The way forward – The latest on Unidentified Gas

Since Project Nexus was implemented in the GB gas market on 1 June last year, Unidentified Gas (UIG) has been the balancing factor in settlement, accounting for both the “transient” volumes of gas whose consumption cannot be assigned to a source at the present time and the “permanent” volumes that are unlikely to ever be identified, such as from theft. Unfortunately, it has proved extremely volatile and hard to predict, resulting in cashflow issues for shippers, and ultimately suppliers and their customers.

The regulator has rejected the three Uniform Network Code (UNC) change proposals which sought to implement an enduring solution to the problems posed by the volatility of UIG. Six months after it first received UNC642/A/643 Changes to Settlement Regime to Address Unidentified Gas Issues (Including Retrospective Correction) for a decision, Ofgem announced on 20 August that the changes would “dampen incentives to address the root causes of UIG, undermine the equitability of the current arrangements and be detrimental to competition”. The three proposals would have pinned UIG to a set value and introduced a separate balancing factor, but Ofgem took the view that they would not offer effective or immediate relief from the issue.

Part of the reason for the rejection of the modifications may be that they have been already overtaken by other developments: the proposals were first mooted nine months ago and since then the industry has a much greater understanding of the problem. A lot has happened, even in the past month, as Xoserve has now mobilised a team to carry out a full analysis of all possible root causes of UIG volume and volatility. One of its objectives is to try to reduce UIG volumes to 4% of total demand by the end of the year (it has typically averaged 6-7%, but has ranged from well in excess of +20% to –12% on any given day), and so it is pursuing an aggressive timetable, taking a line-by-line look at all its data to identify any trends that have so far gone unnoticed. Xoserve will hold a review in October to consider if this is returning useful results and whether it is worth continuing with. At the same time, it is also maintaining a standing issues log that currently has 20 items for investigation.

While Xoserve conducts this ground-up investigation, the industry has also been developing new obligations on data submission and refinements to the underlying daily demand estimation calculation that assigns daily volumes to shippers (with UIG being the balancing factor where this calculation differs from volumes metered going into the local distribution networks) to help address the problem. These include:

  • New End-User Categories to reflect how pre-payment and small business customers use gas. Presently the gas settlement system bundles all meter points that consume less than 73,200kWh/yr into a single category for the purposes of estimating seasonal use
  • An obligation for shippers to submit data for Xoserve to use in demand estimation. The pool of customers with data loggers, used by the demand estimation committee to derive consumption profiles for non-daily metered customers, is insufficient to be statistically robust
  • New weather variables to better model weather sensitivity
  • Incentives to encourage more frequent read submission. The new system introduced last summer was predicated on much greater volumes of actual meter read data being submitted than is happening at present. This has the effect of undermining the veracity of the daily demand estimation calculation

Most of these changes will not start having an impact until the start of the 2019-20 gas year at the earliest. In the meantime, Ofgem has recommended that shippers concentrate on frequent read submissions and nominating remote-readable sites into settlement classes 2 (i.e. AMR) and 3 (i.e. smart meters).

We provide regular coverage of these issues in our weekly regulatory reports. For more information please contact Steven Britton on 01603 604400 or s.britton@cornwall-insight.com.

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