Charging Statement for Service Charges. Regulatory Year ending 31 March 2019

Transcription

1 Charging Statement for Service Charges Regulatory Year ending 31 March 2019 Issue: 1.1 (draft for notice) Date: 8 June 2018

2 Contents 1 Introduction... 3 SECTION A - SUMMARY OF CHARGES FOR RY2018/ Summary of charges... 5 SECTION B - ESTIMATED REVENUE Estimated Allowed Revenue Estimated Fixed Revenue Estimated Elective Communication Services Revenue SECTION C - FIXED CHARGES AND FIXED ALT HAN CHARGES Charging periods Charging Groups SECTION D - COMMUNICATIONS HUB CHARGES AND EXPLICIT CHARGES Communications Hubs Faults Explicit charges SECTION E INVOICING Invoicing and Credit Cover Appendix A Publications timetable Appendix B Fixed Charge assumptions Appendix C Explicit Charges Appendix D Worked Examples Appendix E Acronyms Appendix F Glossary Page 2 of 42

3 1 Introduction 1. This document is the draft second issue (1.1) of the Charging Statement for Service Charges for Smart DCC Ltd (DCC) for the Regulatory Year ending 31 March 2019 (RY2018/19). 2. This Charging Statement has been prepared in accordance with Section J and K of the Smart Energy Code (SEC) and the Smart Meter Communication Licence (the Licence). Both the SEC and the Licence have recently been updated to: include Dual Band Communications Hub charges introduce a new CH Fixed Revenue category which is to be recovered by Charging Groups 1 3 only remove regional differentiation of the Fixed Charges and Fixed CH Charge. 1.1 Smart Metering Implementation Programme (SMIP) 3. As we prepare to operate at scale over the next year or so we are developing an initiative which is referred to as readiness to scale to meet the needs of customers and support the increased volumes of installations in We have been sharing information on regular basis with industry, for example at the ready to scale forums. 4. The next large release will be Release 2.0 (R2.0). R2.0 will make Dual Band Communications Hubs (DBCH) available to all SEC Parties as well as make changes to the DCC test and production systems needed to support DBCH. In October 2017, we finalised the delivery plan for R2.0 which includes the approved milestones. 5. This publication includes the estimated costs of R2.0 including the unit costs of DBCH. 1.2 Enrolment and adoption of SMETS1 Meters 6. In the initial stages of the smart meter rollout across Great Britain, a number of Energy Suppliers installed first generation smart metering devices (known as SMETS1 devices) in consumers homes. SMETS1 devices installed by one Energy Supplier, however, are not always interoperable with and supported by another supplier s systems. DCC will be enrolling these SMETS1 devices into the DCC system so that all SMETS1 customers can maintain their smart services following a decision to switch suppliers. In October 2017, we published the plan for delivering SMETS1 enrolment. 7. This publication includes estimated costs associated with SMETS1, which are set out in Table 9. The majority of these costs relate to new SMETS1 contracts which are currently categorised as External Costs. 1.3 Supporting Ofgem s Switching Programme 8. Both Ofgem and the government have made faster, reliable switching for energy consumers a priority. The arrangements for faster switching will be delivered through a centralised switching service (CSS), an Ofgem-led programme to transform current switching arrangements. 9. On 12 February 2018, Ofgem published the Outline Business Case and Blueprint phase decision. In that decision, Ofgem chose reform package (RP2a), and decided in principle to extend DCC s licence obligations to cover the Design Build and Test (DBT) phase and early years of operation - the final decision is expected later in This publication includes forecasts relating to the Transitional Phase of the programme only which is expected to end in mid It does not currently include any estimated costs in relation to the DBT phase. These forecasts are set out in Table The DCC opt-out for Non- Domestic premises 11. On 31 May 2018 the SEC was amended to remove the DCC opt-out for non-domestic properties. This included extension of uniform pricing to non-domestic properties, which would remove the rationale for differentiating Fixed Charges and Fixed CH Charges for Non-Domestic Premises by Region. Page 3 of 42

4 12. This change results in the simplification of Fixed Charges and Fixed CH Charges, both of which are reflected in this revised Charging Statement. 1.5 Other information 13. If you have any questions relating to this document or if you would like to provide feedback on how this document might be improved, Please This document is available on the DCC website ( 14. Please note that some of the numbers in this document may not sum to total due to rounding. Page 4 of 42

5 SECTION A - SUMMARY OF CHARGES FOR RY2018/19 2 Summary of charges 15. In accordance with the Charging Methodology, this section sets out the charges applicable in RY2018/ Fixed Charges 16. Further detail on Fixed Charges is set out in Section C. The monthly Fixed Charges are set out in Table 1. Charging Group Monthly Fixed Charge ( /MSMS) Monthly Fixed Charge ( /ESMS) Premises type Domestic Non-domestic g1 - Import Suppliers g2 - Export Suppliers g3 - Gas Suppliers g4 - Electricity Distributors g5 - Gas Transporters Monthly Fixed Charges by Charging Group for RY2018/19 from September 2018 onwards (excluding VAT) 2.2 Fixed Alt HAN Charges 17. The monthly Fixed Alt HAN (Alternative Home Area Network) Charges are set out in Table Further detail on Fixed Alt HAN Charges is set out in Section C. Charging Group Monthly Fixed Alt HAN charge ( /MSMS) g1 - Import Suppliers g3 - Gas Suppliers Fixed CH Charges Monthly Fixed Alt HAN Charges by Charging Group for RY2018/19 (excluding VAT) 19. The monthly Fixed CH Charges for Single Band Communications Hub (SBCH) and Dual Band Communications Hubs (DBCH) are set out in Table 3. Charging Group Monthly Fixed CH charge ( /ESMS connected to SBCH) Monthly Fixed CH charge ( /ESMS connected to DBCH) HAN Variant SBCH DBCH g1 - Import Suppliers g2 - Export Suppliers g3 - Gas Suppliers Monthly Fixed CH Charges by Charging Group for RY2018/19 from September 2018 onwards (excluding VAT) Page 5 of 42

