electricity distribution network allowed revenue 2018 ... · electricity distribution network...

1

Electricity Distribution Network

Allowed Revenue 2018,

Distribution Tariffs 2017/2018 &

Distribution Loss Adjustment

Factors

Information Paper

Reference: CER/17/273 Date Published: 31/08/2017 Queries to: David Lindsay

[email protected]

mailto:[email protected]

Electricity Distribution Network Allowed Revenue 2018, Distribution Tariffs 2017/2018 & Distribution Loss Adjustment Factors

i

Public / Customer Impact Statement

ESB Networks owns and operates the electricity distribution system which

supplies electricity to around 2.4 million customers in Ireland, out of this

around 2 million of these are residential customers.

The CER allows ESB Networks charge money towards the cost of safely

operating and maintaining the electricity distribution network. These charges

are reflected in customers’ electricity bills.

The CER’s role is to protect electricity customers by ensuring that ESB

Networks spends customers’ money appropriately and efficiently to deliver

necessary services. The CER does this through what is called a Price Review

which is carried out every 5-years, the current Price Review (PR4) started in

2016 and will end in 2020.

For each year of PR4 ESB Networks is allowed collect an efficient amount of

money to operate and maintain the network for that year. The CER reviews and

updates these revenues each year.

The CER’s current expectation is that the combined transmission1 and

distribution adjustments will result in the average annual residential

customer’s bill rising by €2.77 in October 2017, which is an increase of a

0.95%.2 However, the actual outcome for customer prices depends, among

other factors, on international fuel and related generation costs, which are

currently circa 50% of the overall cost of electricity to customers.

1 See CER/17/276 2 This based on transmission tariff group DTS-D2 (customers indirectly connected to the transmission system via the distribution system, with a maximum import capacity of less than 0.5MWs) and distribution tariff group DG1: Urban Domestic


ii

Executive Summary

Introduction

In 2015, the CER published its decision on distribution network revenues for

each year from 2016 to 2020 (see figure below). That decision (CER/15/295)

was the fourth such revenue decision and is referred to as PR4.

DSO allowed revenues 2016-2020

The revenues allowed under PR4 enables ESB Networks3 to: finance, build,

maintain, and operate electricity distribution network in Ireland. PR4 revenues

are collected through the Distribution Use of System (DUoS) tariffs process.

Annually, DUoS tariffs are reviewed and updated to reflect adjustments to the

calendar year revenues. These adjustments usually take account of: inflation

movements, changes in interest rates, more up-to-date forecasts, and

adjustments related to unforeseen items. This paper details the adjustments

made to the DSO’s revenue for the 2018 calendar year.

Annual Adjustment to 2018 Calendar Year Revenues

PR4 allowed for €835.8m (2014 monies) of revenues for 2018. When

€835.8m (2014 monies) is inflated to 2018 monies, this leads to a nominal

2018 amount of €849.73m. The adjustments to this figure, as shown in table 1

(overleaf), have led to reduced 2018 revenues of €793.91m. This is a

reduction of approximately €56m (or 6.6%) from the nominal 2018 amount of

€849.73m (see figure below). It also leads to a €14.2m (or 1.7%) decrease

when compared to the 2017 calendar year revenue of €808.1m (2017

monies).

3 The Distribution System Operator and the Distribution Asset Owner

650.0

700.0

750.0

800.0

850.0

900.0

2016 2017 2018 2019 2020

DSO Allowed Revenue 737.1 817.1 835.8 857.7 883.2

Year on Year % increase 10.8% 2.3% 2.5% 3.0%

(2014 monies, €m)

DSO allowed revenues 2016-2020 (2014 monies, €m)

http://www.cer.ie/docs/001044/CER15295%20Decision%20on%20DSO%20PR4%20Distribution%20Revenue%202016%20to%202020.pdf


iii

Comparison of 2018 Nominal Revenues

DUoS Tariffs for 1st October 2017 to 30th September 2018

The updated 2018 revenues of €793.91m (nominal 2018) leads to a tariff year

revenue of €797.7m4. The tariff year revenue of €797.7m is to be recovered

during the tariff period 1 October 2017 to 30 September 2018. This is a 0.23%

increase relative to the €795.9m that was approved for recovery during the

previous tariff year (see section 4 of this paper).

The CER’s Average Unit Price (AUP) – Impact Analysis

Based on the CER’s Average Unit Price (AUP), the AUP for the 1 October

2017 to 30 September 2018 period is 3.36c/kWh. This is a 1.07% decrease

relative to the AUP of 3.40c/kWh for the 1 October 2016 to 30 September

2017 period.

The CER’s current expectation is that the combined transmission5 and

distribution adjustments will result in the average annual residential

customer’s bill rising by €2.77 in October 2017, which is an increase of a

0.95%.6 However, the actual outcome for customer prices depends, among

other factors, on international fuel and related generation costs, which are

currently circa 50% of the overall cost of electricity to customers.

