Ofgem approves stopgap gas shipping arrangement

Ofgem has approved an urgent modification to the Uniform Network Code that allows energy suppliers to source gas for “shipper-less” sites through their existing relationships with other gas shippers.

The decision comes after CNG Group announced last month it was exiting the wholesale gas market and advised its clients, which included a number of small suppliers, to find a new gas shipper.

The company confirmed on Wednesday (3 November) that its own non-domestic supply business, CNG Energy, had ceased trading.

Explaining its decision to approve the code modification UNC 788, Ofgem said: “When a shipper is terminated from the Uniform Network Codes (UNC) for any reason, there are existing industry processes to ensure that gas continues to flow to end consumers and that the registered supplier to those consumers is responsible for transportation charges and energy costs.”

The regulator said the gas supply licence requires that suppliers take “all reasonable steps” to ensure they have arrangements in place with a new gas shipper with 25 working days.

It continued: “While immediate continuity of shipping arrangements is the most efficient outcome, there may be a period during which no replacement shipper is appointed due to the commercial nature of the supplier-shipper relationship.

“Furthermore, when a supplier secures commercial arrangements with another shipper or has a pre-existing relationship with another shipper, the transfer of meter points within industry systems can take time, potentially leaving some meter points without a registered shipper for a period of time.

“Under existing arrangements, only once these meter points are transferred to an operational shipper in the industry systems, can the new shipper take on the associated rights and obligations (including the ability to trade) for those meter points.”

The proposal document for the modification, which was put forward by National Grid, said even if suppliers were able to buy gas through an existing gas shipper, there would be no way of attributing that gas to the correct portfolio. Suppliers for shipper-less sites would therefore be assumed to have delivered no gas the system to meet their usage.

This missing gas would be a considered as a short imbalance and sourced by the residual balancer, National Grid. The suppliers would be required pay imbalance charges on the shortfall at a price in excess of the daily average.

Any gas they sourced from an existing shipper would be considered as a long imbalance and would be cashed out at a price below the daily average.

The document noted that the role of residual balancer was only ever envisioned to provide “fine tuning” of balancing positions. It said if National Grid was required to source large volumes of gas for shipper-less sites, this would raise imbalance prices for all users.

There would also be a risk that National Grid would be unable purchase enough gas as it only had access to the on-the-day commodity market.

Ofgem agreed with its concerns, stating: “Where a supplier with ‘shipper-less’ sites has arrangements with another shipper, but due to constraints in their own internal systems or the central systems they cannot readily transfer the sites to the new shipper’s portfolio, we consider it is inefficient for that supplier to be unable to make use of alternative commercial arrangements with another shipper.”

“We consider that in the current volatile wholesale market, there is a high likelihood that incoming shippers can source gas at a lower price, on average, than the cashout price,” it added. “We agree that, even where this may not be the case, it is efficient and economical to enable suppliers and shippers to mitigate the risk of high cashout prices if they wish to.”

Ofgem accepted that the modification could introduce a “somewhat manual process” for reconciling gas shipments with portfolios but said the benefits would outweigh the associated costs.

It also acknowledged concerns over the speed at which the modification had progressed but said a delayed decision would “leave suppliers exposed to cashout prices if a shipper were to exit the market”.

Although there is no deadline by which suppliers must regularise their shipping arrangements, the regulator said there are “incentives for suppliers and shippers to properly transfer meter points to the correct portfolio as soon as possible, for example to be able to update industry data relating to those meter points and object to switch requests”.

Responding to the suggestions that the modification would only benefit a limited number of suppliers, Ofgem said current market conditions mean there is an increased likelihood of suppliers having relationships with more than one gas shipper.

“For example, this may occur when a supplier is appointed as the Supplier of Last Resort (SoLR) for a portfolio that used a third-party shipper, and the SoLR already has their own shipping arrangements for the rest of their portfolio,” it explained. “In such a case, the SoLR will (perhaps temporarily) have a commercial relationship with the failed supplier’s shipper and their regular shipper.”

The modification was passed at the end of last week and took effect on Monday (1 November).