Energy regulator Ofgem has accepted National Grid’s request to treat their proposal to change the way its revenues are calculated, which would limit the rise of capacity tariffs in February, as urgent.
On 8 December National Grid Gas Transmission submitted a Uniform Network Code modification proposal to Ofgem 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.
Under the existing system, revenues collected from these bookings count as “capacity neutral”, which means they are excluded from the system operator’s revenue stream.
Ofgem accepted the request for the modification proposal to be treated as urgent due to it being ‘linked to an imminent issue that if not urgently addressed may cause a significant commercial impact on certain users.’
The regulator’s letter explains that the current operation of the capacity neutrality arrangements has contributed significantly to National Grid’s under-recovery of revenues, which in turn has led to the system operator raising ‘a significant’ revenue recovery charge from 1 February 2021.
According to National Grid, across the combined Transmission Owner and System Operator Revenue, the under recovery was approximately £37m for October alone.
This was attributed mainly to lower than forecast capacity bookings and capacity neutrality arrangements.
On 30 November 2020, National Grid issued a notice of changes to Entry and Exit Revenue Recovery Capacity Charges.
The modification proposal submitted to Ofgem includes a suggestion that, if implemented, National Grid can issue a pricing notification to reduce these revenue recovery charges at short notice.
Consultation on National Grid’s proposal has begun, with the Modification Panel due to give their recommendations on 17 December. Final modification report will be issued to Ofgem on the same day.
While Ofgem have accepted the timeline as recommended by the National Grid, the regulator expects to see evidence of how users and market participants are affected by this
modification, and the Joint Office should ensure those parties impacted by the proposal are
‘suitably consulted.’
Ofgem’s letter can be read from their website.
