5.59 5.88
(€/kW) Shoulder 1.46 1.75
Off-Peak 1.15 1.44
SUMMER
Shoulder 1.05 1.34
Off-Peak 0.00 0.06
DG –7 (MV MD) Customer Standing Charge 28.35 25.81
(€/month)
Capacity kVA (MIC) 1.23 1.12
(€/kVA)
Energy WINTER Peak 0.00 0.00
(cent/kWh) Shoulder 0.00 0.00
Off-Peak 0.00 0.00
SUMMER
Shoulder 0.00 0.00
Off-Peak 0.00 0.00
Max Demand WINTER Peak 5.30 5.59
(€/kW) Shoulder 1.38 1.67
Off-Peak 1.08 1.37
SUMMER
Shoulder 0.99 1.28
Off-Peak 0.00 0.05
DG –8 & DG9 Customer Standing Charge 72.19 65.71
(38 kV) (€/month)
Capacity kVA (MIC) 0.53 0.48
(€/kVA)
Energy WINTER Peak 0.00 0.00
(cent/kWh) Shoulder 0.00 0.00
Off-Peak 0.00 0.00
SUMMER

Shoulder 0.00 0.00

Off-Peak 0.00 0.00
Max Demand WINTER Peak 3.83 4.12
(€/kW) Shoulder 0.59 0.88
Off-Peak 0.29 0.58
SUMMER
Shoulder 0.25 0.54
Off-Peak 0.00 0.02

113
 APPENDIX B: PES – EXISTING & ALTERNATIVE TARIFF
STRUCTURAL COMPONENTS

Existing and alternative PES tariffs are presented in this section. PES tariffs
combine TUoS, DUoS, supply charges as well as PES generation costs. The
table below shows all the alternative PES tariffs tested.

It should be noted that while existing components are listed here, no direct
comparison should be made with alternatives due to the fact that time
periods as well tariff structural components are entirely different.

Table 1: PES Summary of Alternatives

TUoS Base Structure Options DUoS Base Structure Options

Seasonal and ToD Energy charge

T1: Energy charge D-1: MIC charge

Market Participant Charge Standing charge DUoS Rev. Reconc. Options

(a): Adjust usage charges only
+
T4 Energy charge Seasonal and ToD Energy charge (b): Adjust fixed charges only

MIC charge Seasonal and ToD Max D charge

D-2:
Market Participant Charge MIC charge
Standing charge

The overall revenue impacts of alternative tariffs are documented and

illustrated in Section 5.3.3 of the main document. Transmission options T2
and T3 are screened in Section 3 on transmission charges and tariffs.

****It should be noted that kVA figures are per month and refer to deemed
facilities cost rather than contracted customer MIC****.

114
Table 2: Existing PES Tariff Components
Existing Components Existing
Tariff Tariff
Category
Urban Customer Standing Charge 24hr 6.44
Domestic (€/month) Standing Charge Nightsaver 16.26
Energy 24-hour 11.07
(cent/kWh) Day 11.07
Night 4.90
Rural Customer Standing Charge 24hr 11.76
Domestic (€/month) Standing Charge Nightsaver 23.22
Energy 24-hour 11.07
(cent/kWh) Day 11.07
Night 4.90
Commercial & Customer Standing Charge 24hr 15.76
Industrial (€/month) Standing Charge Nightsaver 20.17
Energy 24 hour First 8000kWh/2 mths 12.97
(cent/kWh) Remaining Units 11.05
Day Unit First 8000kWh/2 mths 13.81
Remaining Units 11.05
Night 4.90

Maximum Demand Customers

Existing Components Existing
Tariff Tariff
Category
MD LV Customer
Standing Charge 24hr 145
(€/month)
Service kVA (MIC) 4.35
Capacity (€/per
kVA of MIC)
Demand Charge WINTER € 6.70
SUMMER € 5.60
Energy WINTER Day Unit Rate 1 st 11.17
(cent/kWh) 350kWh per kW of MD
per Winter period (2
months)
Balance of kWh per 7.26
Winter period (2 months)

SUMMER Day Unit Rate 1 st 10.02

350kWh per kW of MD
per Summer period (2
months)
Balance of kWh per 6.86
Summer period (2
months)
Night unit rates 4.60

115
Table 3: PES Alternative T1 D1
Non-Maximum Demand Customers
Alternative Tariff
T-1 D-1
Existing Components Usage Fixed Charge
Tariff Adjusted Adjusted
Category T-1 D-1a T-1 D-1b
Urban Customer
Domestic (€/month) Standing Charge 24hr
5.12 5.00
Standing Charge Nightsaver
5.57 5.43
Capacity kVA (MIC) 3.18 3.03
(€/kVA)
Energy WINTER Flat (St. meter) 0.11 0.12
(cent/kWh) Peak 0.32 0.33
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.05 0.06