6 2.4 Explicit Charges 20. The Explicit Charges in Tables 4, 5 and 6 are applicable where a party procures a specific DCC product or service as set out in Section K7.5 of the SEC. (See section 11 for more detail). 21. Table 4 sets out the set Explicit Charges applicable for DCC products/services procured by parties in RY2018/19. SEC reference Product/service Explicit Charge Unit K7.5 (j) Communications identified in the DCC User Interface Services Schedule Service Requests 0.00 Per service request K7.5 (l) CH stock level charge (SBCH) 0.45 Per SBCH per month K7.5 (l) CH stock level charge (DBCH) 0.67 Per DBCH per month K7.5 (n) CH auxiliary equipment: RF mesh aerial 4.00 Per additional aerial K7.5 (n) CH auxiliary equipment: Cellular aerial 4.00 Per additional aerial K7.5 (o) CH returned and redeployed (SBCH) 9.35 Per SBCH K7.5 (o) CH returned and redeployed (DBCH) Per DBCH K7.5 (p) CH returned not redeployed (SBCH) Per SBCH K7.5 (p) CH returned not redeployed (DBCH) Per DBCH Set Explicit Charges for RY2018/19 (excluding VAT) 22. Table 5 below sets out the indicative Explicit Charges. These charges rely on a number of variables which are only known when a customer applies for a particular product/service. At the point of application, DCC will provide parties with a noobligation quote. Page 6 of 42

7 SEC Reference Service Indicative Explicit Charge Unit K7.5 (a) User Security Assessments K7.5 (a) Follow-up Security Assessments K7.5 (a) User Security Assessment Reports Contact SECAS at K7.5 (b) Full Privacy Assessments K7.5 (b) Privacy Assessment Reports K7.5 (c) DCC Gateway LV Connection connection charge 300 4,000 Per connection K7.5 (c) DCC Gateway LV Connection annual charge 600 4,000 Per annum for a 3-year contract (a 1-year option is also available) K7.5 (d) DCC Gateway HV Connection connection charge 3,000 15,000 Per connection K7.5 (d) DCC Gateway HV Connection annual charge 4,000 32,000 Per annum for a 3-year contract (a 1-year option is also available) K7.5 (e) Gateway equipment relocation 812 Per consultant, per day K7.5 (f) Elective service evaluations 750-1,500 Per consultant, per day K7.5 (g) Parse and Correlate support 280 1,300 Per consultant, per day K7.5 (h) SM WAN for testing - connection charge 10,140 K7.5 (h) SM WAN for testing - connection charge 2,024-2,277 K7.5 (h) SM WAN for testing monthly charge 2,548 K7.5 (h) SM WAN for testing monthly charge 1,012 Per each SM WAN provided for testing in CSP North Per each SM WAN provided for testing in CSP South and Central Per each SM WAN for testing in CSP North per month (subject to a minimum of 6 months) Per each SM WAN for testing in CSP South and Central per month (subject to a minimum of 6 months) K7.5 (i) Additional testing support 700 1,350 Per consultant, per day K7.5 (k) CH non-standard delivery 103 Per delivery K7.5 (q) CH wrong returns location Per Communications Hub (subject to minimum volumes) K7.5 (r) Single Band Test Communications Hubs (SB TCH) 119 Per unit (subject to minimum volumes) K7.5 (r) Dual Band Test Communications Hubs (DB TCH) 176 Per unit (subject to minimum volumes) K7.5 (r) Single Band Instrumented Test Communications Hubs (SB ITCH) 232 Per unit (subject to minimum volumes) K7.5 (r) Dual Band Instrumented Test Communications Hubs (DB ITCH) 395 Per unit (subject to minimum volumes) K7.5 (s) Additional CH Order Management System Accounts Annual licence fee per additional user account per region Indicative Explicit Charges applicable in RY2018/19 Page 7 of 42

8 23. Table 6 below lists the DCC services which customers will be able to procure in the future when available. The Charging Statement may be updated in the future to reflect the introduction of some, or all, of these charges. SEC Reference Service Charge ( ) K7.5 (t) Shared solution Alt HAN Equipment K7.5 (u) Point-to-point Alt HAN Equipment Charging Statement will be revised once services are more defined and/or scheduled to be made available Charging Statement will be revised once services are more defined and/or scheduled to be made available K7.5 (v) Stock level point-to-point Alt HAN Equipment Charging Statement will be revised once services are more defined and/or scheduled to be made available Explicit Charges yet to be determined Page 8 of 42

9 SECTION B - ESTIMATED REVENUE 3 Estimated Allowed Revenue 24. Table 7, below, sets out DCC s Estimated Allowed Revenue for RY2018/19, in total and split by its components. Acronym Name RY2018/19 ( m) NFRt + ΣRFRrt Estimated National and Regional Fixed Revenue ΣRCHFRrt Total Communications Hub Fixed Revenue 21.0 Sub-total used to calculate Fixed Charges for RY2018/ AHFRt Estimated Alt HAN Fixed Revenue 21.3 ΣRCHDRhrt Total Communications Hub Device Revenue 23.6 EFRt Estimated Fixed Revenue Total DCC cost for RY2018/ EECRt Estimated Explicit Charges Revenue 9.5 EESRt Estimated Elective Services Revenue - EARt Estimated Allowed Revenue Estimated Allowed Revenue for RY2018/19 (excluding VAT) 1 Excluding Communications Hub Device Revenue and correction factor Page 9 of 42

