OFGEM to review regional electricity distribution connection costs

In late 2015, OFGEM had concerns that connection customers were being charged different connection prices for similar connection works depending on where they lived in the UK. On the 3rd of May 2016 the gas and electricity regulator, OFGEM, submitted a request for all DNOs to review their connection prices and the way in which the information is structured in the connection charging statements.

Each connection onto the network is priced by a DNO on a project specific basis, and there are numerous factors each DNO has to take in to account when producing a firm connection quotation for a customer. However, there are a number of rules in place to ensure that connection customers only pay a fair price. For instance, all connection charges must be calculated in accordance with the DNO’s obligations under the Electricity Act 1989.

In accordance with the above all DNOs are required to publish a Connection Charging Statement which enables customers to review and estimate their potential connection costs for budgetary purposes. It also serves as a cost comparison guide for customers who have already received a connection cost from the DNO. These connection charging statements are reviewed by each DNO on an annual basis to ensure the indicative costs are accurate and reflective of the market place. In the recent review by OFGEM it was apparent that a customer could be charged variable cost for similar connection works based on the geographic region in which the customer was located.

To ensure the customers in the electricity connections market place are being treated fairly OFGEM requested that all DNOs provide additional data on actual costs that have been quoted to prospective connection customers. Whilst OFGEM did not find any evidence of overcharging there were some regional differences as follows:

  1. A regional difference in the average amount of work needed to connect in each region
  2. A regional difference in costs (eg – regional difference in contractor costs and street work permit costs etc)
  3. Differences in the amount of excavation/reinstatement work assumed to be completed by the DNO

As part of the overall review OFGEM also considered the quality of information published by the DNOs in the connection charging statements and identified the following two issues:

  1. Lack of clarity – it is difficult to draw conclusions on the likely total cost of getting connected to the network
  2. Inconsistency – different cost calculation approaches are adopted by each of the DNOS

A sensible conclusion has been drawn from the review completed by OFGEM, in that it is clear that connection customers could be provided with a better quality of information from the DNOs and OFGEM have therefore requested DNO’s complete the following:

1. Review and improve the quality of information provided to prospective connection customers about the costs of getting connected

OFGEM want the DNOs to make sure the information published in the Connection Charging Statements is easier to interpret and use and also improve the consistency of the methodologies used to calculate the indicative cost values.

2. DNOs to clearly identify what work can be undertaken by customers

OFGEM want the DNOs to make it clear to customers which work can be undertaken by approved contractors (contestable) and which work must be completed by the DNO (non-contestable)

The DNOs must provide a response to OFGEM by the end of June 2016 documenting how they have addressed these issues. SMS welcome this decision by OFGEM and will have a keen eye on the developments in this area. We firmly believe that having a clear Connection Charging Statement allows us to firstly budget appropriately for projected connections on behalf of our customers and secondly review and where necessary challenge the firm connection costs safe in the knowledge we are accessing consistent and accurate data.

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