Whereas
1. Electricity North West Ltd (the 'Licensee') is the holder of an electricity distribution licence ('the Licence') granted or treated as granted by the Gas and Electricity Markets Authority ('the Authority') under section 6(1)(c) of the Electricity Act 1989 (the 'Act'). The Licensee is subject to a distribution price control.
2. On 10 May 2013, the Authority published a letter which gave the background to representations made by the Licensee for relief from the penalty rate of interest associated with over-recoveries of allowed revenue under the distribution price control. The basis for the representations was that the decision in November 2012 to remove the fifth Distribution Price Control Review (DPCR5) Distribution Losses Incentive Mechanism (DLIM) had the effect of increasing the Licensee’s under–recovery position by over 1 per cent. In addition, the Licensee had taken a decision not to increase charges due to its existing under-recovery position in order to limit charging volatility.
3. On 21 June 2013, the Authority published a letter setting out its decision in relation to the representation made by the Licensee. The Authority decided that allowing the rate of interest adjustment in 2012-13 to be set to a different value, due to the impact of the decision not to activate the DPCR5 DLIM, was justified.For the purpose of implementing its decision, the Authority gave notice on 21 June 2013 of its proposal to modify special condition CRC 14 of the Licence (‘the Condition’) such that the value of the interest rate adjustment (‘PRt’) for Regulatory Year beginning on 1 April 2012 would be set in a direction given by the Authority provided that the value would either be zero, 1.5 or 3. There was one response to this consultation, from the Licensee, supporting the modification.
4. On 30 July 2013, the Authority published a modification of the Licence. This change takes effect from 25 September 2013.
5. The Authority’s letters of 10 May 2013 and 21 June 2013 and the licence modification documents referred to above are available (free of charge) on the Ofgem website (www.ofgem.gov.uk) or from the Ofgem library, 9 Millbank, London SW1P 3GE.
6. The Authority considers that the decision not to activate the DPCR5 DLIM resulted in the Licensee under-recovering against its Combined Allowed Distribution Network Revenue. The under-recovery attributed to that decision is forecast to be approximately 1.05 per cent of actual allowed revenue. The Authority therefore considers that the decision not to activate the DPCR5 DLIM has affected the Licensee’s Regulated Combined Distribution Network Revenue and has caused this to be less than 97 per cent of Combined Allowed Distribution Network Revenue. Therefore, and for the reasons set out in our letters of 10 May 2013 and 20 June 2013, the Authority considers that the value of PRt for the Licensee ought to be set at “1.5” instead of “0” for the Regulatory Year commencing 1 April 2012, provided that the reported revenue recovery is not less than 95.95 per cent of the allowed revenue.
Now the Authority, pursuant to paragraph 14.2(b) of the Condition, and for the reasons set out above, hereby directs that the value of PRt for the Licensee for the Regulatory Year commencing 1 April 2012 is to be “1.5”.
This document constitutes notice of the reasons for the Authority’s decision for the purpose of section 49A(1)(c) of the Act.
Dated 27 September 2013
Andy Burgess - Associate Partner, Transmission and Distribution Policy
Duly authorised on behalf of the Authority
Related documents may be found below