10 4 Estimated Fixed Revenue 25. Table 8 sets out the Estimated Fixed Revenue split by its components in accordance with section K3.8 of the SEC. Acronym Name RY2018/19 ( m) NFRt National Fixed Revenue RFRrt Regional Fixed Revenue (North) 58.3 RFRrt Regional Fixed Revenue (Central) 35.4 RFRrt Regional Fixed Revenue (South) 30.8 NFRt + ΣRFRrt Total National and Regional Fixed Revenue RCHFRrt Regional Communications Hub Fixed Revenue (North) 9.1 RCHFRrt Regional Communications Hub Fixed Revenue (Central) 6.7 RCHFRrt Regional Communications Hub Fixed Revenue (South) 5.2 RCHFRrt Total Communications Hub Fixed Revenue 21.0 Sub-total used to calculate Fixed Charges for RY2018/ AHFRt Alt HAN Fixed Revenue 21.3 RCHDRhrt (Single Band) Regional Communications Hub Device Revenue (North) 4.2 RCHDRhrt (Single Band) Regional Communications Hub Device Revenue (Central) 10.6 RCHDRhrt (Single Band) Regional Communications Hub Device Revenue (South) 8.7 Single Band Communications Hubs correction factor 0.0 RCHDRhrt (Dual Band) Regional Communications Hub Device Revenue (North) 0.0 RCHDRhrt (Dual Band) Regional Communications Hub Device Revenue (Central) 0.0 RCHDRhrt (Dual Band) Regional Communications Hub Device Revenue (South) 0.0 Dual Band Communications Hubs correction factor - ΣRCHDRhrt Total Communications Hub Device Revenue 23.6 EFRt Estimated Fixed Revenue Total DCC cost for RY2018/ Estimated Fixed Revenue for RY2018/19 (excluding VAT) 26. The total National and Regional Fixed Revenue and Communications Hub Fixed Revenue are used to calculate the Fixed Charges in Table Alt HAN Fixed Revenue is used to calculate the Alt HAN Fixed Charges in Table The total Communications Hub Device Revenue is used to calculate the Fixed CH charges in Table Estimated Fixed Revenue comprises: Internal Costs (see section 4.1); External Costs (see section 4.3); 2 Excluding Communications Hub Device Revenue and correction factor (but including disallowed cost) Page 10 of 42

11 Pass-Through Costs (see section 4.4 and 4.10); Baseline Margin and any External Contract Gain Share (see section 4.2 and 4.5); and Prudent estimate (see section 4.6). 30. Table 9 set out Estimated Fixed Revenue by category for RY2018/19. Estimated Fixed Revenue by category SMETS2 ( m) SMETS1 ( m) Switching ( m) Total ( m) Internal Costs (4.1) Baseline Variance to baseline Baseline Margin (4.2) 5.5 External Costs (4.3) Pass-Through Costs (4.4) Baseline Variance to baseline Authority - SECCo Ltd 6.8 External Contract Gain Share (4.5) 2.6 Prudent estimate (4.6) 20.3 Correction factor (4.7) Updated RY2016/17 - Disallowed cost RY2016/17 (0.9) Estimated RY2017/18 - Total National and Regional Fixed Revenue Total Communications Hub Fixed Revenue (4.8) 21.0 Sub-total used to calculate Fixed Charges for RY2018/ AltHANCo 21.7 Alt HAN (4.9) Alt HAN correction factor RY2016/17 (0.4) Alt HAN correction factor RY2017/18 - Total Alt HAN Fixed Revenue 21.3 SBCH baseline 63.4 Communications Hubs Device Revenue (4.10) SBCH variance to baseline (39.9) SBCH correction factor RY2016/ SBCH correction factor RY2017/18 - DBCH 0.0 DBCH correction factor RY2017/18 - Total Communications Hub Device Revenue 23.6 Estimated Fixed Revenue (EFRt) Total DCC cost for RY2018/ Estimated Fixed Revenue by category for RY2018/19 (excluding VAT) 3 Excluding Communications Hub Device Revenue and correction factor (but including disallowed cost) Page 11 of 42

12 31. With reference to Table 9: 4.1 Internal Costs Resource costs 32. Internal Costs for DCC for RY2018/19 include resource costs that relate to: the delivery of the Smart Metering Implementation Programme (SMIP); preparation for and/or delivery of various future releases (including DBCH in R2.0), SMETS1 and the Switching Programme; contract and performance management of External Service Providers; applying the Charging Methodology and complying with the Price Control Conditions in the Licence; providing DCC Internal Systems, including the billing, business intelligence and management information systems; applying design governance; planning, coordinating and assuring test activities of External Service Providers; providing a Smart Metering Key Infrastructure (SMKI) Services and Parse and Correlate Software; engaging with SEC Panel, customers and other stakeholders; managing changes to all programmes; managing new initiatives; programme management of DCC deliverables; and audit and test assurance services Non-resource costs 33. Internal Costs also include non-resource costs. Examples of non-resource costs include: accommodation; travel; recruitment; legal fees; consulting fees; information technology services and services procured through Capita plc (e.g. Group Finance, Tax and Treasury and Group HR); providing service management including first line Service Desk; benchmarking of Fundamental Service Providers contracts post go-live to assess competitiveness of costs of delivery and operations against other similar external programmes; and all External Service Provider cost that is related to Relevant Service Capability (not Fundamental Service Capability). 34. These costs are described in the Regulatory Instructions and Guidance (RIGs) published by the Authority on its website ( Variance to baseline 35. Baseline Internal Costs are the Internal Cost forecast included in the Licence Application Business Plan which was submitted by Capita plc to government prior to the granting of the Licence. 36. Variance to baseline reflects: changes to requirements, volumes, risk, complexity and timescales of the activity to be carried out; costs associated with changes to the DCC programme plans; the costs of setting up and operating the SMKI Service and Parse and Correlate Software; Page 12 of 42

