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All you need to know about the latest Ofgem regulation which may mean future increases to your business electricity costs.
Why TCR?
This regulation is a result of industry reform recently introduced by Ofgem around how the Transmission (TNUoS) and Distribution (DUoS) networks recover the cost of maintaining pylons, wires and cables in order to service the network. Traditionally a large proportion of network costs are recovered by peak period charges (HH Triad, DUoS Red), but with customers investing in ways to reduce their peak period consumption, networks need to change the way in which they recover the revenue they require to maintain the networks. At the moment, these rates are built into the unit rate on your electricity bill.
What is TCR?
The regulator has decided that this is no longer fair and going forward will remove the option to avoid peak period charges and move to a new mechanism where sites of the same size and regardless of location, will pay the same fixed amount for Transmission. For Distribution, they will pay a fixed amount but on a regional basis and sites of the same size, in the same distribution region will pay the same fixed amount.
When will the regulation be active from?
The regulation was originally planned to start from April 2022 for both the Transmission and Distribution elements. However, due to recent push back as a result of forecasted increases impacting large capacity sites, the TNUoS element is now under question and likely to be delayed until April 2023. DUoS revisions of TCR are still going ahead as planned from April 2022, and you will start to see this filtering through to your billing as suppliers move to fixed costs recovered from your contract on a monthly basis.
What do the charges consist of?
The charges for TNUoS and DUoS have been split into two parts – residual and forward-looking. The residual element makes up 50% of DUoS cost and 90% of TNUoS and it’s the residual element that is impacted by the Targeted Charging Review.
What does this mean for my contract?
TCR is still an impending regulation and whilst the more significant part of the regulation, TNUoS residual element, is now likely to be delayed until April 2023, suppliers will still forecast any additional charges to contracts and if you are currently renewing contract(s) that end after April 2023 your pricing will be
impacted.
Who will this affect?
This affects all electricity clients as suppliers migrate from one scheme to another through the transition period.
How does it work?
For metered supply with no agreed capacity, charging bands will be based on net volumes of consumption. For half-hourly metering, charges will vary depending on the agreed capacity and voltage level. Rates will vary for different regions.
If your contract start date is April 2022, you will just switch from one charging mechanism to another and you’ll notice a difference in renewal offers (higher standing charge or capacity charge). For other start dates,
charges will be made up of both mechanisms as contracts go through the transition of schemes so renewals again will be higher. This is a one-off change so once contracts go past April 2023, all should be on the updated fixed charging mechanism.
What can you do to manage the risks?
Suppliers have dealt with TCR differently as some have been forecasting this cost into quotes for a while in preparation, others have waited until nearer the time to ascertain impact. What we do know is that as this is classed
as a ‘new regulation’ every supplier has the ability to pass on any costs under this term within terms & conditions. This could impact contracts signed before November 2020 that have a contract length that includes April 2022 (for DUoS) and April 2023 (for TNUoS) dates of migration from one scheme to
another.
Our top tips
1. Make sure that you understand the terms and conditions that you are signing or ask your consultant to check them. Pay particular attention to a Change in Law or Change to Industry Agreement clauses. These clauses allow regulatory changes such as TCR to automatically be included on your billing.
2. Check whether or not you have a reconciliation clause written into your contract. If you do then the supplier reserves the right to claw back any charging errors or incorrect forecasting.
How can BCR Associates help
We are lucky enough to have long standing relationships with our suppliers and are in conversation with them on a regular basis. We regularly check to find out how they are dealing with new regulation and establishing
what they are including within quotes and how it is being quoted on fixed and fully fixed contracts so that we can advise our clients accordingly. It’s worth speaking to your relationship manager for more details.
