Response to Ofgem Consultation on Targeted Charging Review: Minded to Decision and Draft Impact Assessment

The authors welcome the opportunity to respond to Ofgem consultation on the best way of setting the transmission and distribution residual charges. We agree with Ofgem’s basic approach to fairness, which reflects our own assessment of fairness in distribution charges in a more general context, prepared for BEUC. 1 We also agree that a major principle behind recovering costs which are ‘legacy’ rather than forward looking costs, as in the Ofgem consultation, should be to distort consumption and investment decisions as little as possible. Our report majors on domestic customers, most of whom are more likely to alter their demand than to decide to leave the network altogether as a result of price changes. Therefore we agree that the principle of least distortion, as well as the other criteria outlined by Ofgem (in particular practicality and proportionality) indicate that a per customer charge is an appropriate basis for ‘residual charges’. We do not comment specifically on Embedded Benefits, but agree that similar principles should apply.