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CAS Response to BEIS Hydro Benefit Replacement Scheme and Common Tariff Obligation Consultation

CAS has responded to BEIS’ Hydro Benefit Replacement Scheme (HBRS) and Common Tariff Obligation (CTO) consultation. Both are subject to a statutory 3-year review and are designed, respectively, to subsidise the cost of electricity distribution in the North of Scotland to avoid disproportionately higher distribution network costs for consumers vs. those charged in the rest of GB; and to prevent domestic suppliers from offering less favorable terms to remote rural and island communities in the North of Scotland than they do to consumers.

The HBRS imposes a levy on every electricity consumer in GB. For a typical dual fuel domestic consumer, this equates to about £1 per annum. To date, however, the additional costs of electricity distribution in the Shetland islands has been fully met by consumers in the North of Scotland. It is proposed that this will change and will instead be distributed throughout GB.

In general

  • CAS supports the extension of both the HBRS and the CTO for the next 3 years
  • CAS supports the proposed changes to the funding for the Shetland distribution network cross-subsidy

However,

  • CAS does not believe the HBRS has achieved its objectives in the current 3-year review period as electricity distribution costs have been nearly 18% higher than in any other area of GB in this time. The assistance amount provided should therefore be properly reviewed in the context of the impact of the changes to the Shetland cross-subsidy, not just uprated with inflation as is proposed
  • CAS believes the funding mechanism of the HBRS to be regressive. It also exposes all GB electricity consumers to unnecessary risk arising from supplier failure. CAS has therefore called for the HBRS levy funding to be moved to general taxation so that a consumer’s ability to pay is properly taken into account. CAS has also suggested an alternative option to limit GB consumer risk
  • CAS is concerned by a lack of transparency as to whether the full benefits of the HBRS are being passed on to consumers in all cases. CAS has suggested this could be better ensured via the creation of a new electricity supply licence condition
  • CAS is disappointed that the CTO continues to exclude non-domestic consumers. CAS believes that expanding the CTO to include all electricity consumers would provide an economic boost to remote rural areas that would ultimately benefit fuel poverty rates in these communities
Author
Alastair Wilcox
Publication date
September 2019
Publication type
Policy
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