13 the costs of additional resources to oversee the planning, coordinating and assurance of testing; refinement of the service management framework leading to an increase in scope of the design, integration and technical requirements; requirements for DCC to provide financial stability and financial security in accordance with LC26 (Financial stability and financial security), which was subject to finalisation following the grant of the Licence; auditing the accuracy of External Service Providers charges and their performance against contractual milestones in accordance with Schedule 8.4 (Records and Audit Provisions) of the External Service Provider contracts; additional operational costs associated with the updated Communications Hubs financing arrangements; the extra level of resource required to manage the emerging complexities of the SMIP programme; and costs associated with large future releases and new programmes e.g. DBCH, SMETS1 and Ofgem s Switching Programme; and costs associated with readiness to scale. 4.2 Baseline Margin 37. The Baseline Margin value in Table 9 includes the BM values set out in Appendix 1 to Licence condition 36 (Determination of the Licensee s Allowed Revenue) for RY2018/19, plus the following adjustments: an increase in relation to the additional margin awarded to DCC by Ofgem in February 2018; a reduction in relation to missed Implementation Milestones in RY2016/17 as determined by Ofgem in February 2018; a forecast increase in relation to the margin associated with the Switching Programme for the Transitional Phase; and additional margin as directed by Ofgem in previous years. 4.3 External Costs (including Communications Hub Fixed Revenue) 38. The External Costs and Communications Hub Fixed Revenue (see Section 4.8) for RY2018/19 in Table 9 are broken down further in Table 10 below: Estimated External Costs by category Baseline ( m) Variance to baseline ( m) Set-up costs (4.3.1) Fixed operational costs (4.3.2) Performance incentives (4.3.3) - - Impact assessments/projects (4.3.4) Catalogue services (4.3.5) Total Estimated External Costs by category for RY2018/19 (excluding VAT) Set-up costs 39. Set-up costs are payable upon achievement of milestones, may be subject to financing arrangements and are payable to the DSP and CSPs as monthly deferred set-up charges over the period of the financing arrangements as set out in Schedule 7.1 of the Service Provider contracts. These milestones are described within the master milestone table and coverage table in Schedule 6.1 of the contracts. The redacted versions of the contracts are available on the DCC website. Page 13 of 42

14 40. The variance (to baseline) for set-up costs includes: refinement of the service management framework through design workshops leading to increased scope and requirements for External Service Providers; the agreed costs relating to additional functionality and complexities identified within GBCS; and refinancing of set-up costs; gainshare payments made to the DSP and/or CSPs; Costs relating to new programmes i.e. DBCH and SMETS1 (we have allocated the forecast costs associated with SMETS1 communications contracts to External Costs) Fixed operational costs 41. Fixed operational costs consist of fixed monthly charges payable to the DSP and CSPs for the provision of services from the commencement of DCC live operations to the end of the DSP and CSPs contracts. Changes to fixed operational costs include: costs emerging as a result of resetting the commencement date of live operations; costs related to the impact of the development of GBCS; extended coverage in the North Region; forecast costs related to additional service management activity likely to be required for future releases; and other costs anticipated in relation to future releases Performance incentives 42. DCC makes payments to the DSP and CSPs where they meet their respective performance milestones. If those milestones are not achieved, any forecast costs will be returned to customers through the correction factor. For RY2018/19 we do not forecast to make any performance incentive payments Impact Assessments/projects 43. We have estimated the cost associated with an anticipated level of Impact Assessments and Projects that may be necessary in RY2018/19. These relate to activity to deliver: Mandatory Business Services; changes managed through the transitional governance arrangements; and any future changes raised through the modification process Catalogue Services 44. DCC may procure items from the catalogue services set out in the DSP and CSPs contracts. A number of these items will be recovered from customers via Explicit Charges (see section 11). Costs relating to items in the catalogue services that will benefit all customers will be recovered via the monthly Fixed Charges, this is the value set out in Table Pass-Through Costs 45. The Pass-Through Costs in this section consist of: fees payable to the Authority, the current assumption is that this will be nil for the foreseeable future; costs associated with SECCo Ltd, consistent with the budget approved for consultation by the SEC Panel in December Further details can be found on the SEC website: AltHANCo costs, which are now reported lower in the table (see section 4.10). 46. DCC passes through these costs to DCC s customers via DCC charges. 4.5 External Contract Gain Share 47. In July 2017, DCC applied to adjust the External Contract Gain Share (ECGS) term Page 14 of 42

15 to reflect a reduction in External Costs which DCC helped to achieve. In February 2018, Ofgem decided to accept DCC s application to adjust the ECGS term. The value in Table 9 reflects Ofgem s final decision in relation to RY2016/ The value in Table 9 also reflects ECGS allowed by Ofgem in previous years. 4.6 Prudent estimate 49. DCC ensures that all costs represent good value for money and are economic and efficient. However, as with most complex programmes, the development of the DCC service involves a level of emergent change which gives rise to elements of uncertainty and risk. Consequently, actual costs may vary from those anticipated in the Charging Statement. 50. Whilst DCC s approach to setting Charges provides certainty to DCC s customers it does not provide DCC with sufficient operating liquidity to ensure that it can meet its financial commitments in months when cash outflows exceed cash inflows, for this reason we recover an extra amount referred to as the prudent estimate. 51. The intent of the prudent estimate is to ensure that DCC remains cash positive and meets its financial commitments throughout the year and, as far as is possible, that Service Charges do not need to change during the Regulatory Year. In RY2018/19, the prudent estimate represents approximately three weeks operating liquidity in relation to all Internal and External Costs. 52. We will return any surplus prudent estimate to customers via a reduction in Charges, via the correction factor, in RY2019/ Correction Factor 53. We use the correction factor to: return (or recover) any difference between Allowed Revenue and Regulated Revenue with respect to the prior Regulatory Years; and to reflect any incurred costs disallowed by Ofgem. For this Charging Statement we have provided an estimate of the correction factor values we estimate will be applied to the RY2018/19 charges. 54. There will be three correction factors applicable next year, these are: Main correction factor applied to the National and Regional Fixed Revenue. This also includes costs incurred in RY2016/17 that have been disallowed by Ofgem as determined in February 2018; Communications Hubs correction factor applied to the Communications Hub Device Revenue; and Alt HAN correction factor applied to the Alt HAN Fixed Revenue. 55. All three relate to costs in RY2016/17. These are separated because they will be applied to different charges payable by different customer types. 4.8 Communications Hub Fixed Revenue 56. Communications Hubs Fixed Revenue reflects the costs and expenses incurred to provide Communications Hub Services and Test CH Services that are incremental to the asset and maintenance costs per Communications Hubs (see Sections 4.9 and 4.10). 57. These costs are included within each of the External Cost categories listed in Table From September 2018, Communications Hubs Fixed Revenue will be recovered from Charging Groups 1, 2 and 3 only. 4.9 Alt HAN 59. These are the costs relating to AltHANCo Ltd as approved by the Alt HAN Forum in December 2017, adjusted by the correction factor which reflects any under/overrecovery in previous years Communications Hubs Device Revenue 60. Communications Hub Device costs consist of: Page 15 of 42