Peak 0.08 0.08
Off-Peak 0.05 0.05

Rural Customer
Domestic (€/month) Standing Charge 24hr
5.67 5.52

Standing Charge Nightsaver

6.48 6.29
Capacity kVA (MIC) 3.18 3.03
(€/kVA)
Energy WINTER Flat (St. meter) 0.12 0.12
(cent/kWh)
Peak 0.32 0.33
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.06 0.06

Peak 0.08 0.08
Off-Peak 0.05 0.05
Commercial & Customer Standing Charge 24hr 9.01 8.76
Industrial (€/month)
Standing Charge Nightsaver
10.23 9.92
Capacity kVA (MIC) 3.18 3.02
(€/kVA)
Energy WINTER Flat (St. meter) 0.10 0.11
(cent/kWh) Peak 0.32 0.33
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.06 0.06

Peak 0.08 0.08
Off-Peak 0.05 0.05

116
Maximum Demand Customers
Alternative Tariff
T-1 D-1
Existing Components Usage Fixed Charge
Tariff Adjusted Adjusted
Category T-1 D-1a T-1 D-1b
MD LV Customer
Standing Charge 24hr
(€/month) 40.40 38.98
Capacity kVA (MIC) 3.18 3.02
(€/kVA)
Energy WINTER Peak 0.43 0.43
(cent/kWh) Shoulder 0.11 0.11
Off-Peak 0.04 0.05

SUMMER Shoulder 0.08 0.08

Off-Peak 0.04 0.04
0.00 0.00
MD MV Customer
(€/month) Standing Charge 24hr
39.89 38.50
Capacity kVA (MIC) 1.24 1.18
(€/kVA)
Energy WINTER Peak 0.41 0.41
(cent/kWh) Shoulder 0.11 0.11
Off-Peak 0.04 0.04

SUMMER Shoulder 0.08 0.08

Off-Peak 0.03 0.03

MD 38kV Customer
Standing Charge 24hr
(€/month) 84.26 80.68
Capacity kVA (MIC) 0.53 0.51
(€/kVA)
Energy WINTER Peak 0.38 0.38
(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.07 0.07

Off-Peak 0.03 0.03

MD 110kV Customer
(€/month) Standing Charge 24hr
84.26 80.68
Capacity kVA (MIC) 0.53 0.51
(€/kVA) 0.00 0.00
Energy WINTER Peak 0.37 0.37
(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.07 0.07

Off-Peak 0.03 0.03

117
Table 4: PES Alternative T1 D2
Non-Maximum Demand Customers
Alternative Tariff
T-1 D-2
Existing Components Usage Charges Fixed Charge
Tariff Adjusted Adjusted
Category T-1 D-2a T-1 D-2b
Urban Customer
Domestic (€/month) Standing Charge 24hr
5.15 4.90

Standing Charge Nightsaver

5.60 5.30
Capacity kVA (MIC) 3.20 2.90
(€/kVA)
Energy WINTER Flat (St. meter) 0.11 0.12
(cent/kWh) Peak 0.32 0.33
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.05 0.06

Peak 0.07 0.08
Off-Peak 0.05 0.05

Rural Customer
Domestic (€/month) Standing Charge 24hr
5.70 5.40

Standing Charge Nightsaver

6.52 6.13
Capacity kVA (MIC) 3.20 2.90
(€/kVA)
Energy WINTER Flat (St. meter) 0.11 0.12
(cent/kWh)
Peak 0.23 0.28
Off-Peak 0.06 0.07

SUMMER Flat (St. meter) 0.06 0.06

Peak 0.07 0.08
Off-Peak 0.05 0.05
Commercial & Customer Standing Charge 24hr 9.06 8.54
Industrial (€/month)
Standing Charge Nightsaver
10.29 9.65
Capacity kVA (MIC) 3.20 2.89
(€/kVA)
Energy WINTER Flat (St. meter) 0.10 0.11
(cent/kWh) Peak 0.23 0.28
Off-Peak 0.06 0.07

SUMMER Flat (St. meter) 0.06 0.06

Peak 0.07 0.08
Off-Peak 0.05 0.05

118
Maximum Demand Customers
Alternative Tariff
T-1 D-2
Existing Components Usage Charges Fixed Charge
Tariff Adjusted Adjusted
Category T-1 D-2a T-1 D-2b
MD LV Customer
Standing Charge 24hr
(€/month) 40.64 37.78

