Distribution Use of System Charging – Managing the effects of surplus residual charges
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Managing the effects of surplus residual charges: derogation requests and directions
Ofgem decides on derogation requests from DNOs from the 15-month notice period for DUoS charging methodologies, where excessive surplus residual charges have been identified. LDNOs operating within affected areas are directed to deviate from their 14-month notice period for the 2026-27 charging year.
The residual charge is the fixed cost-recovery layer of DUoS. 'Excessive surplus' means DNOs would otherwise over-collect; the derogation lets them correct mid-cycle. Tactical adjustment within the existing charging framework; relevant to any organisation forecasting DUoS exposure for 2026-27.
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Managing the effects of surplus residual charges: derogation requests and directions | Ofgem
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Managing the effects of surplus residual charges: derogation requests and directions
Publication type:
Decision
Publication date:
6 February 2025
Last updated:
26 February 2026
Topic:
Electricity distribution
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Managing the effects of surplus residual charges guidance
Distribution Use of System Charging – Managing the effects of surplus residual charges call for input
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These are our directions to manage excessive residual surplus in DUoS charging methodologies. We have developed them through our call for input and they follow the Managing the effects of surplus residual charges guidance .
We published guidance in 2024 about addressing excessive surplus residuals for the charging year 2026 to 2027.
Two Distribution Network Operators (DNOs) also had issues with excessive surplus residuals, when setting 2027 to 2028 tariffs.
You can view the relevant derogation requests and directions for 2027 to 2028 tariffs on this page. We have followed the same steps as outlined in the 2024 guidance.
Derogation requests from the DCUSA 15-month Notice period and our resultant directions
The requests are part of what we ask Distribution Network Operators (DNOs) to do to manage the effects of surplus residual charges.
About the derogation requests
We asked DNOs to request derogations against the 15-month notice period when they identify a risk of an excessive surplus residual. This relates to Distribution Use of System charging methodologies.
This was to allow time for DNOs to:
confirm the presence of an excessive residual surplus in their charging methodologies
apply the relevant intervention option
produce an impact assessment
submit a request to derogate against the DCUSA charging methodology to Ofgem
View the requests to derogate from the DCUSA 15-month notice period and Ofgem decisions on this page.
Derogation requests from the DUoS charging methodologies
The requests are part of what we ask Distribution Network Operators (DNOs) to do to manage the effects of surplus residual charges.
About the derogation requests
We asked DNOs to request derogations against the relevant charging methodologies if they identify an excessive negative residual. This relates to either or both charging methodologies.
We asked that requests included:
confirmation of the presence of an excessive residual surplus in their charging methodologies
confirmation of the applied intervention option
impact assessment
Impact on LDNOs
Allowing Distribution Network Operators to deviate from their 15-month notice period impacts Licensed Distribution Network Operators (LDNOs) operating within those areas.
Because of this, we have directed LDNOs to deviate from the 14-month notice period for setting Distribution Use of System charges. This will enable them to publish their final DUoS charges for the charging year 2026 to 2027 in areas affected by an excessive surplus residual.
This direction is solely a result of the instructions we have already issued to 3 DNOs, permitting a delay in the publication of their charges. You can view the LDNO directions on this page.
Main document
LDNOs Direction to derogate DCUSA Notice Period 2027 to 2028 [PDF, 248.66KB]
SSEN Direction to Derogate EDCM 2027 to 2028 [PDF, 166.02KB]
SSEN Direction to derogate DCUSA Notice Period 2027 to 2028 [PDF, 231.39KB]
SSEN Derogation Request EDCM 2027 to 2028 [PDF, 163.89KB]
WMID Derogation request notice periods 2027 to 2028 [PDF, 266.77KB]
WMID Derogation Request EDCM 2027 to 2028 [PDF, 158.92KB]
EMID Derogation request notice periods 2027 to 2028 [PDF, 266.91KB]
EMID Derogation Request EDCM 2027 to 2028 [PDF, 268.69KB]
NGED Direction to derogate DCUSA Notice Period 2027 to 2028 [PDF, 236.55KB]
SSEN Derogation request notice periods 2027 to 2028 [PDF, 149.47KB]
ENWL Notice period derogation request.pdf [PDF, 200.02KB]
ENWL Direction to derogate DCUSA Notice Period.pdf [PDF, 174.54KB]
SSEN Notice period derogation request.pdf [PDF, 97.48KB]
SSEN Direction to derogate DCUSA Notice Period.pdf [PDF, 183.76KB]
UKPN Notice period derogation request.pdf [PDF, 160.46KB]
UKPN Direction to derogate DCUSA Notice Period.pdf [PDF, 181.53KB]
LDNOs Direction to derogate DCUSA Notice Period.pdf [PDF, 136.45KB]
ENWL Derogation Request CDCM.pdf [PDF, 194.52KB]
ENWL Direction to Derogate CDCM.pdf [PDF, 136.00KB]
UKPN LPN Derogation Request CDCM.pdf [PDF, 128.42KB]
UKPN LPN Direction to Derogate CDCM.pdf [PDF, 137.55KB]
SSEN Derogation Request CDCM and EDCM [PDF, 138.10KB]
SSEN Direction to Derogate CDCM and EDCM [PDF, 155.22KB]
NGED Direction to Derogate EDCM 2027 to 2028 [PDF, 172.54KB]
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Related links
Managing the effects of surplus residual charges guidance
Distribution Use of System Charging – Managing the effects of surplus residual charges call for input
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All updates
26 January 2026 added notice period derogation request and directions to derogate for 2027 to 2028.
28 January 2026 added notice period derogation request and directions to derogate for 2027 to 2028.
8 January 2026 added notice period derogation requests and directions to derogate for 2027 to 2028.
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Distribution Use of System Charging – Managing the effects of surplus residual charges
Ofgem consultation on managing the effects of surplus residual charges in Distribution Use of System (DUoS). Predecessor to the February 2025 derogation decision.
DUoS residual is the fixed cost-recovery layer. Excessive surplus residual means DNOs would over-collect; the regulation needs to respond. The 2024 consultation framed the issue ahead of the operative 2025 derogation decisions for affected DNOs.
Source text
Distribution Use of System Charging – Managing the effects of surplus residual charges | Ofgem
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Distribution Use of System Charging – Managing the effects of surplus residual charges
Publication type:
Call for input
Publication date:
25 July 2024
Closed date:
6 September 2024
Status:
Closed
Topic:
Electricity transmission,
Electricity distribution,
Energy codes
Subtopic:
Connection and use of system code (CUSC),
Distribution connection and use of system agreement (DCUSA)
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Access and forward-looking charges reform
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In this call for input we outline the proposed approaches for managing the effects of surplus residual charges. Explanatory notes of the charging methodology issues as presented at the March 2024 Charging Futures Forum are found on the ESO Charging Futures Forum webpage .
We are publishing this call for input to signal to relevant parties that we are considering our approach to address these issues. It includes our assessment of options for resolving the issues and our proposed approach to implementation.
We invite views from stakeholders on these developments ahead of identifying any preferred solution or solutions. Please submit any written feedback to DUOS@ofgem.gov.uk by 5 September 2024.
Respond name
James Harvey
Respond email
DUOS@ofgem.gov.uk
Main document
Distribution Use of System Charging – Managing the effects of surplus residual charges [PDF, 359.46KB]
Response documents
Managing the effects of surplus residual charges Call for Input non-confidential responses [ZIP, 2.45MB]
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Access and forward-looking charges reform
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Summary
Ofgem: Managing the effects of surplus residual charges: derogation requests and directions; Distribution Use of System Charging – Managing the effects of surplus residual charges