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UK Gas Regulation: New Arrangements for Conditional NTS Capacity Charge Discount

Until 30 September 2020, the Optional Commodity Charge (OCC) was available to gas shippers shipping quantities of gas over short distances (from NTS Entry points to large sites located nearby). The economic rationale for the reduced tariff was to avoid inefficient bypass of the NTS. This is the risk that a large user would build its own private pipeline from the beach to its facility rather than use the NTS, if using the NTS was too expensive. Doing this could result in large volumes of gas being lost from the NTS at the affected Entry Point, with no commensurate change in the regulated level of return which NGG could recover under its price control. This in turn could significantly increase the charges payable by other users of the NTS.

On 1 October 2020, the entire UNC charging regime was changed to bring it in line with EU Regulation 2017/460 establishing a network code on harmonised transmission tariff structures for gas (TAR). As part of the new arrangements, charging moved to an entirely capacity-based model, and the OCC ceased to exist. (The new arrangements were implemented under Modification 678a). The original rationale for the OCC remained relevant, however, and it was acknowledged at the time that the issue would need to be addressed. In the event, timing issues meant that Mod. 678a came into force without a replacement for the OCC in place.

As of 1 October 2021, that replacement will come into force under Modification 728(b) (which was proposed by Vitol S.A.). The new arrangement is called the Conditional NTS Capacity Charge Discount (CNCCD) and will involve amendments to Section B and Y of the UNC (plus some other consequential changes).

The CNCCD will be available to shippers who ship gas between a specified Entry Point and a Specified Exit Point no more than 28km (on a straight-line basis) from the Entry Point, and will taper (on a non linear basis) depending on distance between Entry and Exit Point, from 90% to 10%.

A shipper wanting to avail of the CNCCD must make an election under the new Section B8 of the UNC in relation to the relevant Eligible Entry Point and an Eligible Exit Point in respect of which the CNCCD is to apply.

An Eligible Entry Point is an Aggregate System Entry Point (ASEP) other than a Storage Connection Point, and an Eligible Exit Point is an NTS Exit Point other than a NTS/LDZ Offtake or a Storage Connection Point.

The Central Data Services Provider (CDSP) determines whether the shipper’s election meets the CNCCD Eligibility Criteria – namely, that on a straight-line basis the distance between the elected Entry Point and the elected Exit Point is not greater than 28km and the amount of the CNCC Discount is greater than zero.

CNCCD elections remain in place until terminated (either by notice from the shipper to NGG or, where the Exit Point is a Supply Point, the shipper ceases to be the Registered User of that Supply Point). NGG will send a reminder to each relevant shipper prior to the start of each Gas Year reminding the shipper that the CNCCD election will remain in place for the following Gas Year.

Once an election is in place, the shipper will, on each Day, pay a discounted rate for Firm NTS Entry Capacity at the Nominated Entry Point and for Firm NTS Exit (Flat) Capacity at the Nominated Exit Point in respect of the Eligible Entry Amount and Eligible Exit Amount.

The Eligible Exit Amount is simpler to calculate than the Eligible Entry Amount and is the lesser of:

  • Base Eligible Exit Amount; and
  • the aggregate amount of the shipper’s Registered Firm NTS Exit (Flat) Capacity at the Nominated Exit Point.

Base Eligible Exit Amount is Applicable Daily Quantity or ADQ.

The ADQ is the lesser of:

(a) Available Entry Capacity at the Nominated Entry Point;

(b) Available Exit Capacity at the Nominated Exit Point;

(c) the Elected Entry Proportion (see below) of the shipper’s daily gas flows (UDQI) at the Nominated Entry Point; and

(d) the shipper’s daily gas flows (UDQO) at the Nominated Exit Point.

Whilst at first glance this looks rather complicated, ADQ is defined as such to ensure that the CNCCD attaches to the minimum physical gas flow, avoiding flows from the NBP.

The Eligible Entry Amount is a little more complicated. There are relatively few ASEPs and they are used by numerous different shippers inputting gas at each one. Each shipper will have an Entry Nomination which will be the aggregate amount of all the gas it will flow at that ASEP on the Day. If a shipper has several Eligible Exit Points, there may also be more than one CNCCD Election for that shipper in relation to a single ASEP. It is therefore necessary to calculate the volume of gas applicable to each CNCCD Election (in respect of each elected pair of Entry and Exit Points). This is done by calculating the amount of capacity for the paired Nominated Exit Point as a proportion of the total capacities at Nominated Exit Points for that shipper. This is the Election Entry Proportion or EEP.

In addition, CNCCD does not apply to "Existing" Entry Capacity (i.e., capacity which was held by the shipper as at 6 April 2017). This capacity remains subject to the arrangements in place at the date on which the Capacity was allocated to the Shipper, save that the OCC is no longer available.

The Eligible Entry Amount is therefore the lesser of:

  • the Base Eligible Entry Amount; and
  • the maximum of zero and EEP multiplied by the shipper’s total Registered Firm NTS Entry Capacity (ARC) less the Shipper’s Existing Registered Holding (ERH).

The Base Eligible Entry Amount for the Nominated Entry Point for a CNCCD Election and a Day is the minimum of zero and ADQ less EEP multiplied by the Shipper’s Existing Registered Holding (ERH).

The value of CNCCD is calculated for each pair of Eligible Entry and Exit Points in accordance with the new Section 5 of Section Y Part A of TPD UNC 1. We do not yet know if National Grid Gas will publish the values for CNCCD for given pairs of Eligible Entry and Exit Points.

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
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