Capacity (€/kVA) kVA (MIC)

3.20 2.89
Energy WINTER Peak 0.34 0.34
(cent/kWh) Shoulder 0.11 0.11
Off-Peak 0.04 0.04

SUMMER Shoulder 0.08 0.08

Off-Peak 0.04 0.04
Max Demand WINTER Peak 5.70 5.95
(€/kW) Shoulder 1.49 1.77
Off-Peak 1.18 1.46

SUMMER Shoulder 1.07 1.36

Off-Peak 0.00 0.06

MD MV Customer
Standing Charge 24hr 40.13 37.31
(€/month)
Capacity (€/kVA) kVA (MIC)
1.25 1.13
Energy WINTER Peak 0.32 0.32
(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.08 0.07

Off-Peak 0.03 0.03

Max Demand WINTER Peak 5.40 5.66

(€/kW) Shoulder 1.41 1.69
Off-Peak 1.10 1.39
SUMMER Shoulder 1.01 1.30
Off-Peak 0.00 0.05
MD 38kV Customer
Standing Charge 24hr
(€/month) 84.76 77.70
Capacity (€/kVA) kVA (MIC)
0.54 0.49

Energy WINTER Peak 0.32 0.31

(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.07 0.07

Off-Peak 0.03 0.03
Max Demand WINTER Peak 3.90 4.17
(€/kW) Shoulder 0.60 0.89
Off-Peak 0.30 0.59
SUMMER Shoulder 0.26 0.55
Off-Peak 0.00 0.02

119
MD 110kV Customer
Standing Charge 24hr
(€/month) 84.76 77.70
Capacity (€/kVA) kVA (MIC) 0.54 0.49
Energy WINTER Peak 0.31 0.30
(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.07 0.07

Off-Peak 0.03 0.03
Max Demand WINTER Peak 3.90 4.17
(€/kW) Shoulder 0.60 0.89
Off-Peak 0.30 0.59
SUMMER Shoulder 0.26 0.55
Off-Peak 0.00 0.02

120
Table 5: PES Alternative T4 D1
Non-Maximum Demand Customers
Alternative Tariff
T-4 D-1
Existing Components Usage Charges Fixed Charge
Tariff Adjusted Adjusted
Category T-4 D-1a T-4 D-1b
Urban Customer
Domestic (€/month) Standing Charge 24hr
5.10 4.98
Standing Charge Nightsaver
5.55 5.40
Capacity kVA (MIC) 3.50 3.34
(€/kVA)
Energy WINTER Flat (St. meter) 0.11 0.11
(cent/kWh)
Peak 0.31 0.32
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.05 0.05

Peak 0.08 0.08
Off-Peak 0.05 0.05

Rural Customer
Domestic (€/month) Standing Charge 24hr
5.65 5.50

Standing Charge Nightsaver

6.45 6.27
Capacity kVA (MIC) 3.50 3.34
(€/kVA)
Energy WINTER Flat (St. meter) 0.11 0.11
(cent/kWh)
Peak 0.31 0.32
Off-Peak 0.06 0.06
SUMMER Flat (St. meter) 0.05 0.05
Peak 0.08 0.08
Off-Peak 0.05 0.05
Commercial & Customer Standing Charge 24hr 8.98 8.72
Industrial (€/month)
Standing Charge Nightsaver
10.19 9.88
Capacity kVA (MIC) 3.49 3.33
(€/kVA)
Energy WINTER Flat (St. meter) 0.10 0.10
(cent/kWh) Peak 0.31 0.32
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.06 0.06

Peak 0.07 0.08
Off-Peak 0.05 0.05

121
Maximum Demand Customers
Alternative Tariff
T-4 D-1
Existing Components Usage Charges Fixed Charge
Tariff Adjusted Adjusted
Category T-4 D-1a T-4 D-1b
MD LV Customer
Standing Charge 24hr
(€/month) 40.24 38.81
Capacity kVA (MIC) 3.49 3.33
(€/kVA)
Energy WINTER Peak 0.42 0.43
(cent/kWh) Shoulder 0.11 0.11
Off-Peak 0.04 0.04

SUMMER Shoulder 0.08 0.08

Off-Peak 0.03 0.03

MD MV Customer
(€/month) Standing Charge 24hr
39.74 38.34
Capacity kVA (MIC) 1.55 1.48
(€/kVA)
Energy WINTER Peak 0.40 0.40
(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.08 0.08

