Energy management: network energy charges

The small print

16 June 2017

Martin Chitty explains the complex world of network energy charges and why end users need to speak up

Electricity network charges in the UK are increasing by 5–10% or more each year, which means they are more relevant now than ever for energy buyers. These costs represent around 28% of the bill for the average business customer, and include a wide range of fees such as distribution use of system (DUoS) and transmission use of system (TUoS) charges. Electricity network charges cover the costs of operating and maintaining the regional and national power grids. Whether they are visible on the invoice or bundled into the energy rates, these increasing charges are paid by every energy user.

The magnitude of these electricity network charges, in combination with the upward trend, means that it is important to have an in-depth understanding of costs, what they cover and how they work. Unfortunately, accessible information is scarce and network charging remains a dark art, even for experienced energy buyers.

Why we should dig deeper

Many energy buyers tend to ignore electricity network charges or leave their supplier or broker to deal with them. A common misconception is that, because they are regulated, there is nothing you can do about them. Understanding the methodologies and mechanisms, though, actually allows energy buyers to understand their expenditure profile better, and to forecast and optimise their costs more effectively.

Furthermore, errors in electricity network charges are commonplace. While arithmetical or pricing errors can be detected by bill-checking processes, serious errors can usually only be uncovered through technical expertise, regulatory know-how and forensic auditing techniques.

With a detailed understanding it is possible to unpick the supply chain to identify costly anomalies. For example, a hospital in the East of England reclaimed £1.1m due to a classification error by its network operator. An IT services company, with sites across the UK, discovered overcharges of £700,000, which were caused by its supplier misinterpreting data sent to it by a network operator.

Method in the madness

Both of the above cases occurred despite robust bill-checking processes. But how is it possible for such significant 6- and 7-figure overcharges to be missed by intelligent software systems and billing experts? And why do many energy buyers lack a detailed understanding of electricity network charges?

The reason is the sheer complexity that underpins electricity network charges – a vast array of labyrinthine legislation and esoteric regulatory documents. Taking DUoS charges as an example, those on your electricity bill are derived from 14 different regional charging statements. These are obtained from the Distribution Connection and Use of System Agreement (DCUSA) and the Distribution Code, which in turn draw from the Electricity Distribution Licence.

The process remains unclear, and these unwieldy documents are not customer-friendly

Lost yet? You’re not alone. The process remains unclear, and these unwieldy documents are not customer-friendly. In fact, in our experience, most energy buyers are not even aware of their existence. Nonetheless, if you know how to access and interpret it, there is a wealth of information available showing how DUoS charges – the largest electricity network cost and a significant part of the electricity bill – are calculated and applied.

To compound the situation, many of these documents are amended on a regular basis. The 1,000-page DCUSA, for example, has an average of 35 changes proposed for it annually, ranging from grammatical corrections to sweeping amendments that have an impact on the charges paid by energy users across the UK.

How to make a difference

Although it is not immediately apparent, there are channels through which energy buyers can gain an understanding of electricity network charging policy and the changes that could affect them. For example, signing up to the DCUSA website offers visibility of all amendments to the agreement along with relevant mail updates.

Believe it or not, energy buyers can have a voice in this process alongside the network companies, suppliers and Ofgem. The DCUSA change process includes a wide range of public workgroups, and consultation processes are run in which customer participation is encouraged.

Getting involved is not futile – in recent years, there are examples of potentially unfair regulatory policy changes that were amended or withdrawn as a direct result of customer feedback.

Unfortunately, customer engagement is currently minimal, with most changes receiving little to no input. Speaking up is the only way that energy buyers can make a difference and ensure that regulatory policy works for them, not just for the industry.

Martin Chitty is Director, Energy Analysis at Professional Cost Management Group Limited

Further information