The electricity system operator (ESO) at National Grid has sought to remove its obligation to provide suppliers with up to £6 million of unsecured credit to cover their liabilities for transmission and balancing charges.
The ESO says the current arrangements effectively leave consumers to pick up the bill for unpaid network charges if suppliers go bust.
Under the terms of the Connection and Use System Code (CUSC), suppliers are entitled to receive up to £100,000 of credit per month from the ESO for a maximum of five years.
But the ESO says the overall value of these loans has “grown exponentially” as more and more suppliers have entered the market. It has therefore proposed a modification called CMP311 to remove the credit facility from the CUSC.
“This growth in suppliers, often with business models that carry a substantial amount of financial risk, has led to the ESO re-assessing its credit requirements,” the proposal document states.
“If nothing is done, then there may be an increase in costs to future consumers if the ESO is unable to recover the unpaid [transmission network use of system] and [balancing and settlement use of system] invoices because of supplier failure from administrators.”
According to the ESO, as of 14 February there were 48 suppliers under-forecasting their demands for the current charging year by a combined total of £102 million, of which £55 million was covered by unsecured credit.
The proposal document also notes that on 1 April 2019 the ESO will become a legally separate entity from the rest of National Grid, adding: “Carrying large unsecured amounts of credit risk may cause the ESO additional financial costs which would need to be recovered from consumers.
“Establishing more appropriate credit arrangements for all suppliers would in turn reduce the potential exposure that the ESO carries and ensure that consumers in future are protected from other supplier failures.”
The modification will be presented to the CUSC panel on 25 February.