Ofgem has granted urgent status to two proposed modifications to the Uniform Network Code (UNC) that would amend the recently approved overhaul of the gas transmission charging regime to offer new or enlarged discounts to some users.
UNC728 would introduce a discount for users located nearby to entry points to the gas transmission network, whilst UNC727 would increase an already agreed discount for storage operators from 50 per cent to 80 per cent.
The amendments were proposed after Ofgem approved another UNC modification that will overhaul the transmission charging arrangements to reflect falling demand on the network.
Transmission fees are currently split between capacity charges – which grant users the rights to flow gas onto and off the network but are payable regardless of whether they are exercised – and commodity charges, which are paid on actual flows. Both sets are further divided into entry and exit charges.
The commodity charges are used to recover any residual costs that are not recouped through the capacity charges. Unlike the capacity charges, they do not vary depending on the point of entry or exit.
UNC678A will reduce the geographical variation in transmission charges by equalising the reference prices for capacity auctions, to which discounts are applied to determine the reserve prices.
The commodity fees will be replaced with a new revenue recovery charge (RRC) that in order to meet new EU regulations will also be based on capacity rather than flows. Unlike the commodity charges, storage operators will be liable to pay the RRC.
The modification will also bring an end to a discounted short-haul tariff specifically for users located close to an entry point to the transmission network.
A group of industrial users in Teesside warned that the removal of this tariff will harm their international competitiveness and create a strong incentive for them to build their own private pipeline to avoid the increase charges.
In approving UNC678A, Ofgem acknowledged that bypass of the transmission network is not a desirable outcome but said the short-haul tariff is not justified in its current form. The regulator said it was open to introduction of a more appropriate replacement.
UNC728 would introduce such a tariff. The proposal document does not provide details on exactly how it would be calculated but states that the methodology would reflect the expected costs of bypass.
Meanwhile, UNC727 would increase the discount for storage operators on capacity-based charges to 80 per cent. Ofgem has set the discount at 50 per cent – the minimum required by the aforementioned EU regulations to prevent them being double charged – but said it was open to a higher discount if it could be justified.
The Energy and Utilities Alliance recently called for a 100 per cent discount, saying the changes to the charging regime, which will additionally end their ability to secure interruptible exit capacity for free, will make “a bad situation even worse” for storage operators.
Ofgem has granted urgent status to both modifications, including four alternative versions of UNC728. It said the UNC panel should vote on the modifications and provide its recommendations to the regulator by 3 July. UNC678A is due to take effect on 1 October.