Ofgem considering funding adjustment requests

Ofgem considering funding adjustment requests

Ofgem is consulting on requests by network companies for adjustments to funding under the current price controls.

The energy regulator says it intends to allow network companies to recover an additional £90 million including funding to tackle cyber and physical security threats.

But Ofgem is proposing to refuse National Grid's requests to recover around £263m from consumers for replacing a pipeline and maintaining gas compressors.

Ofgem says it is also proposing to allow National Grid around £116m to replace existing electricity cables in an area of outstanding natural beauty (AONB) in Dorset with underground cables.

In a statement Ofgem said: "Ofgem's initial view is that National Grid has not demonstrated that replacing the pipeline across the Humber estuary would be in the best interests of consumers. Ofgem is therefore not persuaded that it should allow National Grid's request to pass the £140 million replacement cost on to them."

National Grid uses gas compressors to send gas through the national gas pipeline system. Ofgem plans to reject the vast majority of the company's request to pass on £123 million costs that it claims are needed to ensure that nine compressor sites comply with the European Industrial Emissions Directive.

A spokesperson for National Grid told our sister publication Utility Week: "We welcome Ofgem's initial positions in a number of areas, including the importance of protecting critical national infrastructure and on the benefits the visual impact provision will deliver for local communities. However, we do disagree with the regulator's current position on the Feeder 9 pipeline.

"The decision to begin the pipeline, which will carry up to 20% of the country's gas, was made after extensive assessment, including by independent experts. We followed a rigorous process to decide a new pipeline was the safest and most sensible solution, a view supported by stakeholders and by an Ofgem-commissioned report in 2012.

"Work on this project, which received development consent from the government in 2016, began last year. We have kept Ofgem informed of progress, including them visiting the site. We welcome the chance the consultation gives us to present our evidence."

Ofgem believes some of the works are already funded by the price control and that in other areas the investment National Grid wants to make does not relate to ensuring the compressors are compliant with the Directive.

Separately, Ofgem is consulting on National Grid's proposal to spend around £118 million to place almost 9km of electricity cables underground in the Dorset Area of Outstanding Natural Beauty (AONB).

Ofgem allows electricity network companies to make the necessary investment to reduce the visual impact of existing power lines if it is in the interests of consumers.

Ofgem considers that the cost could be cut by over £2 million as National Grid has not justified some of the expenditure.

Ofgem will make a final decision on the costs it will allow National Grid to recover this autumn. The work could then be completed April 2022.

The transmission and gas distribution price controls run from 2013 to 2021, while the electricity distribution price controls run from 2015 to 2023.

Ofgem has set out its initial views on the requests made by the network companies and final decisions will be made next month.

DISCUSSION

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National Grid has awarded the contract to design and replace the high pressure pipeline running under the River Humber to Skanska, PORR Bau GmbH and A.Hak.

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Ofgem has accepted an offer from Cadent to waive £53.9 million of RIIO allowances as part of its mid-period reviews for gas and electricity transmission and gas distribution.

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Ofgem has confirmed a £185m spending allowance cut for National Grid in its mid-period review of electricity and gas transmission.

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