The System Operator (SO) incentive scheme allows National Grid Electricity Transmission (NGET) and National Grid Gas (NGG), in prescribed circumstances, to submit to us notices of proposed Income Adjusting Events (IAEs).
Proposed IAEs are submitted by a SO when an event or set of circumstances arises which was not foreseen at the time of setting the incentive scheme and is considered to have led to costs being incurred by the SO that were not allowed for when determining the appropriate level of Incentivised Balancing Costs (IBC).
The types of circumstances under which NGET and NGG can propose IAEs are set out in the relevant transmission licence. The IAE provisions are intended to provide protection for both NGET and NGG, as well as electricity and gas market customers.
In addition to NGET and NGG being able to raise IAEs when unforeseen circumstances are thought to have increased their costs, other Balancing and Settlement Code (BSC) and Connection and Use of System Code (CUSC) parties can raise IAEs if they consider that events or circumstances have occurred that have resulted in the SO’s costs being less than expected at the time the incentive scheme was set.
If an IAE is considered to have occurred, there may be consequences for the size of any incentive payment or penalty faced by the SO. Ofgem ensures that the process of evaluating any proposed IAEs is fair and transparent by consulting with, and taking into account the opinions of, other participants in the market.
This helps to ensure that the system operators are subject to a fair, credible and transparent incentive framework.