Off-Peak 0.03 0.03

MD 38kV Customer
Standing Charge 24hr
(€/month) 83.93 80.34
Capacity kVA (MIC) 0.84 0.81
(€/kVA)
Energy WINTER Peak 0.37 0.37
(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.07 0.07

Off-Peak 0.03 0.03

MD 110kV Customer
(€/month) Standing Charge 24hr
83.93 80.34
Capacity kVA (MIC) 0.81 0.79
(€/kVA)
Energy WINTER Peak 0.36 0.37
(cent/kWh) Shoulder 0.09 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.07 0.07

Off-Peak 0.03 0.03

122
Table 6: PES Alternative T4 D2
Non-Maximum Demand Customers
Alternative Tariff
T-4 D-2
Existing Tariff Components Usage Charges Fixed Charge
Category Adjusted Adjusted
T-4 D-2a T-4 D-2b
Urban Domestic Customer
(€/month) Standing Charge 24hr
5.09 4.88
Standing Charge Nightsaver 5.54 5.28
Capacity kVA (MIC) 3.49 3.21
(€/kVA)
Energy WINTER Flat (St. meter) 0.11 0.11
(cent/kWh)
Peak 0.31 0.32
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.05 0.05

Peak 0.07 0.08
Off-Peak 0.05 0.05
Rural Domestic Customer
(€/month) Standing Charge 24hr
5.64 5.38
Standing Charge Nightsaver
6.45 6.11
Capacity kVA (MIC) 3.49 3.21
(€/kVA)
Energy WINTER Flat (St. meter) 0.11 0.11
(cent/kWh)
Peak 0.31 0.32
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.05 0.05

Peak 0.07 0.08
Off-Peak 0.05 0.05
Commercial & Customer
Standing Charge 24hr
Industrial (€/month) 8.96 8.51
Standing Charge Nightsaver
10.18 9.62
Capacity kVA (MIC) 3.49 3.21
(€/kVA)
Energy WINTER Flat (St. meter) 0.10 0.10
(cent/kWh) Peak 0.31 0.32
Off-Peak 0.06 0.06

SUMMER Flat (St. meter) 0.05 0.06

Peak 0.07 0.08
Off-Peak 0.05 0.05

123
Maximum Demand Customers
Alternative Tariff
T-4 D-2
Existing Tariff Components Usage Charges Fixed Charge
Category Adjusted Adjusted
T-4 D-2a T-4 D-2b
MD LV Customer
Standing Charge 24hr 40.19 37.64
(€/month)
Capacity
kVA (MIC) 3.49 3.21
(€/kVA)
Energy WINTER Peak 0.33 0.33
(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.08 0.08

Off-Peak 0.03 0.03
Max Demand WINTER Peak 5.63 5.93
(€/kW) Shoulder 1.47 1.76
Off-Peak 1.16 1.45
SUMMER Shoulder 1.06 1.35
Off-Peak 0.00 0.06

MD MV Customer
Standing Charge 24hr
(€/month) 39.69 37.18
Capacity kVA (MIC)
(€/kVA) 1.54 1.43
Energy WINTER Peak 0.32 0.32
(cent/kWh) Shoulder 0.10 0.10
Off-Peak 0.04 0.04

SUMMER Shoulder 0.07 0.07

Off-Peak 0.03 0.03
Max Demand WINTER Peak 5.34 5.64
(€/kW) Shoulder 1.39 1.68
Off-Peak 1.09 1.38
SUMMER Shoulder 1.00 1.29
Off-Peak 0.00 0.05
MD 38kV Customer
Standing Charge 24hr
(€/month) 83.83 77.41
Capacity kVA (MIC)
(€/kVA) 0.84 0.79
Energy WINTER Peak 0.31 0.31
(cent/kWh) Shoulder 0.09 0.09
Off-Peak 0.04 0.04

SUMMER Shoulder 0.07 0.07

Off-Peak 0.03 0.03
Max Demand WINTER Peak 3.86 4.15
(€/kW) Shoulder 0.60 0.89
Off-Peak 0.30 0.58
SUMMER Shoulder 0.26 0.54
Off-Peak 0.00 0.02

124
MD 110kV Customer
Standing Charge 24hr 83.83 77.41
(€/month)
Capacity kVA (MIC)
(€/kVA) 0.81 0.77
Energy WINTER Peak 0.30 0.30
(cent/kWh) Shoulder 0.09 0.09
Off-Peak 0.04 0.04
SUMMER Shoulder 0.07 0.07
Off-Peak 0.03 0.03
Max Demand WINTER Peak 3.86 4.15
(€/kW) Shoulder 0.60 0.89
Off-Peak 0.30 0.58
SUMMER Shoulder 0.26 0.54
Off-Peak 0.00 0.02

125
APPENDIX C: ANNUAL PES REVENUES BY CUSTOMER CATEGORY
UNDER EXISTING AND ALTERNATIVE TARIFF STRUCTURES

The bar charts below show the composition of the annual revenues in terms
of tariff components for selected PES tariffs using TUoS option T4 (see
section 3 of the paper). Note that the segment of the bars labelled “revenue”
is the portion of PES costs recovered on the basis of revenue.

