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Ofgem rejects National Grid cost-recovery request

Staff Writer | August 23, 2016
Ofgem has published its decision on National Grid’s request to recover the costs of two contracts for grid services that it agreed with SSE (for the Fiddler’s Ferry power station) and Drax worth £113m in total.
National Grid
Energy in Britain   Not meeting the test for an Income Adjusting Event
The request was made as an "Income Adjusting Event" where National Grid applies for an increase in its cost targets to cover unforeseen events beyond its control.

Such contracts are awarded to generators to help re-energise the high voltage grid following a partial or total loss of power on the network, commonly referred to as "Black Start". This is an insurance policy for the unlikely event that National Grid needs to re-energise the system.

UK regulator sets National Grid cost targets for its role in balancing the network and managing provision of Black Start services. These costs are paid for by generators and suppliers via balancing charges.

National Grid will spend significantly more under the two contracts than the agreed target and in May it applied to Ofgem to be able to recover these costs in their entirety.

Ofgem has decided that costs National Grid incurred under the Drax contract did not meet the test for an Income Adjusting Event.

Ofgem has allowed the claim for the Fiddler’s Ferry contract in full (£54m) as it met the criteria for an Income Adjusting Event and the costs were deemed outside National Grid’s control.

Under the costs targets if National Grid spends less than the target it receives 30 percent of every pound saved. If costs are above the target National Grid has to pay 30 percent of every pound overspent.

As a result of Ofgem’s decision, National Grid will bear up to £17.7m in costs itself, which is 30 percent of the costs of the Drax contract, and will recover at least £95.3m via balancing charges on suppliers and generators.

National Grid said that it is "disappointed with Ofgem's decision regarding the Drax contract as it believes the costs could not have been reasonably foreseen".