16 asset charges payable to the CSPs following each successful delivery of either a Single Band or Dual Band Communications Hub the Office for National Statistics ( The Baseline Margin also includes an allowance for indexation using RPI as defined in LC36.8. maintenance charges payable to the CSPs following each successful commissioning of either a Single Band or Dual Band Communications Hub a correction factor adjustment to reflect any under/over-recovery in previous years of costs relating to either Single Band or Dual Band Communications Hubs Indexation 61. Internal Costs include an allowance for indexation which is based on historical Retail Prices Index (RPI) data published by 62. External Costs include an allowance for indexation, in accordance with the terms of the External Service Provider contracts, which is based on historical Consumer Price Index (CPI) data published by the Office of National Statistics ( 63. Pass-Through Costs include an allowance for indexation at the rate provided by SECCo Ltd and AltHANCo Ltd. The correction factor is stated in current values and therefore does not include an allowance for indexation. 5 Estimated Elective Communication Services Revenue 64. Elective Charges are payable in respect of Elective Communication Services, which include: Services to or from a Smart Metering System that relate solely to the Supply of Energy (or its use), and Services that are provided by DCC pursuant to a Bilateral Agreement. 65. In accordance with Section H7 (Elective Communication Services) of the SEC, these services require a preliminary assessment, Detailed Evaluation (if necessary) and formal offer from DCC to enter into a Bilateral Agreement with a customer. 66. DCC has not entered into any Bilateral Agreements with customers for elective services. The extent to which this may be required in RY2018/19 is unclear at this stage and therefore Elective services Revenue for RY2018/19 is nil. Page 16 of 42

17 SECTION C - FIXED CHARGES AND FIXED ALT HAN CHARGES 6 Charging periods 67. In accordance with section K3.2 of the SEC, Fixed Charges are payable: Prior to the UITMR period for MSMS for Domestic Premises this period ended on 31 March 2015 During the UITMR period for MSMS for Domestic Premises and ESMS for Non-Domestic Premises this period commenced on 1 April 2015, and After the UITMR period for ESMS (whether for Domestic Premises or Non-Domestic Premises). payments to at least one of its External Service Providers. In accordance with section K3.2 of the SEC, the approach to setting Fixed Charges in this Charging Statement is in the second of the three phases. DCC will invoice customers based on MSMS in Domestic Premises and ESMS in Non-Domestic Premises. 6.2 After UITMR 69. After the conclusion of mass rollout (post UITMR), DCC will invoice customers based on ESMS only. There will no longer be a charge for meters that are not enrolled in DCC. 6.1 During UITMR 68. UITMR commenced on 1 April 2015 as DCC started making regular monthly 7 Charging Groups 70. Fixed Charges payable in respect of Smart Metering Systems will be payable by customers in the Charging Groups set out in Table Table 11 sets out the latest estimate of total Smart Metering Systems (RESMS) which is the total of MSMS in Domestic Premises (REDSMS) and ESMS in Non-Domestic Premises (RENSMS). This data is used in conjunction with the National Fixed Revenue, Regional Fixed Revenue and Communications Hub Fixed Revenue from Name MSMS All regions ESMS All regions Table 8, to determine the monthly Fixed Charge per MSMS. Assumptions related to each Charging Group for Domestic and Non-Domestic volumes are available in Appendix B. 72. The size of the Charging Groups has been estimated based on the data provided by the Registration Data Providers as at 15 November Total SMS All regions Charging Group Weighting Factor (αgt) g1 - Import Suppliers 28,625,407-28,625, g2 - Export Suppliers g3 - Gas Suppliers 23,178,085-23,178, g4 - Electricity Distributors 28,681,479-28,681, g5 - Gas Transporters 23,264,948-23,264, Total Smart Metering Systems (RESMS grt) 73. In accordance with the First Relevant Policy Objective, Fixed Charges in respect of MSMS in all premises will be the same in all Regions (also referred to as the postage stamp principle). Page 17 of 42

18 74. The Charging Group Weighting Factors specify the ratio of costs to be incurred in respect of each Smart Metering System (without regard to the number of Smart Metering Systems). These weighting factors are based on an estimate of the demand for DCC Services within each Charging Group in accordance with the Charging Methodology. This estimate is derived from: Forecast of Smart Metering Systems rollout volumes; Service Request cost assumptions; and Forecast of Service Request volumes for RY2021/22 (until data on usage becomes available). 75. DCC has derived these Charging Group Weighting Factors using aggregated demand and rollout profiles provided by energy suppliers and network operators to DECC at the bid stage combined with the contracted variable costs of External Service Providers. 76. Table 1 (Summary of Charges) shows the monthly Fixed Charges applicable to each Smart Metering System within each Charging Group. 77. The formula for calculating the monthly Fixed Charges is set out in K5.4 of the SEC. Page 18 of 42