4 This is approximately 26.7% of the 2017 calendar year revenues of €808.1m plus 73.3% of the 2018 calendar year revenue €793.91 5 See CER/17/276 6 This based on transmission tariff group DTS-D2 (customers indirectly connected to the transmission system via the distribution system, with a maximum import capacity of less than 0.5MWs) and distribution tariff group DG1: Urban Domestic - Standard Meter.

-

PR4 Revenues Inflated to 2018 Nominal, €m

849.73

2018 Nominal Revenue with CER Adjustments, €m

793.91

720735750765780795810825840855870

2018 Nominal €m



iv

The CER’s AUP is calculated by dividing the total allowed revenue by the

GWh forecast sales. This is different to the DSO’s customer impact analysis

(outlined below), which takes account of other factors such as customer

numbers, Max Import Capacity (MIC) and GWh forecasts (see section 4.2 for

more information).

The DSO’s Calculation of DUoS Tariffs - Impact Analysis

Based on the DSO’s customer impact analysis the percentage decrease in

DUoS tariffs for 2017/18 is on average 0.99% for all distribution consumer

groups. For the reasons outlined earlier the DSO’s customer impact analysis

will always vary from the CER’s AUP. The DSO’s customer impact analysis

showing the amount of DUoS paid by an average customer is provided in

Appendix 1 of this paper.

DLAFs

This information paper also details the Distribution Loss Adjustment Factors

(DLAFs) for the 12 month tariff period (see section 5 of this paper).


v

k factors and adjustments to 2018 base revenue.

k factors & adjustments to revenue for 2018, nominal €m

Adjustments relating to customer numbers,

indexation & GWhs

2016

(k-2)

2017

(k-1)

2018

(Ut) Total

Higher (lower) customer numbers relative to

those included in PR3 decision, nominal, €m -0.01 -0.01 0.17 0.15

Indexation & over-collection

Effect on total revenue of indexation being

different to forecast, nominal, €m -5.96 -14.38 0 -20.33

Revenue forecast for collection based on latest

demand assumptions (or outturn collected

where available), nominal, €m

-7.06 7.59 0 0.53

Incentives

Incentives, nominal, €m -8.00 0 0 -8.00

Pass-through costs, nominal, €m

Regulatory levy -0.24 0 0 -0.24

Rates -4.99 0 0 -4.99

Non-capitalised costs, nominal, €m

CER Safe Electric Campaign -0.08 0.45 0 0.37

Ampy Meters 0 2.01 0 2.01

LTCA Auditor 0 0.13 0 0.13

Aran Island Fault 3.20 0 0 3.20

Miscellaneous Incomes -4.01 0 0 -4.01

Smart Metering NBV Retirement 0 0 -11.50 -11.50

Capitalised costs, nominal, €m

Underspend capex: network (PR3) 0 0 -0.22 -0.22

Underspend capex: non network (PR3) -0.01 -0.02 0.98 0.95

Smart Metering 0.06 0.34 -14.45 -14.05

Total adjustment (excluding interest

adjustment), nominal, €m - 27.09 -3.89 -25.01 -55.99

Total adjustment (including interest

adjustment), nominal, €m -26.93 -3.87 -25.01 -55.81

Table 1: k factors and adjustments to 2018 base revenue.


vi

Purpose of this paper

This paper provides information on:

The approved Distribution System Operator (DSO) revenue for the

2018 calendar year;

The approved Distribution Use of System (DUoS) tariffs to apply from 1

October 2017 to 30 September 2018, and;

The approved Distribution Loss Adjustment Factors (DLAFs) to apply

from 1 October 2017 to 30 September 2018.

Related Documents:

CER/15/295 Decision on DSO revenue for 2016 to 2020

CER/16/249 Information note on 2017 Distribution System Operator

allowed revenue, DUoS 2016/2017 tariffs & Distribution

Loss Adjustment Factors


https://www.cer.ie/docs/001104/CER16249%20%20Information%20Note%20on%202017%20DSO%20Revenue%20DUoS%20tariffs%20%20Distribution%20Loss%20Adjustment%20Factors.pdf


vii

Structure of this paper This paper is structured in the following manner:

Section 1 provides an introduction to and outlines the purpose of this

information note.

Section 2 provides background information. It outlines how the decisions

made when setting the DSO revenue for the 2016 to 2020 period are being

implemented to set the DSO revenue for the 2018 calendar year. It also

outlines how DUoS tariffs are set to recover that revenue. Section 2 also

provides information on Distribution Loss Adjustment Factors

Section 3 provides detail on the DSO revenue that has been approved for the

2018 calendar year.

Section 4 provides detail on the DUoS tariffs that are approved for

implementation from 1 October 2017 to 30 September 2018.

Section 5 provides detail on the DLAFs that are approved for implementation

from 1 October 2017 to 30 September 2018.

Section 6 provides a summary of CER decisions regarding DSO’s revenues.

