At the centre of Ofgem’s plans – designed to incentivise gas suppliers to have more robust supply arrangements, including storage and greater use of interruptible contracts – are moves to compensate industrial and commercial customers on non-interruptible contracts for loss of supply in an emergency. Under this new regime customers would be compensated at a capped level of, say, £20 a therm.
Companies told the regulator that applying what would effectively be a cap on the cash-out price could act as a “target price” for shippers who might withhold gas to push up the price “before supplying it when the price hits £20 a therm”. This could make the arrangements unnecessarily expensive for customers, firms warned.
Another issue was the impact of the new regime on market liquidity. The industry pointed out that in an emergency, shippers might not be able to cover their liabilities and could be forced to cease trading.
“This could lead to a domino effect because the rest of the industry would have to cover the shortfall,” gas companies warned in minutes published by Ofgem.
This article first appeared in Utility Week’s print edition of 13 January 2012.
Get Utility Week’s expert news and comment – unique and indispensible – direct to your desk. Sign up for a trial subscription here: http://bit.ly/zzxQxx