19 SECTION D - COMMUNICATIONS HUB CHARGES AND EXPLICIT CHARGES 8 Communications Hubs 78. Charges in relation to Communications Hub Services are payable by customers from the point a Communications Hub order has been delivered and accepted by that customer. 79. A customer has five days from the point of receiving a delivery to either accept or reject it. A delivery will be deemed as accepted through either customer acceptance or on the expiry of the five days if no action is taken. Subsequently a customer may return the Communications Hubs which may be subject to an Explicit Charge, see section 11 on Explicit Charges. 80. These arrangements apply to either a SBCH or DBCH. 8.1 Estimated Communications Hub Device Revenue 81. The estimated Communications Hub Device Revenue in this Charging Statement is based on aggregated volumes from the volumes forecast submitted by relevant customers to DCC, see Table 12. The actual volume of Communications Hubs delivered and accepted during the course of a Regulatory Year and the cumulative base volumes of Smart Metering Systems will determine the total recoverable revenue. Category Forecast volume through the CH stock level charge or the Fixed CH Charge. 8.2 Types of Communications Hubs Charges 84. The monthly charges associated with Communications Hub Services in a Charging Period will be determined by a combination of: CH stock level charge - Volume of accepted deliveries of Communications Hubs (including those of which DCC are yet to be notified of its installation); and Fixed CH Charge - Volume of ESMS. 8.3 Fixed CH Charge 85. Customers will be invoiced these charges based on the number of: ESMS connected to a SBCH ESMS connected to a DBCH Charging Groups for Fixed CH Charges. 86. Following the installation of a Communications Hub a Fixed CH Charge is only payable by customers in either one or more of the Charging Groups for Communications Hubs as per Table 13. SBCH installed 7,807,753 DBCH installed 10,000 ESMS connected to SBCH 11,227,566 ESMS connected to DBCH 16,500 Forecast volumes for Communications Hubs and enrolled Smart Metering Systems in RY2018/ Estimated Regional Communications Hub Device Revenue is set out in Table The CH Charging Group Weighting Factors specify the ratio of costs to be incurred in respect to each ESMS. In accordance with section K3.13 of the SEC, DCC derives these ratios based on the relative proportion of the main Charging Group Weighting Factors. 88. The CH Charging Group Weighting Factors will be refreshed in line with any subsequent updates to the Charging Group Weighting Factors. 83. DCC will only start to recover Communications Hub Revenue once the first delivery of Communications Hubs has been accepted by a customer, either Page 19 of 42

20 Name Charging Group Weighting Factor (βgt) g1 - Import Suppliers 0.52 g2 - Export Suppliers 0.09 g3 - Gas Suppliers 0.39 CH Charging Group Weighting Factors 89. The CH stock level charge is a blended average charge set at the start of each Regulatory Year. The charge is based on 9 Faults 92. This section explains the Charges payable where a Communications Hub is found to have a fault. The responsibility of that fault could either lie with a customer or DCC and will be determined in accordance with Section F9.6 of the SEC. 9.1 Customer fault 93. Where a customer is deemed to be responsible for a Communications Hub fault, one of two charges will apply. These are set out below: CH returned not redeployed (Section K7.5(p)) of the SEC: A blended average charge set at the start of each Regulatory Year to recover the remaining cost associated with a Communications Hub. the number of Communications Hubs held in stock by a customer at the end of the Charging Period. 90. The CH stock level charges for RY2018/19 are set out in Table 4 in section A (Summary of Charges). 91. All CH Charges associated with Communications Hub Services are payable a month in arrears from the month of delivery. CH returned and redeployed (Section K7.5(o)) of the SEC: A blended average charge set at the start of each Regulatory Year to recover the cost associated with reconditioning a Communications Hub where appropriate prior to its deployment. 94. The estimated charges for these items in RY2018/19 are set out in Table 4 and 5 in section A (Summary of Charges). 9.2 DCC faults 95. Any compensation due to Parties in relation to DCC faults, would be paid in accordance with F9 of the SEC. 10 Explicit charges 96. In accordance with section K7.5 of the SEC, Explicit Charges are payable in respect of Explicit Charging Metrics, which represent products/services that are to be charged for separately from Fixed Charges. They recover the costs associated with a range of specific products/services and are generally driven by volume. The cost of those services would only arise where it is specifically ordered or required by a customer (or a non-sec party where a bilateral agreement is in place), and would be recovered from that party. 97. The EECR t (Estimated Explicit Charges Revenue) for RY2018/19 is set out in Table 7. The assumptions made in relation to EECR t are set out in Annex 3. Actual revenue recovered in RY2018/19 will be determined by the actual volume of services procured by customers. 98. Annex 3 sets out supporting information for each of the Explicit Charges (explained below). It sets out the factors that will influence the level of each of the indicative Explicit Charges in Table 5 in section A (Summary of Charges) Categories of Explicit Charges 99. Explicit Charges largely fall into one of three categories. They are: Page 20 of 42

21 Set Explicit Charges (set out in Table 4 in section A) these charges will be levied as and when those products/services are used; Indicative Explicit Charges (set out in Table 5 in section A) these charges are indicative as they will rely on a number of variables which are only known at the point at which a customer applies for that particular product/service. For the purpose of enabling parties to estimate the level of Explicit Charges, DCC has set out indicative Explicit Charges in Table 5 in section A. The likely cost drivers for these services are explained in Annex 3; and Explicit Charges yet to be determined (set out in Table 6 in section A) - at a certain time in the future, customers will also be able to order variant Communications Hubs, shared solution Alt HAN equipment, point-topoint Alt HAN equipment and/or there may be a cost associated with Alt HAN equipment held in stock. DCC will recover these costs via Explicit Charges in accordance with Section K7.5 of the SEC. DCC will update these charges in the Charging Statement when these services are in effect. Page 21 of 42

