Determination under Special Condition AA5A Part 2(iv), Paragraph 24 of National Grid Electricity Transmission plc’s Transmission Licence – 2012/13 Outage cost Adjusting Event

Publication date
20th September 2013
Information type
Policy area

Dear Mr Burt,

Determination under Special Condition AA5A Part 2(iv), Paragraph 24 of National Grid Electricity Transmission plc’s Transmission Licence – Outage Cost Adjusting Event

Background

National Grid Electricity Transmission plc’s (“NGET”) Transmission Licence (“Licence”) provides an annual allowance of £1,300,914.77 (in 2012/13 prices) for payments in respect of outage changes.1 These payments are made to the other transmission owners, Scottish Hydro Electric Transmission Ltd and Scottish Power Transmission Ltd. These payments enable NGET, as the System Operator (SO), to reschedule outages in Scotland to reduce the costs of balancing the system.

The Licence makes provision for this annual allowance to be adjusted where actual costs incurred by NGET in making outage changes are, or there is a reasonable expectation they will be, either less than or in excess of the allowance by more than £300,000 (the “outage threshold amount”) in a single year.2 In such circumstances, the Licence provides that NGET shall submit an outage cost adjusting event notice to the Authority no later than three months after the end of the relevant financial year.3 The Authority then has three months to determine whether the allowance should be adjusted.

On 12 June 2013, NGET submitted a notice under Special Condition AA5A Part 2(iv), paragraph 23 of NGET’s Licence of an outage cost adjusting event for 2012/13, setting out that it had incurred, or reasonably expects to incur, outage change costs totalling £247,511.73 (in 2012/13 prices). As this amount is £1,053,403.04 lower than the allowance under the Licence and exceeds the £300,000 outage threshold amount, NGET proposes that its 2012/13 allowed income for Internal System Operator costs be reduced by the balance.

Following receipt of NGET’s 2012/2013 notice, we wrote to NGET to seek clarification as to why NGET had not spent the full annual allowance. A response to our request has not yet been received but in any event we consider that the response is not material to being able to make the Determination under paragraph 24(a) of Special Condition AA5A on grounds that the request sought clarification of the reason for the underspend and did not query the calculation itself.

Licence provisions

Special Condition AA5A, Part 2(iv), paragraphs 22, 23 and 24 of NGET’s Licence set out the legal framework under  which notices of outage cost adjusting events are submitted to the Authority and the subsequent process in respect of determining the value of the costs and / or expenses under paragraph 24(a). (See Appendix 1 of this Determination in the PDF below).

In accordance with Special Condition AA5A, Part 2(iv), paragraph 23, NGET gave the following particulars to the Authority:
I. The total estimated outage change cost for the relevant year 2012/13, at £247,511.73, is £1,053,403.04 less than the allowance of £1,300,914.77 (in 2012/13 prices). The difference between the actual cost and the allowance is greater than the outage threshold amount of £300,000 and therefore NGET proposes that this constitutes an outage cost adjusting event under Special Condition AA5A, Part 2(iv), paragraph 22(a)(i).
II. For the relevant year 2012/13, NGET has incurred, or reasonably expects to incur, outage change costs totalling £247,511.73.
III. NGET therefore proposes that the allowed income adjustment (IONTt) should be  £1,053,403.14.
IV. Details on the individual outage change costs are provided in Appendix 2 of this Determination at the link below.

The Authority’s  Determination

Under Special Condition AA5A, part 2(iv), paragraph 24 of NGET’s Licence, the Authority is required to determine whether:
i. any or all of the costs and/or expenses given in the notice pursuant to paragraph 23(a) were caused or saved by an outage cost adjusting event;
ii. the event or circumstances has increased or decreased the licensee’s relevant costs in making outage changes such that they will be either less than or in excess of ONt in each case by more than the outage threshold amount; and
iii. if so, that the amount of the proposed income adjustment ensures that the financial position and performance of the licensee are, insofar as is reasonably practicable, the same as if that outage cost adjusting event had not taken place, and if not, what allowed income adjustment would secure that effect.

In accordance with the provisions of the Licence, the Authority considers that all the relevant criteria set out in the Licence have been met, the costs have been saved in relation to an outage cost adjusting event and the savings exceed the outage threshold amount. For the reasons set out in this document, and in accordance with paragraph 24 of Special Condition AA5A, the Authority determines that the allowed income adjustment (IONTt) for relevant year t (2012/13) should be -£1,053,403.04.

Reason for the Authority’s decision:

The Authority considers that it is appropriate to make this Determination because it is satisfied that:

(a) NGET’s outage cost adjusting event notice meets all the requirements of the Licence; and

(b) costs have been saved and this saving exceeds the threshold amount.

 
This document also constitutes notice for the purposes of section 49A of the Electricity Act 1989 in relation to the Determination.

If you have any queries in relation to the issues raised in this letter, please feel free to contact Bethany Hanna on 0203 263 2771 or via email at bethany.hanna@ofgem.gov.uk.

Kersti Berge
Partner, Transmission

1Special Condition AA5A, Part 2(ii), paragraph 15C of Licence as in force during the  relevant period of 2012-2013)

2Special Condition AA5A, Part 2(iv), paragraph 22(a)

3Special Condition AA5A, Part 2(iv), paragraph 23(d)