ADA highlights the burden on IDB pumping stations as Ofgem launches review into standing charges

ADA highlights the burden on IDB pumping stations as Ofgem launches review into standing charges

Electric pumps at Lindsey Marsh Drainage Board’s newly refurbished Anderby Pumping Station, defending people and property from flooding on Lincolnshire’s east coast.

Ofgem launched a review into standing charges on 16 November, seeking views about how standing charges are added onto electricity and gas bills.

IDBs have seen eyewatering hikes in electricity standing charges from suppliers associated with their pumping stations, which reduce the risk of flooding to communities and highly productive farmland across huge swathes of England’s lowlands. One group of IDBs’ standing charges increased from £15,000 per annum prior to the pandemic to £128,000 last year. In October they saw a further increase in standing charges from their supplier taking them to £200,000 per annum.

The sharp increases are thought to be a result of changes in how network charges are passed on to users as a consequence of Ofgem’s Targeted Charging Review (TCR). Network charges are an amount of revenue that network companies collect through price controls that are set by Ofgem to look after the electricity network that transports energy from the point of generation across the grid, and on to end users. Network charges are made up of a series of Use of Network (UoS) charges that pay for the:

  • Transmission Network (TNUoS) – the large “motorway” wires that connect generators through to the localised distribution areas.
  • Distribution areas (DUoS) – the more complicated “b roads” which deliver power to homes and businesses.
  • Balancing Services (BSUoS) – the energy that generators produce is matched against the amount of energy that consumers consume. This needs to be balanced on a second by second basis and that pot of money is BSUoS.

The TCR was Ofgem’s attempt to ensure everyone pays their fair share of network charges, and address concerns that some users were avoiding much of the costs of the networks, while others were left picking up a disproportionate share.

The TCR resulted in changes to the way network charges are paid for. Previously they were built into a customer’s unit rate. Ofgem decided that fixed ‘per-site’ charges would instead be the most efficient way to recover these funds across both transmission and distribution. This decision saw around £5 billion worth of network charges per annum moved from charges on unit rates or on peak use to charges levied as a daily standing charge across domestic and non-domestic customers. The changes were implemented in 2022 for distribution charges, and 2023 for transmission.

The changes have led to substantial increases in standing charges for IDBs, and significant variability in those charges between pumping station sites. In total IDBs operate over 600 pumping stations to reduce the risk of flooding and carefully manage water levels across England’s lowlands. These critically important assets have been particularly badly impacted owing to their remote location, and large maximum demand for electricity when operating during a flood event. However, they are seeing no dispensation for the fact that these stations will often only operate anywhere near their full capacity on a handful of days in a typical year when they are working flat out to defend people, property, and our landscape from flooding.

We need IDBs to share information about increases in their annual standing charges with ADA to help us to build up a clearer picture of the scale of the costs, and the knock-on impact that this is having on drainage rates and special levies across England. We want to inform Ofgem of these sectoral costs through their standing charges review, as well as Defra, and the Department for Energy Security & Net Zero (DESNZ).

We would also encourage IDBs to respond directly to the Ofgem consultation, before it closes on Friday 19 January 2024, and highlight their standing charge cost increases to: special levy paying authorities, local MPs, and relevant ministers at Defra and DESNZ. Graham Stuart, MP for Beverley & Holderness is the Minister of State for Energy Security & Net Zero with responsibility for Ofgem.