22 SECTION E INVOICING 11 Invoicing and Credit Cover 100. This Charging Statement covers 12 Charging Periods, consistent with the indicative invoicing timetable available on the DCC website A Charging Period for the purpose of invoicing is based on a view of volume taken on the 15th day of the calendar month and it will apply across all the different types of charges set out in this Charging Statement All charges outlined in this Charging Statement are shown excluding VAT Payment is due to DCC on the later of five working days following receipt of the invoice and eight working days following the end of the month to which the invoice relates, in accordance with Section J1.5 of the SEC Consistent with these timescales, DCC issues invoices to customers via on, or around, the third working day of each month following the charging month. Should there be an unforeseen delay; DCC will advise customers of the revised invoicing date via Parties that accede to the SEC during a Regulatory Year will receive their first invoice on or about the third working day of the following month, based on registration data as at the 15th day of the calendar month Explicit Charges for services which were fulfilled and any confirmed charges or credits associated with Communications Hubs faults during a Charging Period will be included in the next invoice issued after the end of that Charging Period DCC will issue a principal invoice accompanied by a secondary invoice which sets out the subset of the Communications Hub Charges which relate to Communications Hub Finance Costs. This invoice amount will be paid directly to the CSP. This is not a double or an incremental charge In accordance with section J3 of the SEC, each customer is required to provide credit cover. For the purpose of calculating the Credit Cover Requirement, DCC considers the Charges inclusive of VAT as outlined in Section J3.3 of the SEC. Page 22 of 42

23 Appendix A Publications timetable 109. In accordance with J4 of the SEC, within the first five working days of April, July, October and January in each year, we must create and publish: an indicative Charging Statement for the first Regulatory Year due to start thereafter; a budget for the second and third Regulatory years due to start thereafter; and a working model allowing our customers to estimate their indicative charges 110. In addition, we are required under the Licence to refresh the Charging Statement at least once in each Regulatory Year That combined timetable for the upcoming 12 months is summarised below. All publications are available on the DCC website ( Publication date Charging Statement Indicative Charging Statement Indicative Budget July 2018 RY2019/20 RY2020/21 RY2021/22 October 2018 RY2019/20 RY2020/21 RY2021/22 December 2018 RY2019/20 (draft for Notice) January 2019 RY2019/20 RY2020/21 RY2021/22 March 2019 RY2019/20 (final) April 2019 RY2019/20 RY2020/21 RY2021/22 Timetable for Charging Statements and indicative budgets Page 23 of 42

24 Appendix B Fixed Charge assumptions Volume assumptions for Fixed Charges 112. This section sets out the current assumptions used for the estimated volumes for each of the Charging Groups for both Domestic MSMS and Non- Domestic Smart Metering Systems in Table Assumptions for Domestic MSMS Volumes: Import Suppliers (g1) meters that have a domestic profile class 1 and 2 associated with the Metering Point Administration Number (MPAN) and an identifiable chargeable Import Supplier Export Suppliers (g2) these meters are currently included in Import Suppliers in accordance with Section X2.6 (a) of the SEC Gas Suppliers (g3) meters that have a domestic market sector code associated with the Meter Point Reference Number (MPRN) and an identifiable chargeable Gas Supplier Electricity Distributors (g4) meters that have a domestic profile class 1 and 2 associated with the MPAN Gas Transporters (g5) meters that have a domestic market sector code associated with the MPRN There are more meters in g4 than g1 as Electricity Distributors (g4) include all meters regardless of whether the respective Import Suppliers (g1) have acceded to the SEC. Similarly, there are more meters in g5 than g3 as Gas Transporters (g5) include all meters regardless of whether the respective Gas Suppliers (g3) have acceded to the SEC The Non-Domestic smart meter volume forecast is currently zero. Page 24 of 42

25 Appendix C Explicit Charges Set Explicit Charges 115. The values for following types of charges are set out in section A (Summary of Charges). Communications services Service Requests 116. Under K7.5(j) of the SEC, DCC may recover the costs of communications services available via the DCC User Interface Services Schedule via an Explicit Charge. DCC will recover this cost via the Fixed Charge, hence the value of the Explicit Charge has been set to zero, pursuant to Section K7.6(e) of the SEC. DCC consulted on this approach in May The rationale for this approach is that it is more economic and efficient to recover Service Request costs via Fixed Charges because: total cost of Service Requests is approximately 0.2% of total External Costs; it would be less costly and complex for the billing system to recover this cost through Fixed Charges; invoices would be simpler with less reconciliation activity for DCC s customers; and there would be greater cost certainty in advance of each Regulatory Year. CH stock level charge 117. Where DCC has delivered a Communications Hub to a Party but it is not installed at the end of the Charging Period, a monthly CH stock level charge for each HAN Variant will apply. DCC will recover the cost of this service via an Explicit Charge in accordance with Section K7.5(l) of the SEC. CH auxiliary equipment 118. Parties may order additional Communications Hub Auxiliary Equipment, which includes additional aerials (for example for use during testing). This is offered in addition to the aerials that will form part of a Communications Hubs order for premises that requires it as part of a standard installation. DCC will recover the cost of these additional aerials via an Explicit Charge in accordance with Section K7.5(n) of the SEC. CH returned and redeployed 119. CH Users may return Communications Hubs for a reason which is a CH User responsibility. These Communications Hubs may be refurbished for redeployment. DCC will recover the cost of this service via an Explicit Charge for each HAN Variant in accordance with Section K7.5(o) of the SEC. CH returned not redeployed 120. A Party may return, or notify as lost or destroyed, Communications Hubs for a reason which is a CH User Responsibility those Communications Hubs will not be reconditioned for redeployment. DCC will recover the cost of this service via an Explicit Charge for each HAN Variant in accordance with Section K7.5(p) of the SEC. Indicative Explicit Charges Security and Privacy Assessments 121. Parties are to pay Explicit Charges in respect of User Security Assessments, Follow-up Security Assessments, User Security Assessment Reports, Full Privacy Assessments and/or Privacy Assessment Reports. The SEC Panel will procure these services and DCC will recover the incurred expenditure on behalf of the Panel via an Explicit Charge in accordance with K7.5 (a) and (b) of the SEC These charges are designed to pass through the expenditure from SECCo Ltd to DCC which then recovers it from Parties. These costs are treated as Recoverable Costs in accordance with section C8.2 of the SEC. For more information in relation to these Explicit Charges please contact SECAS at secas@gemserv.com. DCC Gateway Connections 123. There are two types of applicable charges in relation to DCC Gateway Connections; Page 25 of 42

