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New gas transmission charging requires early charge changes

New gas transmission charging requires early charge changes

New gas transmission charging arrangements were implemented in October 2020 under UNC678A Amendments to Gas Charging Regime (Postage Stamp) in order to achieve alignment with the EU Tariffs Code (TAR). The change introduced a framework around capacity charges to cover transmission revenues with a methodology to calculate reserve prices based on a postage stamp approach, leading to a uniform reserve price at all points on the network.

However, it has quickly become apparent that the tariffs are not recovering the levels of revenue that were expected.

National Grid Gas (NGG) observed a 36% under-recovery in revenues collected in October, one month following the transmission charging regime reform under UNC678A. It has become apparent that shippers’ booking behaviours over October were quite different from what had been anticipated in the methodology used to forecast the charges under UNC678A. Variance in booking patterns was especially evident across daily capacity products, with within-day and interruptible entry capacity deviating by 40% from what had been forecast. NGG has said that this is likely the result of the removal of the 100% discount for interruptible and off-peak capacity under UNC678A in favour of a much smaller 10% discount.

Unexpected shifts in shippers’ behaviour has also meant that more entry revenue is flowing into the Capacity Neutrality mechanism than usual. Capacity Neutrality does not contribute towards the networks’ overall maximum allowed revenue as they are effectively redistributed back to shippers on a monthly basis. While this has not been a problem in the past, recent changes in shippers’ booking behaviour has resulted in more revenues coming from within-day and interruptible products, which are categorised as Capacity Neutrality.

NGG published its notice to Ofgem on 1 December outlining how it plans to make up for its under-recovery position. This includes revising the Revenue Recovery Charges (RRC) at entry and exit point and raising two urgent modifications to change the entry Capacity Neutrality mechanisms.

Any projected under-recovery position can be recovered using entry or exit RRCs. Under the new charging arrangements, effective 1 February 2021, exit RRC charges will be set from zero to 0.0124p/kWh/d for two months until 1 April 2021, while entry charges will be set at 0.0717p/kwh/d for five months, ending 1 July 2021. Due to a larger than expected collection of exit capacity revenue, NGG’s final General Non-Transmission Service Charge, which recovers non-capacity related revenue, will decrease from 0.0128p/kWh to 0.0064p/kWh for February and March 2021.

The UNC modifications would remove specific revenues related to within-day and daily interruptible capacity from the entry Capacity Neutrality process. Raised on 8 December, UNC748 Prospective Removal of Entry Capacity Revenues from Capacity Neutrality Arrangements would apply this on a forward-looking basis, and the second (to be raised) would apply it retrospectively from 1 October 2020 so that the two are in alignment. The result would be charges to parties that received capacity neutrality payments over this period for the proposition of the entry capacity neutrality pot associated to within-day and daily interruptible capacity revenues. 

To stay on top of all these developments, our Gas Modification Register details all the latest code developments for capacity transmission charging and the wider gas market.  For more information please contact Laurie Heyworth l.heyworth@cornwall-insight.com.

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