Utility Week

UTILITY WEEK | 22ND - 28TH JUNE 2018 | 7 Policy & Regulation would be introduced to account for otherwise unallocated gas. The settlement error would be spread among all unreconciled supply points unless a reconciliation target was met. At this point, the remaining balance would be spread market-wide across all meters. UNC643 additionally sought to backdate the change, unwinding all unidentified gas allocation since the introduction of the cur- rent arrangements. UNC642A, proposed by Eon, would maintain the current bottom-up settlement procedure. But like the others it would also set unidentified gas at a fixed level. Any remaining unallocated gas would be accounted for through a new "balancing quantity" variable. This would be apportioned to all supply points other than those with mandatory daily meter reads. Ofgem says no However, the urgently tabled proposals were all turned down by the UNC panel at a meeting in February. And then, earlier this month, Ofgem said it too was minded to reject the modifications. While acknowledging the problems the new arrangements have caused for shippers and suppliers, interim director for consumers and markets, Rob Salter-Church, wrote in an open letter that "none of the proposals would reduce the overall volume and volatility of unidentified gas or provide greater certainty to the market as a whole". Although one of the effects of the new arrangements has been to redistribute the allocation of unidentified gas from smaller NDM supply points to the rest of the market, he accepted that the modifications were not merely an attempt to reverse this. He noted that some industry parties would "prefer the certainty of a fixed allocation of uniden- tified gas, even if that certainty came at a premium". But he also said the new arrangements are working according to their intended purpose, namely to allocate unidentified gas more fairly across supply points and encourage the industry to take action to reduce the and metering errors. He argued it would be premature to conclude they were "inherently flawed", saying the problems that have emerged are partly the result of other industry arrangements that are "not currently operating to a reasonable standard". A welcome decision Victoria MacGregor, director of energy at Citizens Advice, tells Utility Week the Ofgem decision is "positive news". She says there is "no evidence these proposed modifications were in the interest of consumers". "Existing estimates for unidentified gas are volatile, which isn't good for industry," she adds. "Small improvements to gas settlement could be made and we support the UNC's forthcoming work to address this. "But trying to shi costs back on to consumers and small-scale energy users was not a fair approach." Sallyann Blackett, head of volume forecasting at Eon, agrees. She says going back to the pre-Nexus world would amount to "throwing the baby out with the bath water", wasting years of industry work and millions of pounds of investment. Eon may have submitted one of the modifications that Ofgem rejected, but she is not disappointed by the regulator's decision. Blackett says it was proposed only as an alternative to the other, more retrograde, options. The old way of doing things did unfairly burden smaller supply points with the costs of unidentified gas, she argues, and the true scale of the problem did need to be exposed to push the industry to crack down on the and improve the accuracy of meter reads. The changes were, and remain, necessary. The root of the problem Blackett says Ofgem has rightly identified the real cause of the problem as the way in which unidentified gas is estimated, and in particular, the projections for NDM demand that underpin the calculations. The methodology for projecting NDM demand is not new. It was used before under the old system. But its flaws went largely unnoticed when unidentified gas was loaded on to smaller supply points and lumped together with the rest of their demand. Project Nexus has exposed these problems and made them "massively visible", says Blackett. She says the methodology underestimates the amount of demand from NDM supply points "across the board", meaning the supposed amount of unidentified gas is higher than it should be. At the same time, Blackett believes anybody hoping it will return to the pre- Nexus figure of around 1 per cent will be disappointed. She expects reconciliation to eventually reveal the correct figure to be around 3 to 4 per cent, not much lower than the current average. Her concerns are focused less on the long-run average and more on the day- to-day volatility. She says the root of the problem is weather, or more specifically, how gone? establish where gas ends up has fluctuating costs. Tom Grimwood 'unidentified gas'. "Trying to shift costs back on to consumers and small-scale energy users was not a fair approach." VICTORIA MACGREGOR, DIRECTOR OF ENERGY AT CITIZENS ADVICE

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