Four documents are published alongside this paper. They are:

The approved DSO schedule of DUoS tariffs which will apply during the

1 October 2017 to 30 September 2018 period;

The excel model that was used to update the 2018 DSO revenue;

An explanatory note from the DSO explaining the updates to the model;

and, the approved DLAFs which will apply during the 1 October 2017 to

30 September 2018 period.


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Table of Contents

1 INTRODUCTION ........................................................................................................... 1

2 BACKGROUND INFORMATION ................................................................................ 2

2.1 DSO revenue control for the period 2016 to 2020 .........................................2

2.2 Yearly updates of calendar year revenue ......................................................2

2.3 Determination of DUoS tariffs for each tariff period .....................................3

2.4 Determination of DLAFs ...............................................................................3

3 DSO REVENUE FOR THE 2018 CALENDAR YEAR .............................................. 4

3.1 Introduction ................................................................................................4

3.2 Revenue control formula .............................................................................4

3.3 Explanation of k factors and adjustments to the 2018 revenue .....................5

3.4 Adjustments relating to customer numbers (+€0.15) ....................................7

3.5 Adjustments relating to Indexation (-€20.33m) ............................................8

3.6 Adjustments relating to under-collection (+€0.53m) .....................................8

3.7 Adjustments relating to incentives (-€8m) ....................................................8

3.8 Adjustments relating to Non Capitalised Costs (+€9.8m) ...............................9

3.8.1 Safe Electric Campaign (+€0.37m) .......................................................................................... 9

3.8.2 Ampy Meters (+€2m Opex) ..................................................................................................... 9

3.8.3 LTCA Auditor (+€0.125) ........................................................................................................... 9

3.8.4 Aran Island Fault (+€3.2m) .................................................................................................... 10

3.8.5 Miscellaneous Incomes (-€4m) ............................................................................................. 10

3.8.6 Smart Metering NBV Retirement (-€11.5m) ......................................................................... 10

3.9 Adjustments relating to Capitalised Costs (-€13.32) .................................... 11

3.9.1 PR3 Capex: outturn (€0.73 m) – as result of last year’s decision .......................................... 11

3.9.2 Smart Metering (-€14.05m) – as result of last year’s decision ............................................. 11

3.9.3 Ampy Meters (€0m Capex) ................................................................................................... 11

3.9.4 ISEM IT (€0m) ........................................................................................................................ 11

3.10 Comparing 2018 with 2017 calendar year revenues .................................... 12

4 DUOS TARIFFS FOR 1 OCT 2017 TO 30 SEPT 2018 ...................................... 13

4.1 Revenue for recovery during Oct 2017 to Sept 2018 ................................... 13

4.2 DUoS tariffs for Oct 2017 to Sept 2018 ....................................................... 13

5 DISTRIBUTION LOSS ADJUSTMENT FACTORS ............................................... 15

6 SUMMARY ................................................................................................................... 16

APPENDIX 1: DUOS PAYMENTS MADE BY AVERAGE CUSTOMER .................... 17

APPENDIX 2: ABBREVIATIONS & TERMS ................................................................. 18


1

1 Introduction

In 2015, the CER published its PR4 decision (CER/15/295) on the revenue that the DSO

could collect from its customers through DUoS tariffs over the 2016 to 2020 period. The

distribution revenues allowed under PR4 enables ESB Networks7 to; finance, build,

maintain, and operate electricity distribution network in Ireland.

In line with the PR4 decision, revenues are reviewed each year when setting DUoS

tariffs. This is to account for, among other things, more up to date forecasts; for example

updated customer numbers, and demand figures. It also sees adjustments pertaining to

the outcome of the previous two years – through so called K factors.

This year the review pertains to revenues for the calendar year 2018. This paper sets out

the results of that review and the resultant DUoS tariffs that will come into effect on 1st

October 2017. Distribution revenues are collected through the DUoS tariffs and are

charged to energy suppliers, who may choose to pass them on to their customers. At

present DUoS tariffs make up approximately 25% of a customer’s bill.

This paper also outlines the Distribution Loss Adjustment Factors (DLAFs) for the 12

month tariff period.

For information on the 2016-2017 tariff process please see CER’s Information note on

2017 Distribution System Operator allowed revenue, DUoS 2016/2017 tariffs &

Distribution Loss Adjustment Factors (CER/16/249)

7 The Distribution System Operator and the Distribution Asset Owner




2

2 Background Information

2.1 DSO revenue control for the period 2016 to 2020

In December 2015, the CER published a decision paper detailing the level of DSO revenue

for the period 2016 to 2020 (CER/15/295). The allowed revenue set for each calendar year

of the period is shown in the figure 1 below in 2014 monies.

Figure 1: DSO allowed revenues 2016-2020

2.2 Yearly updates of calendar year revenue

The decision paper on DSO revenues for the 2016 to 2020 period, provided for yearly

updates of revenues. These updates are to be done when setting tariffs and consider

among others: more up to date forecasts and outturn figures for the previous two years.

The decision stated that the CER would publish an information note each year outlining

the effect of implementing these updates.

