Ofgem scraps cheaper industry gas tariffs in October this year

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OFGEM is ending the ­so-called “short-haul tariff” from 1 October to comply with EU regulations on harmonised prices amidst varied industry response.

The regulator has opted to use a postage stamp methodology to calculate tariffs, rather than basing the fees on distance, in line with its preference in the preliminary decision published in late December.

This will result in a uniform entry and exit tariff being levied at each point, regardless of its location.

Revenue under the new system will be largely collected through capacity-based rather than commodity-based charging.

This could significantly reduce variable fees for entry into the national transmission system.

Britain’s gas transmission network, the National Transmission System, is the high pressure gas network which transports gas from the entry terminals to gas distribution networks, or directly to power stations and other large industrial users.

Ofgem made its final decision having considered responses to its consultation as well as the assessment made by European regulator Acer.

The proposal in its existing form does not include a short-haul tariff to avoid inefficient bypassing of the national transmission system.

However, the regulator stated that: “Ofgem is committed to working with the industry and the Joint Office of Gas Transporters to facilitate the development and, depending on the assessment and approval process, timely consideration and where appropriate implementation of modification(s) that seeks to address inefficient bypass of the National Transmission System.”

The regulator “welcomes” the industry’s efforts — through the national transmission system charging methodology forum — to develop options for new short-haul arrangements that could be compliant with NC TAR.

Whatever solution is eventually decided must be “targeted, proportionate and compliant”, it added.

Ofgem had initially rejected all proposals that included a short-haul tariff on the grounds that they did not meet the legal requirement of avoiding undue cross-subsidisation.

The regulator also reiterated today that it “remains open” to a discount at storage connection points higher than the 50pc included in the proposal approved today, “where this is well justified and appropriate”.

All contracts concluded before 6 April 2017 will be exempt from the new capacity-based charging.

Many stakeholders called for a delay to the changes in light of COVID-19.

Some firms have argued that a combination of increased charges resulting from removal of the short-haul discount and the potential for weak demand resulting from the Covid-19 pandemic would result in “significant financial stress”.

Ofgem commented: “In general terms the views expressed by those affected by the changes seem to align along the lines that those who stand to lose by these changes would prefer that they were delayed to 2021.

“However, those who stand to benefit from these changes would like them to be implemented this year.

“That said we have taken account of all the views expressed to us in an objective manner and have aimed to understand and verify the various arguments in the time available.

“In doing so we are very mindful of the impact of COVID-19 and the uncertainty this has created both in the gas sector and in the wider economy.

“We have also noted that concerns about the impact of implementing the decision this year are not universal and that some parts of the gas market and some consumers have indicated that they are well placed to handle and respond to the changes.

“In this respect it is worth noting that every year gas tariffs change and that adjustments to address those changes need to be made by those affected.

“—We recognise that many homes and businesses are facing a difficult and uncertain period with the global COVID-19 pandemic, with mounting financial pressures on many households, public bodies, small businesses, and large consumers.

“Taking the interests of all gas consumers in the round, we have concluded that consumers are best served by the proposed implementation of UNC678A in October 2020.”

Ofgem’s decision document is available here

The story was first reported by Argus Media