Ofgem to process UK gas fee change proposal 'urgently'

UK regulator Ofgem will handle system operator National Grid's proposal to change the way its revenues are calculated — which would limit the hike in capacity tariffs from February — under an accelerated timetable.

National Grid submitted a modification proposal to Ofgem yesterday that seeks to change the way its allowed revenues are calculated. The system operator wants revenues derived from within-day and interruptible entry capacity to be counted as part of its maximum allowed revenue. Revenues collected from these bookings count as "capacity neutral" under the existing system, meaning they are excluded from the system operator's revenue stream.

The driver behind the modification proposal is a significant shortfall in revenues in October-November — following the implementation of a new charging structure — which was partly driven by more interruptible and day-ahead entry bookings than expected.

National Grid has set an entry revenue recovery charge (RRC) of 2.1p/th for February-June, up from zero for October-February. This lifts overall entry capacity fees for the period to 4.2p/th. Long-term capacity contracts signed before 6 April 2017 are exempt from RRCs and other capacity-based fees.

The firm has also increased exit RRCs for February-March to 0.36p/th from zero previously, which will hike overall exit fees to 0.94p/th.

National Grid wants to be able to issue a notification at short notice to reduce RRCs if its proposal is approved by the regulator.

The system operator earlier this week estimated that the entry RRC would be only 1.69p/th in February-June — rather than 2.1p/th — if its proposal is implemented in January, which would involve the re-categorisation of around £41mn of revenues. If it is implemented in February, this would adjust £25mn of revenues, and the fee could be about 1.85p/th.

And if the modification is applied retrospectively for the entire gas year from February, the February-June entry RRC would only be 1.19p/th, with £93mn worth of revenues re-categorised. The system operator plans to raise a separate modification proposal that seeks to apply the changes retroactively.

Ofgem will handle the proposal under an accelerated timetable, having accepted National Grid's request for it to be granted urgent status. This is because it is linked to an "imminent issue that if not urgently addressed may cause a significant commercial impact on certain users", the regulator said.

A consultation on National Grid's proposal started yesterday. Under the system operator's recommended timetable, the consultation ends on 11 December while the modification panel makes its recommendation on 17 December and Ofgem issues a final report on the same day.

While Ofgem has accepted this timetable, it expects to see evidence as to how users and market participants will be affected by it and wants to ensure that affected parties are "suitably consulted", the regulator said.

The change in UK capacity-based fees has resulted in considerable uncertainty, which has hit NBP liquidity, market participants said. This has added another layer of risk, on top of uncertainty arising from the possibility of the UK exiting the EU on 1 January without a trade deal.

National Grid plans to incorporate EU law into UK gas grid regulations in the event of a no-deal Brexit, which should allow for a smooth transition.

By Natasha Fielding