Electricity - charging ahead
When the operational frame-work for 1998 trading in electricity was originally set out, the intention was for there to be a minimum of change. In the event, the industry faces upheaval in the coming months, virtually amounting to a total reinvention of the way in which the market operates. These changes will have a significant impact on large businesses and major energy users in the UK, writes Mark Ellwood of UKDCS.In order to introduce more choice, the market has to become more flexible, and hand in hand with flexibility has come complexity. With many more potential players entering the open market, successful trading will depend on the robustness of new, interdependent and untried contractual and data flow relationships. These varying relationships will have significant impact on the end users and the opportunities more choice should offer.
Since April 1997, all businesses using over 100kW of electricity per year have had mandatory half-hourly meters. As the market opens up to full competition, many more companies may also opt for half-hourly metering rather than have their consumption forecast by profiling which provides an estimate based on historic data. UKDCS will compete with other data collectors and aggregators to retrieve and process this half-hourly data under the new trading arrangements. However, the company has serious concerns over the new contractual arrangements which will need to ensure everyone is communicating and cooperating for the end user to benefit.
Under 1998 arrangements, the supplier is at the centre of activity and, theoretically at least, more powerful. At present, suppliers have a contract with their customers, but in addition they will be required to have contractual arrangements with CIDA-accreditated MOPs, data collectors and data aggregators with whom they and their customers operate. The settlement function will be controlled by ISRA (Initial Settlement & Reconciliation Agency).
One of the foreseeable difficulties of the new arrangements is in enforcing liability. As the organisation ultimately responsible for the flow of data, the supplier is liable to the Pool for the effectiveness of the service. If, for whatever reason, the Pool does not receive the required data on time, it is the supplier who is liable and will face a possibly substantial fine even though the fault may not lie with him.
Pre-1998, the Supplier was insulated against data collection difficulties. Post 1998, the Supplier appoints the Data Collector or MOP, and will suffer the penalty of its agents' inefficiency. Where an end user specifies a MOP and data collector, the supplier is still liable if things go wrong, even though technically he may have little control over which agents have been selected.
This raises several concerns:
- How will suppliers put pressure on agents to offer performance service line guarantees, if initially they have no direct contractual agreement with them?
- If suppliers are fined because of data inefficiency, from whom will they recoup the cost; will it be the end-user?
- How will the suppliers enforce their decision?
- How will all this fit in with the existing contractual long-term agreements of end users' businesses, many of which run well into the millennium.
Despite these issues UKDCS believes companies with half-hourly meters installed will see lower settlement charges under the new trading arrangements. Settlement charges are the charge levied on every +100kW site. In 1997/98 they were £565 per installed communication line. At the start of the real 1998 trading, the Pool estimates they will have fallen to just £200. However, under the new charging structure, existing 100kW end users will probably find they are still paying over £600. Confusingly, this will still amount to a relatively good saving.
The 1997 charge included the cost of set-up, the running of settlements, data collection and aggregation, and communications. An additional cost to the companies was for metering charges, making the total around £725 per site per annum. This year the settlement was reduced to around £500 per site, but no longer included communications costs. With this additional charge, businesses could expect to face bills of around £900 or more per site.
The cost structure will be changed even more radically after 98 trading. As stated the Settlement charge is forecast to fall to an estimated £200 for existing +100kW users. For newly registered sites in PRS this figure should be closer to £100. On top of this, the business will then pay for Data Collection and Aggregation, metering charges and communications. No-one can be 100% sure what the new total will be but UKDCS's own estimation is around £600 per site, a possible saving of up to two thirds for large energy users with existing +100kW sites.