Booking penalties amended to reflect new gas transmission charging regime

Ofgem has approved an adjustment to the penalty rates for underbooking capacity on the gas transmission network to align them with the new charging regime due to take effect at the beginning of October.

The regulator said the amendment will prevent the fees from rising as a result of the overhaul while also maintaining the incentive for network users to book sufficient capacity.

Upon entry, overrun charges are applied to any user that exceeds the capacity they have booked on an individual basis, while upon exit, the charges are applied to flows in excess of the aggregate capacity booked at each exit point. The fees are determined by multiplying the prices already accepted by users to acquire capacity by a factor of eight.

UNC716 – a modification to the Uniform Network Code (UNC) that was proposed by National Grid Gas Transmission in May – will lower this multiplier to three for entry points and six for exit points.

National Grid said the change is necessary due to the wider overhaul of the charging regime being introduced on 1 October through the modification UNC678A, which will reduce the variation in capacity charges between different parts of the country. It said these reforms were also set to lead to a significant increase in overrun charges.

Storengy proposed an alternative version of the modification named UNC716A that would reduce the multiplier for overrun charges on both entry and exit capacity to 1.1. The UNC panel approved both modifications at a meeting in July but expressed a preference for the latter.

However, in combination with the 10 per cent discount on interruptible and off-peak being introduced by UNC678A, Ofgem said the 1.1 multiplier proposed by Storengy would not provide a sufficient incentive to book enough capacity: “In effect, a user could face very similar costs for under-booking interruptible capacity and overrunning, and booking a higher level of interruptible capacity to match actual flows.

“This could lead to systematic underbooking of capacity, which could impact NGGT’s ability to operate the network… UNC716, which proposes overrun multipliers of three on entry and six on exit, does not introduce this risk.”

The regulator also noted the argument from supporters of UNC716A that it would encourage users to move away from bulk-buying capacity in excessive amounts and more closely match their booking with actual flows, but said the incoming charging regime, including the new “postage stamp” model for setting reference prices in capacity auctions, should discourage overbooking anyway.

Ofgem instructed UNC716 to be introduced alongside the new charging regime on 1 October.