In addition to the publication of these information notes, an excel model (CER’s Revenue

Model) detailing the calculation of these updates is published. This model has been

developed by the CER. The model is completed each year in advance by the DSO (for

example, the 2018 calendar year revenue is updated in 2017), and submitted to CER for

review and approval. This process has been completed for the 2018 calendar year. An

updated model has been provided by the DSO and reviewed by the CER. The CER has

reviewed this model and is satisfied that the model correctly implements the decision

paper. Details on the updated approved revenue for 2018 are provided within section 3 of

this paper.

650.0

700.0

750.0

800.0

850.0

900.0

2016 2017 2018 2019 2020

DSO Allowed Revenue 737.1 817.1 835.8 857.7 883.2

Year on Year % increase 10.8% 2.3% 2.5% 3.0%

(2014 monies, €m)

DSO allowed revenues 2016-2020 (2014 monies, €m)



3

2.3 Determination of DUoS tariffs for each tariff period

In recent years, the CER has approved DUoS tariffs on an annual basis to cover the

period from 1 October to 30 September. Essentially, DUoS tariffs are set to recover

26.7%8 of the revenues associated with the first calendar year included in the tariff period

and 73.3%8 for the second calendar year. For the DUoS tariffs set out in this information

note, and covering the tariff period 1 October 2017 to 30 September 2018, 26.7% of 2017

revenues and 73.3% of 2018 revenues are included.

2.4 Determination of DLAFs

Details on the DLAFs for the 1 October 2017 to 30 September 2018 period are provided

within section 5 of this paper. Information on the methodology which the DSO uses to

determine these values is available on ESBN’s website9.

8 This is based on the percentage of demand that relates to the relevant period of the year. 9 The methodology used by the DSO to determine DLAFs is available here.

https://www.esbnetworks.ie/tns/publications/search-results?indexCatalogue=our%2Dpublications&searchQuery=distribution+loss+adjustment+factors&wordsMode=0


4

3 DSO revenue for the 2018 calendar year

3.1 Introduction

As outlined in section 2.1, in December 2015 the CER published the PR4 decision paper

(CER/15/295) detailing the level of DSO allowed revenue for the period 2016 to 2020.

That decision paper also detailed how the allowed revenue would be updated each year.

The PR4 decision provided for 2018 revenues, of €835.8m in 2014 monies. When

updated / inflated to 2018 monies, this leads to a nominal 2018 amount of €849.73m. The

adjustments to this figure, as detailed in this paper, have led to a reduced 2018 revenue

of €793.91m. This section provides details on the revenue submission provided by the

DSO and the calculations that led to this reduced revenue amount.

Further details can also be found in the following documents published alongside this

information note:

The DSO explanatory document detailing the adjustments made to the DSO

revenue based on inputs (i.e. GWh, inflation, and DSO outturn values for opex &

capex) provided by the DSO and agreed with CER.

“CER’s Revenue Model” (developed by the CER and completed by the DSO)

detailing the calculation of DSO revenues based on the revenue control formula

(in section 3.2) and the adjustments outlined in DSO’s explanatory note.

3.2 Revenue control formula

The revenue control formula, which is used to keep the DSO’s revenue in line with

allowed costs, is set out in detail in Section 13 of CER/15/295. Very simply, the revenue

control formula takes the ‘base’ allowed revenue (in 2014 monies, as detailed in Figure

1), inflates that revenue into nominal 2018 figures, and adjusts it for specific revenue

parameters. The following formula is used:

𝑅2018 = ∏ [1 + 𝐼𝑛𝑓𝑡

100]

𝑡

2014

∗ 𝐵𝑡 + ∏ [1 + 𝐼𝑛𝑓𝑡

100]

𝑡

2014

∗ [𝐼𝑁𝐶𝐸𝑁𝑇𝑡 + 𝑃𝐶𝑢𝑠𝑡𝑡 ∗ (𝐹𝐶𝑢𝑠𝑡𝑡 − 𝐶𝑢𝑠𝑡𝑡 )] + ∆𝑃𝑡

+ ∆𝑈𝑡 + 𝐾𝑡−1 + 𝐾𝑡−2

Equation 1: Price control formula from CER/15/295

The terms within this equation are defined fully within CER/15/295.

For the 2018 calendar year:





5

R2018, the maximum level of revenue allowed in 2018, is €793.91 m;

When adjusting from 2014 to 2018 values, the relevant figures are multiplied by

1.01710;

B2018, the level of allowed revenue for the 2018 calendar year in real 2014 prices

as detailed in CER/15/295, is €835.8m;

INCENT2018, the difference in value of incentives/penalties earned in 2016 from

an assumed payment of €8m (in real 2014 prices) in 2016, is €011 (see section 3.7

for more information)

PCust2018, the revenue earned or foregone by the DSO for each additional

connection above or below forecasted levels, is €150,000;

FCust2018, the current forecast for new connections for the period 2017 to 2018, is

68,110;

Cust2018, the number of new connections assumed for the period 2017 to 2018 in

the determination of B2017, is 57,000;

P2018, the change in 2018 pass-through costs from those assumed in the

determination of B2018, is -€5.23m;

U2018, the change in 2018 uncertain costs from those assumed in the

determination of B2018, is -€25.01m;

Kt-1, the correction factor for 2017, is -€3.87m;

Kt-2, the correction factor for 2016, is -€26.93m;

These figures are explained in more detail in the following section and are broken down

further within table 2 (overleaf).

