Ratchet charges

What are they?

A daily metered (DM) gas customer (Class 1 or Class 2) provides a daily consumption or standard offtake quantity (SOQ) for each DM meter point (MPRN).

During the winter period, from 1 October to 31 May, if a customer exceeds their nominated daily consumption or SOQ then they will be subject to a penal Ratchet charge.

Following the implementation of our Modification 0665 (Changes to Ratchet Regime) in March this year, a number of changes have been made to the existing DM class 2 gas customer arrangements.

You can find the full details surrounding these changes here: - http://www.gasgovernance.co.uk/0665

What does it mean for the end user?

From 1 October 2019 the current Ratchet regime will change for DM gas customers’ sites in Class 2. DM gas customers in Class 1 will continue to be subject to the existing arrangements.

Our change only applies to those customers connected to distribution networks and not those directly connected to National Grid’s Transmission System (NTS).

During the winter period we will see the removal of the penal element of Ratchets for DM Class 2 customers. Instead, if they exceed their daily consumption (SOQ), a charge is applied which is simply reflective of the additional daily consumption (SOQ) that has been used. This ensures capacity is paid for without applying a penal charge.

If a site Ratchet does occur, there are two effects experienced by the customer:

1. The supply point capacity of the site is increased to the level of the new measured offtake, up to the level of the provisional SOQ (this is double the existing SOQ or 16 times the hourly offtake rate or SHQ)
2. A Ratchet charge is imposed on the customer. As a site’s SOQ can only increase up to a certain point and there is a time lag in the increase taking effect, it’s possible that a site will breach the provisional SOQ on multiple occasions in the same month. If this occurs only the biggest breach (i.e. the biggest recorded daily offtake) for that month will result in a Ratchet charge.

If we consider a comparison of a Ratchet charge before our modification and after our modification takes effect, you can see the scale of the reduction for Class 2 customers on the table below:
 

Source: ICOSS

The development of this proposal saw gas transporters raise concerns that certain sites may be considered network sensitive and therefore would need to be treated in line with existing DM Class 1 arrangements. The solution to this was to enable gas transporters to identify such sites and, subject to the right of appeal, to be able to recognise those sites as a DM Class 1 site.

Transporters have now started identifying sites. However, this process is currently under review and we expect to receive a list of potential DM Class 1 sites towards the end of September.

We will be in touch with any of our customers impacted by this and will provide the rationale given by the transporters for their designation. Customers will then have the opportunity to appeal the designation if they do not agree with the justification provided.

If you’re unsure on this process and would like further information, additional guidance has been developed and is available here.

Does the end user have to do anything differently?

As always, and ahead of the winter period, DM customers should ensure they have reviewed the current daily consumption or SOQ associated with their DM sites so they can avoid the risk of being Ratcheted.

This is particularly important for DM Class 1 sites as the existing penal regime will continue.

The changes made to the Class 2 DM Ratchet regime will be effective from the 1 October 2019, customers need not take any action and will automatically benefit from the new arrangements.