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30 June 2003 - UK Energy regulator Ofgem said on Friday that National Grid Company (NGC) can pass on the costs of a contract that it struck with AES Drax in November 2002.
In November 2002 NGC entered into a contract with AES Drax to secure its operating reserve at a time of market uncertainty following TXU entering into administration. The operating reserve is the amount of plant NGC keeps available to cover plant breakdown on the system.
At the time, Ofgem considered that the actions which NGC took were consistent with its statutory duties and licence obligations and stated this view publicly at the time. Ofgem additionally considered it was appropriate to allow NGC to pass through the costs involved in this contract, subject to receiving further information from NGC.
Under its System Operator Incentive Scheme, generally NGC can only under exceptional circumstances pass on in full the costs of keeping the system in balance, known as Income Adjusting Events (IAEs). Ofgem has decided to approve the Drax contract as an IAE. This decision follows careful consideration of all the views expressed by those parties who responded to the consultation on this issue which was published in May.
In response to the views of respondents to the consultation surrounding transparency, Ofgem has welcomed NGC's commitment to review and consult on the level of information it provides about its actions as System Operator, with the aim of enhancing transparency. Ofgem also considers that there is scope to increase transparency surrounding proposed IAEs going forward based upon experience gained during this, the first application of the IAE provisions, by increasing the availability of supporting analysis relating to the relevant event.
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