Note also that the diagrams are scaled to denote actual revenue changes and
not percentage changes.
Annual Revenue
Urban Domestic Standard

€ 500,000
€ 400,000 Revenue
Standing
€ 300,000
kVA MIC
€ 200,000
kW
€ 100,000
kWh
€0
T4 D1b

T4 D2b
T4 D1a

T4 D2a
Existing

Revenue
Annual

Annual Revenue
Urban Domestic Nightsaver

€ 120,000
€ 100,000 Revenue
€ 80,000 Standing
€ 60,000 kVA MIC
€ 40,000 kW
€ 20,000 kWh

€0
T4 D1a

T4 D2a

T4 D1b

T4 D2b
Revenue
Existing
Annual

126
 Annual Revenue
Rural Domestic Standard

€ 400,000
€ 350,000 Revenue
€ 300,000
€ 250,000 Standing
€ 200,000 kVA MIC
€ 150,000 kW
€ 100,000
€ 50,000 kWh
€0
Revenue

T4 D1a

T4 D2a

T4 D1b

T4 D2b
Existing
Annual

Annual Revenue
Rural Domestic Nightsaver

€ 70,000
€ 60,000 Revenue
€ 50,000 Standing
€ 40,000
kVA MIC
€ 30,000
€ 20,000 kW
€ 10,000 kWh
€0
T4 D1b

T4 D2b
T4 D1a

T4 D2a
Existing

Revenue
Annual

Annual Revenue
Publ ic Lighting

€ 16,000
€ 14,000
€ 12,000 Revenue
€ 10,000 Standing
€ 8,000 kVA MIC
€ 6,000 kW
€ 4,000 kWh
€ 2,000
€0
T4 D1b

T4 D2b
T4 D1a

T4 D2a
Existing

Revenue
Annual

127
 Annual revenue
GP C&I Standard Tariff

€ 180,000
€ 160,000 Revenue
€ 140,000
€ 120,000 Standing
€ 100,000
€ 80,000 kVA MIC
€ 60,000 kW
€ 40,000
€ 20,000 kWh
€0

T4 D1b

T4 D2b
T4 D1a

T4 D2a
Existing

Revenue
Annual

Annual Revenue
GP C&I NightSaver

€ 140,000
€ 120,000
Revenue
€ 100,000
Standing
€ 80,000
kVA MIC
€ 60,000
kW
€ 40,000
kWh
€ 20,000
€0
Revenue

T4 D1b

T4 D2b
T4 D1a

T4 D2a
Existing
Annual

Annual Revenue
M D LV

€ 300,000
€ 250,000 Revenue
€ 200,000 Standing
€ 150,000 kVA MIC
€ 100,000 kW

€ 50,000 kWh

€0
T4 D1b

T4 D2b
T4 D1a

T4 D2a
Existing

Revenue
Annual

128
 Annual Revenue
MD MV

€ 80,000
€ 70,000
Revenue
€ 60,000
€ 50,000 Standing
€ 40,000 kVA MIC
€ 30,000 kW
€ 20,000
€ 10,000 kWh
€0

T4 D1b

T4 D2b
T4 D1a

T4 D2a
Existing

Revenue
Annual

Annual R evenue
M D 38 kV

€ 56,000
€ 54,000
Revenue
€ 52,000
€ 50,000 Standing
€ 48,000 kVA MIC
€ 46,000 kW
€ 44,000
kWh
€ 42,000
€ 40,000
T4 D1b

T4 D2b
T4 D1a

T4 D2a
Existing

Revenue
Annual

Annual Revenue
MD 110 kV

€ 62,000
€ 60,000
€ 58,000 Revenue
Standing
€ 56,000
kVA
€ 54,000
kW
€ 52,000 kWh
€ 50,000
€ 48,000
T4 D1a

T4 D2a

T4 D1b

T4 D2b
Revenue
Existing
Annual

129