Changes to shorthaul arrangements

With the current shorthaul model being considered outdated, what's going to be changed?

What is it?

Shorthaul arrangements cater for sites whose relative proximity to entry points (terminals) means that the normal charging mechanism fails to deliver a competitive transportation charge. Therefore creating the perverse incentive for customers to build alternative delivery systems (parallel pipelines).

To avoid this inefficiency, shorthaul was introduced to provide customers with a competitive price to use the existing network.

However, the model used to calculate the charges has been in place for a number of years and hasn’t been updated to reflect ongoing price changes. This has resulted in more customers being able to gain access to short haul, even though they are not in reasonably close proximity to the entry point.

Impact

  • Under the transmission charging review, discussed above, the existing shorthaul arrangements will change from October 2019. However, an additional modification had been raised to change shorthaul from October 2018

 

What does it mean for customers?

Any changes to the regime will affect customers and, depending on the scale of the change, there could be significant cost impacts for existing shorthaul customers.  

What are we doing?

We’re highlighting concerns with the proposals;

  • Historical flows aren’t an indicator of future flows
  • Pipelines weren’t built on basis of a flow pattern, but on a peak day expectation
  • Use of steel index was rejected as option 1 in GCD11 and Mod 621
  • The proposals could be problematic when considering existing routes where investment decisions have been based on different pipeline portfolios and inflated by steel

On a positive note, Ofgem rejected the proposals which were proposing to implement changes from October 2018 on 31 July 2018. However, the current arrangements for shorthaul will be subject to change from October 2019 as part of the broader gas transmission charging review discussed above. Following Ofgem's rejection of Modification 636, Centrica have now withdrawn their Modification 653 so the development of future shorthaul arrangements will be covered under Modification 0621.

How can I find out more?

The proposals that were rejected and withdrawn can be found here: 

https://www.gasgovernance.co.uk/0636 

https://www.gasgovernance.co.uk/0653

The proposals being developed for 2019 form part of the gas transmission charging review and more information can be found here:

https://www.gasgovernance.co.uk/0621