Ofgem is making key changes to the Common Distribution Charging Methodology (CDCM) with its “DCP228” directive, which will affect most businesses and could potentially see them paying more for their energy. The changes will determine how distribution charges are calculated and are scheduled to be implemented April next year.

At the moment, distribution charges can account for up to 19% off a customer’s energy bill and the biggest and is calculated based on usage using a banded tariff. During the peak “red” band a much higher tariff is charged. The timeframe for the red band relates to evening use meaning the current charging method produces a large amount of revenue from this peak evening usage.

The intention of the DCP228 directive is to more accurately reflect the cost of use of the distribution network in the charges that are then levied. For instance, some users may have a large consumption but because their usage falls within amber or green periods are paying relatively less than others who potentially consume less but consume during the peak periods.

For most distribution areas, red band charges will fall whilst amber and green charges will rise. This means that consumers who have a two-rate meter are likely to see an increase in charges whilst those who are charged a single rate will see a small reduction in charges. The precise effect on your charges if you are metered through a half hourly settled supply will depend on how you consume the electricity you use. If you have a strong consumption profile throughout the peak period then you may find that your costs move down or remain reasonably static whilst those who consume very evenly across the 24-hour period may find that their costs increase. Often the distribution charges are incorporated in the unit rates charged and so there may be less difference between the day and night rates you are charged.

Many half-hourly metered consumers who accept the distribution charges on a pass-through basis from suppliers have invested in demand management measures or ‘load shifting’ to avoid peak times and the good news is that this will continue to pay since there will still be a significant difference between the amber, green and red band charging periods. The cost benefit will be reduced but will remain significant.

The earliest possible start date for DCP228 is April 2018 since there is a requirement for a 15 month notice period before any changes are made. At Power Direct we monitor all non-commodity costs just as we do the basic commodity charges and will look at any individual cases if there is cause for concern. The most important thing is to understand the potential impact and act if necessary.

Now is the ideal time to take a fresh look at any existing strategies that were put in place to reduce peak time consumption and possibly create new strategies to make sure your business is not hit too hard by these changes.

DCP228 could impact your energy bill, if you would like to talk to one of our expert energy advisors about this or anything else to do with your business energy please don’t hesitate to get in touch.

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