26 the connection Charge and the annual Charge. The cost drivers for each are set out below The connection charge recovers the cost of installing the DCC Gateway Connection and will be payable to DCC following installation. The charge will be dependent on the individual connection request (made pursuant to Section H15 and Appendix G: DCC Gateway Connection Code of Connection, of the SEC). The variables that will influence the level of this charge include: physical distance from the premises of the DCC Gateway Connection to the local exchange; configuration of the premises of the DCC Systems i.e. whether there are existing connections that can be used, or whether new lines will be required; type of connection determined e.g. Ethernet, FTTC (Fibre to the Cabinet), ADSL (Asymmetric Digital Subscriber Line) and/or copper; the amount of further work required, as determined by a physical site inspection; and the bandwidth requested by the party The annual charge recovers the annual rental cost associated with the connection and will be payable to DCC at the start of each contractual year. The charge will be dependent on the individual connection request (made pursuant to Section H15 and Appendix G: DCC Gateway Connection Code of Connection, of the SEC). The variables that will influence the level of this charge will be: the length of the contract i.e. 1-year or 3-year; type of connection determined e.g. Ethernet, FTTC, ADSL and/or copper; and the bandwidth requested by the party The indicative Explicit Charges for DCC Gateway Connections are set out in section A of this Charging Statement. These indicative prices are based on a sample spread of locations. The exact cost of a selected option will be made available on application (pursuant to Sections H15.8(c) and H15.9(b) of the SEC). DCC considers that the majority of DCC Gateway Connections ordered would fall within the indicative price bands set out in section A The DCC Connection Guidance and associated forms are available on the DCC website, which set out the process for ordering DCC Gateway Connections. Gateway equipment relocation 128. Parties may make a request to alter the location of its DCC Gateway Equipment within the party s premises. Following a formal request from the party to DCC to relocate equipment, DCC shall confirm the Explicit Charge payable in accordance with K7.5(e) of the SEC. The variables that will influence the level of this charge will be: the level of expertise required to carry out the relocation; and the number of days of effort required to carry out relocation. Elective service evaluations 129. Parties may request a Detailed Evaluation in respect of potential Elective Communication Services pursuant to Section H7.8 of the SEC. The cost associated with this service will be recovered via an Explicit Charge. P&C support 130. Parties may request further assistance in relation to its use of Parse and Correlate Software. DCC will recover the cost of this via an Explicit Charge in accordance with section K7.5(g) of the SEC. The value of that charge will be confirmed after all relevant information has been provided to DCC in relation to the request. The variables that will influence the level of this charge will be: the level of expertise required to provide the requested software support; and Page 26 of 42

27 the number of days of effort required to provide the requested software support. SM WAN for testing (also known as remote test labs) 131. CSP Test Labs will be made available to all Testing Participants at no additional cost, at the point of use, to carry out this testing (see Section H14 of the SEC). Alternatively, Testing Participants may carry out this testing in a location of their choice. In this scenario, DCC would provide an SM WAN for testing subject to an Explicit Charge (see Section H14.31 and K7.5(h) of the SEC) There are two types of applicable charges in relation to the provision of the SM WAN for testing; the connection charge and the monthly charge. The value of these charges will be confirmed after all relevant information has been provided to DCC in relation to the request (made pursuant to the Enduring Testing Approach Document and the guide for Testing Participants, both of which are available on the DCC website) The connection charge recovers the costs of a site survey, installation of equipment required to establish a WAN, installation of five Communications Hubs for testing and the eventual removal of equipment required to establish a WAN. The variables that will influence the level of the connection charge are: which CSP is providing the SM WAN for testing as they will use different technology to set up the SM WAN for testing (e.g. the cost of connecting into an existing network will be lower than that for installing a nano base station); and for SM WAN solutions using an existing network, the signal quality at the location chosen by the Testing Participant (e.g. if signal quality is poor, booster equipment may be required which may attract additional cost) The monthly charge recovers the costs of remote assistance to diagnose faults with equipment supplied, rectifying faults, ongoing configuration management of the equipment supplied and management and implementation of firmware and hardware upgrades associated with the equipment supplied. The variables that will influence the level of the monthly charge are: which CSP is providing the SM WAN for testing as they will provide support specific to the technology used; and the length of time that the Testing Participant will require the SM WAN for testing In some very limited cases a customised solution may be required where, following a site visit, it becomes apparent that the standard solutions for signal boosting technology may not be effective. DCC does not, however, anticipate this being required. Additional Testing Support 136. Testing Participants may request, pursuant to Section H14.33 of the SEC, reasonable additional support to that Testing Participant associated with; the DCC Total System and the results of such Testing Participant s Device and User System Tests; the Systems of the Testing Participant that are (or are intended to be) User Systems; and communications between the DCC and any Device or between Devices which comprise (or which the Testing Participant intends will comprise) a Smart Metering System. CH non-standard delivery 137. Parties may specify non-standard instructions for the delivery of Communications Hub Orders. DCC will recover the cost of this service via an Explicit Charge in accordance with Section K7.5(k) of the SEC. The value of that charge will be confirmed after all relevant information has been provided to DCC in relation to the request. The variables that will influence the level of this charge will be: the value of additional logistics; and the cost of storage and transport. Page 27 of 42