National Grid faces refusal for adjustment funding request

Ofgem is proposing to refuse National Grid’s requests to recover around £263 million from consumers for replacing a pipeline and maintaining gas compressors.

The industry regulator says it is also proposing to allow National Grid around £116 million to replace existing electricity cables in an area of outstanding natural beauty (AONB) in Dorset with underground cables.

Ofgem is consulting on requests by network companies for adjustments to funding under the price controls it sets. Companies can apply for additional allowances to cover costs that exceed the current price controls which had not been forecast when they were set.

National Grid has requested additional funding to pass on around £263 million of costs to consumers for replacing a gas pipeline across the Humber estuary, and maintaining gas compressors.

But Ofgem has responded saying its initial view is that National Grid has “not demonstrated” that replacing the Feeder 9 pipeline across the Humber estuary, which would cost £140 million, would be in the best interests of consumers.

Feeder 9 transports gas primarily from the Easington gas terminal to the rest of the national transmission system.

Ofgem also plans to reject the vast majority of the company’s request to pass on £123 million costs that it claims are needed to ensure that nine compressor sites comply with the European industrial emissions directive.

A spokesperson for National Grid said the system operator disagreed with Ofgem’s current position on the Feeder 9 pipeline.

The spokesperson said: “We welcome Ofgem’s initial positions in a number of areas, including the importance of protecting critical national infrastructure and on the benefits the visual impact provision will deliver for local communities. However, we do disagree with the regulator’s current position on the Feeder 9 pipeline.

“The decision to begin the pipeline, which will carry up to 20 per cent of the country’s gas, was made after extensive assessment, including by independent experts. We followed a rigorous process to decide a new pipeline was the safest and most sensible solution, a view supported by stakeholders and by an Ofgem-commissioned report in 2012.

“Work on this project, which received development consent from the government in 2016, began last year. We have kept Ofgem informed of progress, including them visiting the site. We welcome the chance the consultation gives us to present our evidence.”

Ofgem believes some of the works are already funded by the price control and that in other areas the investment National Grid wants to make does not relate to ensuring the compressors are compliant with the directive.

The regulator added it was consulting on the requests to allow National Grid, Wales and West Utilities and Cadent to pass on an additional £144 million of costs for improving resilience to physical and cyber security threats, managing street works, and compensating landowners for work on gas pipelines.

Ofgem said it will allow network companies to recover an additional £90 million including funding to tackle cyber and physical security threats.

The regulator is also consulting on National Grid’s proposal to spend around £118 million to place almost 9km of electricity cables underground in the Dorset AONB.

Under current rules the regulator allows electricity network companies to make the necessary investments to reduce the visual impact of electricity infrastructure as long as it is in the interests of consumers.

Ofgem considers that the cost could be cut by more than £2 million as National Grid has not “justified some of the expenditure”.

The regulator will make the final decision on costs it will allow National Grid over the autumn. Work could then be completed in April 2022, it said.

The transmission and gas distribution price controls run from 2013 to 2021, while the electricity distribution price controls run from 2015 to 2023.

Ofgem has set out its initial views on the requests made by the network companies and final decisions will be made next month.