3.3 Explanation of k factors and adjustments to the 2018 revenue

B2018, the level of allowed revenue for the 2018 calendar year in 2014 monies as detailed

in CER/15/295, is €835.83. When adjusted for inflation the figure increases to €849.73 (in

2018 monies, i.e. nominal).

As a result of the revenue adjustments the DSO’s 2018 calendar year revenue amounts

to €793.91m. This represents a reduction of €56m (or 6.6 %) from the €849.73m that was

anticipated in PR4 (see figure 3 below). It leads to a reduction of €14.2m (1.7%)

decrease compared to the 2017 calendar year revenue of €808.1m (2017 monies).

10 HICP of -0.033%, -0.2083%, 0.7% and 1.2% for each of the years from 2015 to 2018. 11 No incentive targets have been set for the PR4 period, the CER and ESBN have agreed to remove the €8m incentive placeholder from the 2018 calendar year revenue



6

Figure 3: Comparison of 2018 Nominal Revenues

Details of the adjustments that bring the 2018 revenues from €849.73m to €793.91 are

shown in table 2 (overleaf), which is followed by further written explanations.

The costs included in table 2 show the change in costs from those assumed in the five-

year revenue determination. Some costs items, known as uncertain costs, were not

explicitly dealt within the five-year control as they were not foreseen at that time. Such

cost items are captured in placeholders within the CER excel model that are specifically

designated for uncertain costs. Depending on how and when these cost are incurred

(e.g. depreciated over time) will dictate how and when the costs are accounted for within

the model. The values for 2018 correspond to the Ut in Equation 1. The values for 2017

and 2016 are fed into Equation 1 through the kt-1 and kt-2 factors, respectively. These

figures and the detail behind them have been reviewed by the CER and the CER is

satisfied that they should be included within the DSO revenue for the 2018 calendar year.

-

PR4 Revenues Inflated to 2018 Nominal, €m

849.73

2018 Nominal Revenue with CER Adjustments, €m

793.91

720735750765780795810825840855870

2018 Nominal €m



7

k factors & adjustments to revenue for 2018, nominal €m

Adjustments relating to customer numbers,

indexation & GWhs

2016

(k-2)

2017

(k-1)

2018

(Ut) Total

Higher (lower) customer numbers relative to

those included in PR3 decision, nominal, €m -0.01 -0.01 0.17 0.15

Indexation & over-collection

Effect on total revenue of indexation being

different to forecast, nominal, €m -5.96 -14.38 0 -20.33

Revenue forecast for collection based on latest

demand assumptions (or outturn collected

where available), nominal, €m

-7.06 7.59 0 0.53

Incentives

Incentives, nominal, €m -8.00 0 0 -8.00

Pass-through costs, nominal, €m

Regulatory levy -0.24 0 0 -0.24

Rates -4.99 0 0 -4.99

Non-capitalised costs, nominal, €m

CER Safe Electric Campaign -0.08 0.45 0 0.37

Ampy Meters 0 2.01 0 2.01

LTCA Auditor 0 0.13 0 0.13

Aran Island Fault 3.20 0 0 3.20

Miscellaneous Incomes -4.01 0 0 -4.01

Smart Metering NBV Retirement 0 0 -11.50 -11.50

Capitalised costs, nominal, €m

Underspend capex: network (PR3) 0 0 -0.22 -0.22

Underspend capex: non network (PR3) -0.01 -0.02 0.98 0.95

Smart Metering 0.06 0.34 -14.45 -14.05

Total adjustment (excluding interest

adjustment), nominal, €m - 27.09 -3.89 -25.01 -55.99

Total adjustment (including interest

adjustment), nominal, €m -26.93 -3.87 -25.01 -55.81

Table 2: k factors and adjustments to revenue for 2018

3.4 Adjustments relating to customer numbers (+€0.15)

An increase of €0.15m has been applied to the 2018 revenue. This is driven by a higher

number of customer connections than forecasted in the PR4 determination. This is


8

essentially the difference between forecasts, updated within year forecasts and actual

customer connections, for the years 2016, 2017 and 2018.

3.5 Adjustments relating to Indexation (-€20.33m)

A reduction of €20.33m has been applied to the 2018 revenue to allow for indexation

being different to forecast. This is essentially the difference between actual inflation and

the inflation forecasts that were used when setting the 2016 and 2017 calendar year

revenues. For example, the 2016 calendar year revenue is set in 2015 using 2016

inflation forecasts, and therefore must be updated in 2017 to reflect actual inflation.

