Ofgem has approved a modification to the Connection and Use of System Connection (CUSC) code that will improve the accuracy of the locational onshore security factor.
The value, which is set at 1.8 for the current price control period, is used as a multiplier in the calculation of locational Transmission Network Use of System (TNUoS) charges.
In determining the tariffs, National Grid Electricity System Operator (ESO) starts by modelling a completely unconstrained network with all circuits in service to ensure they provide stable long-term price signals that are not affected by short-term operational measures.
The prices calculated on this basis are then “stretched” using the locational onshore security factor to reflect the extra capacity required to accommodate planned and unplanned outages in a worst-case scenario. The wider zonal tariffs are derived from these stretched prices.
In line with the methodology for the current regulatory period and the example given in the CUSC, the ESO proposed back in September to adopt a number of 1.7555 for the T2 price control covering the charging years 2021/22 to 2025/56, but round the number to one decimal place to give a final figure of 1.8.
However, based on feedback from stakeholders, the ESO subsequently proposed two other options: rounding the figure to two decimal places to align it with the approach to onshore expansion factors– giving a value of 1.76 – or extending it to eight decimal places to align it with the approach to offshore expansion factors – giving a value of 1.75547656.
In December, SSE proposed the code modification CMP357 to implement the last of three options. The other two were also put forward as alternative versions of the modification. Given the looming start of the first relevant charging year, Ofgem granted it urgent status towards the end of the month.
The regulator has now made its decision, opting to go with the version of the modification that would give the figure to two decimal places.
Ofgem noted concerns raised by the ESO and some stakeholders that this “late change” could negatively affect network users that had already made decisions for the next charging year based on the assumption of a figure rounded to one decimal place but said: “While we agree that unpredictable changes in TNUoS charges can undermine competition where users could not reasonably have foreseen the changes, we do not agree that this is necessarily the case with regards to the security factor.”
The regulator said giving the figure to two decimal places would improve the cost reflectivity of the security factor, whilst avoiding “the potentially spurious accuracy associated with eight decimal places” given the concerns raised by some stakeholders over the accuracy of the underlying calculation. It said analysis undertaken by the ESO shows the “vast majority of the movement in charges will be captured by moving from one to two decimal places”.