Ofgem has given preliminary approval to a modification to the Uniform Network Code that would reintroduce the short-haul discount that was removed as part of the revamp of gas transmission charges which took effect at the beginning of October.
UNC728B would provide a discount of between 10 per cent and 90 per cent on gas transmission charges for users connected within 28 kilometres of an entry point to discourage them from constructing their own pipelines to bypass the network.
The modification is one of five total modifications being considered by the regulator – the original proposal named UNC728 and four alternatives lettered A through D. They vary according to the size of the discounts offered, the maximum distance from an entry point at which they would apply and the charges which they would cover.
The new discount would replace the Optional Commodity Charge, removed as part of the code modification UNC678A, which took effect on 1 October 2020 and reduced the variation in reference prices for capacity auctions between different entry and exit points. Upon approving the modification in May of last year, Ofgem said it did wish to maintain the short-haul discount but none of the alternative modifications that contained one were compliant with EU regulations.
The following June, National Grid Gas Transmission proposed UNC728 to reintroduce the discount. Four alternatives were submitted at the same time by South Hook Gas Company, Vitol, RWE and Eni, and all five were granted urgent status by Ofgem a few days later.
UNC728 and the alternatives A to C would all apply a discount of between 10 per cent and 90 per cent to transmission services charges, with the level depending on how close they are to an entry point. UNC728B would limit the maximum distance for eligibility at 28 kilometres, whilst the others would cap the distance at 18 kilometres.
Meanwhile, UNC728D would provide a flat 90 per cent discount to transmission services charges but only for users located up to 5 kilometres from an entry. The alternatives A and D would additionally apply flat discounts of 80 per cent and 94 per cent respectively to non-transmission services charges.
Ofgem has now identified UNC728B as its preferred option in its minded-to decision. It said UNC728 and the alternatives A and C had failed to justify their proposed distance cap of 18 kilometres. It said its analysis indicated that some routes between 5 and 18 kilometres from an entry point would receive the discount, even though they are at a relatively low risk of bypass, whilst some relatively high-risk routes would not be eligible, despite being only marginally outside the proposed cap.
It said UNC728D had similarly failed to justify its 5-kilometre distance cap, which would not capture all of the routes at risk of bypass, whilst its offer of flat discounts of 90 per cent on transmission services charges and 94 per cent on non-transmission services charges would be too generous.
“UNC728B proposes the longest distance cap (28km),” the regulator explained. “However, we consider that the eligible distance under UNC728B is better-justified compared to the 18km modifications.”
It continued: “Despite the length of the proposed distance cap, there are advantages to UNC728B. This modification provides higher discounts for the short-distance routes that present a higher risk of bypass, while it affords lower discounts to longer-distance routes which are proportionate to the lower risk presented by those routes.”
Ofgem has proposed to implement UNC728B on 1 October 2021 and given interested parties until 19 February to respond to its minded-to decision.