3.6 Adjustments relating to under-collection (+€0.53m)

An increase of €0.53m has been applied to account for less revenues than forecasted

being collected through DUoS tariffs over 2016 and 2017. This is essentially the

difference between actual revenue collected and the revenue for collection forecasts that

were used when setting the 2016 and 2017 calendar year revenues. For example, the

2016 calendar year revenue is set in 2015 using 2016 revenue collection forecasts, and

therefore must be updated in 2017 to reflect actual revenue collected.

3.7 Adjustments relating to incentives (-€8m)

As part of the PR4 decision, the CER had planned to consult on the PR4 incentives

regime in a follow on consultation that will take place later this year. Therefore no

incentive targets have been set for the PR4 period. Notwithstanding, as agreed in the

PR4 decision, there are DSO incentive revenue placeholders of €8m for each of the PR4

years.

In advance of incentive targets being in place the CER considers it appropriate to remove

the €8m incentive placeholder for 2016. To do so, €8m must be removed from the 2018

revenue requirement. Therefore, payments related to incentives will have no impact on

the 2018 calendar year revenue.

As part of the follow on consultation the CER will decide on how to treat the PR4

incentive revenues.


9

3.8 Adjustments relating to Non Capitalised Costs (+€9.8m)

3.8.1 Safe Electric Campaign (+€0.37m)

In 2016 ESBN collected €0.35m from DUoS customers to cover the estimated cost

of the Safe Electric advertising campaign. The actual cost of this campaign was

€0.27m resulting in a €0.08m adjustment to the 2018 calendar year revenues. In

addition, a figure of €0.45m has been included to cover the costs associated with

the Safe Electric advertising campaign in 2017. The estimated campaign cost for

2017 and the €0.08m underspend that pertains to 2016, results in a €0.37m

adjustment to the 2018 calendar year revenues.

3.8.2 Ampy Meters (+€2m Opex)

In 2017, to cover the cost of the recent Ampy Meter Replacement Programme,

ESBN requested the recovery of €7.5m (€5.5m capitalised and €2m non-

capitalised) to be collected from DUoS customers. This section will address the

€2m non-capitalised portion of this cost. For details on the capitalised portion of this

cost, please refer to the section 3.9.3 of this paper.

In 2016, ESBN identified 27,000 Ampy meters in service and at risk of failing. The

meter manufacturer advised ESBN of a failure rate of 4 -10% (i.e. out of the 27,000

meters identified, 1,080 to 2,700 of those meters were at risk). ESBN considered it

appropriate to replace all (27,000) identified meters.

Operational expenditure €2m: Due to the unforeseen nature of this incident and

there being no obvious operational allowance for such incidents, the CER considers

it reasonable to remunerate ESBN for their operational response to this particular

incident. The CER will allow ESBN to recover the €2m Opex, and this is included in

ESBN’s 2018 calendar year revenue.

3.8.3 LTCA Auditor (+€0.125)

An industry working group was set up within the Industry Governance Group (IGG),

to discuss Long Term Consumption Adjustments (LTCA). The group is made up of

suppliers and ESBN. To assist the group in their work, the CER allowed the

appointment of an Independent Auditor. The Auditor would carry out analysis on the

impact of residual errors on market participants. The CER has agreed that the

group can recover a maximum of €0.125m through the tariff k-factor process, this

cost must be efficiently incurred through competitive tender, and this will be

included in ESBN’s 2018 calendar year revenue.

.


10

3.8.4 Aran Island Fault (+€3.2m)

The power to the Aran Islands is supplied via a subsea AC cable connected to the

grid on the mainland. The islands are then connected together via a subsea cable.

Inishmore is linked to the mainland, Inishmaan is linked to Inishmore, and Inisheer

is linked to Inishmaan.

In August 2016 a fault occurred on the cable between Inishmore and Inishmaan.

As a result, Inishmaan and Inisheer suffered a loss of power supply. To maintain

power to the islands, ESBN mobilised a medium voltage generator. Subsequently,

ESBN located and repaired the faulty section of cable in situ on the seabed. The

islands were reconnected to the grid 50 days after the initial fault.

In total the restoration of power to the islands resulted in non-capitalised cost of

€3.2m (€2.385m for cable repairs and €865,000 for maintaining power to the

islands). The CER reviewed the PR4 allowances, in particular the response capex

allowance and fault maintenance allowances.

Considering the uniqueness and complexity of the repair the CER considers that it

is appropriate to allow ESBN to recover the full amount of €3.2m.

3.8.5 Miscellaneous Incomes (-€4m)

ESBN proposed a credit of €4m against operating expenditure to reflect

miscellaneous incomes earned by ESBN. Miscellaneous incomes typically include

revenue from categories such as sale of scrap and profit on sale of assets. The

miscellaneous incomes of €4m will be removed from ESBN’s 2018 calendar year

revenue.

