To:                                               Paul O'Donovan

Cc:                                               Stuart Cook; Cem Suleyman

Subject:                                     RE: Response to open letter on
gas shipper entry credit arrangements

From: Richard Hall [mailto:[email-masked]]

Sent: 26 August 2010 14:06

To: Paul O'Donovan

Cc: Stuart Cook; Cem Suleyman

Subject: Response to open letter on gas shipper entry credit
arrangements

Dear Paul,

I hope this finds you well.

I am responding to Stuart Cook’s open letter dated 4
August 2010 (entitled Gas shipper entry credit arrangements) seeking
views on remedies to errors in the definition of an Income Adjusting Event
(‘IAE’) in the Transporter Licence of National Grid Gas
(‘NGG’).

You note that deficiencies in the current drafting of the
relevant licence condition may impede Shippers ability to bring a claim for an
IAE and set out the circumstances at the Fleetwood Entry Point as a practical
example of where this could cause consumer detriment. You therefore propose to
make the drafting clearer in order to prevent the inadvertent preclusion of an
IAE being brought.

We support your proposal, which appears to us to be an
appropriate step and entirely consistent with your statutory duties. Price
controls are intended to align the return that networks receive with the
outcomes that consumers want – rewarding them for good behaviours and
decisions and penalising them for bad behaviours and decisions. Networks should
be held neutral to factors outside their reasonable control.  This makes
it right that there should be a corrective IAE where they would otherwise
suffer a windfall loss, but equally right that a corrective IAE should be
brought where they would otherwise reap a windfall gain.

In the Fleetwood case, there appears to be a very real
danger that NGG will reap a windfall gain.

More generally, it appears to us to be necessary to ensure that
Shippers can avail themselves of the IAE route where they have a reasonable and
adequately substantiated case in order to protect both Shippers directly, and
consumers indirectly, from exposure to downside-only risk. While - in theory -
networks themselves may bring an IAE in either direction, the natural
commercial incentives on them are such that they will only realistically do so
where it is in their favour (indeed, in fairness to the networks, they may also
be in breach of their fiduciary duties to their shareholders were they to bring
forward IAEs that reduced their returns).  Given this inherent conflict of
interest, adequate counter-balances such as the one that you propose are
needed.

This response is entirely non-confidential and may be published
on your website and/or included in any summary of responses as you see fit.

Kindest regards,

Rich

Richard Hall

Principal Policy Advocate

020 7799 8042

Consumer Focus is the independent
champion for consumers across England, Wales, Scotland and (for postal
consumers) in Northern Ireland. We operate across the whole of the economy,
persuading businesses and public services to put consumers at the heart of what
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