3.8.6 Smart Metering NBV Retirement (-€11.5m)

As part of the PR4 decision an allowance of €54.5m was allocated for the

accelerated depreciation of existing mechanical meters that were to be replaced

under the Smart Metering programme. ESBN do not expect to replace these meters

during 2018 as had been anticipated in PR4. The 2018 allowance of €11.5m will be

removed from ESBN’s 2018 calendar year revenue.


11

3.9 Adjustments relating to Capitalised Costs (-€13.32)

3.9.1 PR3 Capex: outturn (€0.73 m) – as result of last year’s decision

This is based on a CER decision set out in CER/16/24912, in that paper the CER

allowed ESBN recover capital expenditure for various items. This has an impact of

€0.73m on ESBN’s 2018 calendar year revenues.

3.9.2 Smart Metering (-€14.05m) – as result of last year’s decision

This is based on a CER decision made last year in CER/16/24913. In that paper the

CER deferred a €100m placeholder, pertaining to the 2016 capital expenditure

allowance for the Smart Metering programme. Last year’s decision to defer the

€100m reduces ESBN’s 2018 calendar year revenues by €14.05m.

3.9.3 Ampy Meters (€0m Capex)

In 2017, to cover the cost of the recent Ampy Meter Replacement Programme,

ESBN requested the recovery of €7.5m (€5.5m capitalised and €2m non-

capitalised) to be collected from DUoS customers. This section addresses the

€5.5m capitalised portion of this cost. For details on the non-capitalised portion of

this cost, please refer to the section 2.8.2 of this paper.

Capitalised €5.5m: The CER considers the PR4 response capex allowance

(€54.7m) an appropriate allowance for capital funding of the Ampy Meter

Replacement Programme. The PR4 response capex allowance was provided for a

reactive work programme, that is generally driven by third parties or unplanned

events, and included a metering replacement allowance of €2.6m. The CER will not

allow ESBN recover the €5.5m14 capital cost associated with the Ampy Meter

Replacement Programme.

3.9.4 ISEM IT (€0m)

ESBN has requested additional IT capex to cover the ISEM IT costs. ESBN state

the full extent of the ISEM costs could not be known at the time of PR4. Therefore,

could not request an appropriate allowance to cover all of these costs.

12 Information note on 2017 Distribution System Operator allowed revenue, DUoS 2016/2017 tariffs & Distribution Loss Adjustment Factors 13 Information note on 2017 Distribution System Operator allowed revenue, DUoS 2016/2017 tariffs & Distribution Loss Adjustment Factors 14 If the CER allowed this cost it would be recovered over 45 years




12

The CER does not consider it appropriate to include additional capex to PR4 IT

allowance, as the I-SEM High Level Design and significant elements on the detailed

design were known at the time of PR415.

3.10 Comparing 2018 with 2017 calendar year revenues

This year’s review of the 2018 revenue amounts has led to a reduction of € 56m or 6.6%

from the €849.73m (2018 nominal) as anticipated in PR4, to €793.91m (2018 nominal).

This represents a reduction of €14.2m or 1.7% compared to the 2017 calendar year

revenue of €808.1m (2017 nominal).

It is important to note that tariffs are not set on a calendar year basis. Consequently,

interested parties may find it more useful to compare the AUP between tariff periods as

discussed within section 4 of this paper.

15 The I-SEM HLD was published in September 2014.


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4 DUoS tariffs for 1 Oct 2017 to 30 Sept 2018

4.1 Revenue for recovery during Oct 2017 to Sept 2018

Section 2.3 provides detail on how portions of calendar year revenue are allocated for

recovery within the DUoS tariffs that are implemented from 1 October to 30 September of

the next calendar year.

The approved methodology sees 26.7% of 2017 calendar revenue (26.7% of €808.1m =

€215.76m) and 73.3% of 2018 calendar year revenue (73.3% of €793.9m = €581.9m)

being allocated to the tariff period 1 October 2017 to 30 September 2018. A total of

€797.7m is therefore to be recovered during the 1 October 2017 to 30 September 2018

tariff period. This represents a 0.23% increase relative to the €795.9m that was approved

for recovery during the equivalent period for the previous year (1 October 2016 to 30

September 2017).

4.2 DUoS tariffs for Oct 2017 to Sept 2018

The DUoS tariffs for the 1 October 2017 to September 2018 period have been calculated

by the DSO to allow recovery of the revenue16 detailed in section 4.1 of this paper (i.e.

€797.7m).

While the DSO does not collect its revenue on a per kWh basis, it is sometimes useful to

compare the Average Unit Price (AUP), that is, the total revenue divided by total kWhs,

when moving from one tariff period to another. The AUP for the 1 October 2017 to 30

September 2018 tariff period is 3.36c/kWh, a 1.07% decrease relative to the 3.40c/kWh

for the previous tariff period.

The CER’s current expectation is that the combined transmission and distribution

adjustments will result in the average annual residential customer’s bill rising by €2.77 in

October 2017, which is an increase of a 0.95%. However, the actual outcome for

customer prices depends, among other factors, on international fuel and related

generation costs, which are currently circa 50% of the overall cost of electricity to

customers.

DUoS tariffs for previous years are published on the CER website17. For convenience

there is a customer impact analysis showing the amount of DUoS paid by an average

16 Given certain customer number and GWh assumptions 17 The tariffs that are currently in place (covering the period 1 October 2016 to 30 September 2017) are available here

https://www.cer.ie/document-detail/Information-Note-on-2017-Revenue-DUoS-Tarriffs-and-Distribution-Loss-Adjustment-Factors/1104


14

customer (broken down by category) under the current and new tariffs is provided in

Appendix 1 of this paper. The percentage decrease in the tariffs always varies from the

AUP decrease calculated in the revenue model. The percentage decrease in DUoS tariffs

for 2017/18 will be on average 0.99%. The revenue model is based on the Total Revenue

Amount/GWh sales, whereas the DUoS tariff calculation takes account of customer

numbers and MIC’s as well as the GWh sales. It is also influenced by Large Energy User

(LEU) rebalancing, as per CER/10/198.

http://www.cer.ie/docs/000046/cer10198.pdf


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5 Distribution Loss Adjustment Factors

The CER has approved Distribution Loss Adjustment Factors (DLAFs) for implementation

from 1 October 2017 to 30 September 2018. DLAFs are applied to the metered

consumption of relevant customers to apportion distribution losses to energy

consumption or production metered at end user sites. The DLAFs for 1 October 2017 to

30 September 2018 are published alongside this paper and are also provided below in

table 3.

The values from the previous period (October 2016 to September 2017) are available on

the CER website18 and for ease of reference have been provided in table 4 below.

Voltage Level Time Period

Composite Day Night

38kV Sales 1.020 1.021 1.017

MV Sales 1.036 1.038 1.031

LV Sales 1.087 1.092 1.074

Table 3: DLAFs for 1 October 2017 to 30 September 2018

Voltage Level Time Period

Composite Day Night

38kV Sales 1.020 1.021 1.017

MV Sales 1.035 1.037 1.030

LV Sales 1.084 1.090 1.072

Table 4: DLAFs for 1 October 2016 to 30 September 2017

18 The DLAFs for the October 2016 to September 2017 period are available here.

https://www.cer.ie/document-detail/Information-Note-on-2017-Revenue-DUoS-Tarriffs-and-Distribution-Loss-Adjustment-Factors/1104


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6 Summary

This paper outlines:

The DSO allowed revenue approved for the 2018 calendar year;

The DUoS tariffs approved for implementation during the tariff period from 1

October 2017 to 30 September 2018; and,

The DLAFs approved for implementation during the period from 1 October 2017 to

30 September 2018.

The allowed revenue for the 2018 calendar year is €793.9m. The DUoS tariffs and

DLAFs that have been approved for implementation during the period from 1 October

2017 to 30 September 2018 are published alongside this paper.


17

Appendix 1: DUoS payments made by average customer

The below table gives a customer impact analysis showing the amount of DUoS paid by

an average customer’s (broken down by category) under the current and new tariffs.

DUoS payments made by average customer

kWh MIC* Oct 16 - Sept 17 tariffs, €

Oct 17 - Sept 18 tariffs, €

Change €

Change %

DG1: Urban Domestic - Standard Meter

3,543 n/a 208.8 206.7 - 2.1 -0.99%

DG1: Urban Domestic - Dual Meter

6,045 n/a 230.6 228.3 - 2.3 -0.99%

DG2: Rural domestic - standard meter

3,852 n/a 251.8 249.3 - 2.5 -0.99%

DG2: Rural domestic - dual meter

11,765 n/a 462.3 457.8 - 4.6 -0.99%

DG3: Unmetered 22,246 n/a 750.4 742.9 - 7.4 -0.99%

DG5 with a standard meter

12,182 n/a 637.8 631.5 - 6.3 -0.99%

DG5 with a dual meter

35,169 n/a 1,347.0 1,333.7 - 13.3 -0.99%

DG6 290,843 118 10,635.7 10,530.7 - 105.0 -0.99%

DG7 3,255,680 1,044 24,430.0 24,188.8 - 241.2 -0.99%

DG8 19,398,202 4,437 64,868.3 64,228.0 - 640.3 -0.99%

DG9 1,142,062 2,848 24,586.4 24,343.7 - 242.7 -0.99%

* The average MIC of customers in DG6 - DG9 excludes DG (a) customers as they do

not pay capacity charges


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Appendix 2: Abbreviations & Terms

Abbreviations

& Terms Definition or Meaning

AUP

The Average Unit Price (AUP), that is, the

total revenue divided by total kWhs, when

moving from one tariff period to another.

DLAFs Distribution Loss Adjustment Factors

DSO Distribution System Operator

DUoS Distribution Use of System

ESBN ESB Networks

K factors

K factors are the correction factors, which

ensure that prices in 2017 are adjusted by

an amount equal to the difference

between what was actually charged in

year 2015 (k-2) or 2016 (k-1) and the

forecast of what should have been

charged.

PR 4 Price Review 4