FUTURE REGULATION OF THE UK GAS GRID Annex 1:
Description: FUTURE REGULATION OF THE UK GAS GRID Annex 1: Current stakeholder landscape Purpose of stakeholder analysis for this project High-level project objective CCC has established future demand scenarios consistent with carbon budgets Some
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slide1. FUTURE REGULATION OF THE UK GAS GRID Annex 1: Current stakeholder landscape<br>
slide2. Purpose of stakeholder analysis for this project High-level project objective CCC has established future demand scenarios consistent with carbon budgets
Some scenarios are likely to involve significant regulatory and institutional reform in order to be realised.
This project seeks to evaluate what changes might be needed, and how such reform might be implemented. Key questions for understanding the stakeholder environment Who are the key interested parties who are relevant to the process of regulatory/institutional reform?
What are the various interests/incentives at play which may act as a barrier to any necessary reform?
How are key decision-makers influenced by other parties?
Where are there gaps in the current stakeholder environment – e.g. is there a need for greater co-ordination or overlapping responsibilities? We evaluate the three broad stakeholder “groups” Companies Decision-makers Customers Relevant stakeholder environment<br>
slide4. Decision makers (1 of 2) Responsible for setting UK strategic energy policy direction
Role covers energy security; action on climate change; renewable energy; affordability; fairness; supporting growth; and managing UK’s energy legacy.
Defines Ofgem’s remit (e.g. through the Utilities Act 2000) Independent regulator of the gas and electricity markets in Great Britain.
Sets cost allowances, required outputs, and allowed revenue for the networks.
Defines network License conditions.
Objectives and duties are determined by primary legislation:
Principal objective to protect interests of existing and future consumers. Consumer interest taken “as a whole” - including interest in the reduction of greenhouse gases
Ofgem must promote effective competition “wherever appropriate”
Ofgem must have regard to the need to ensure gas demands are met; to ensure licence holders can finance activities; and to contribute to achieving sustainable development.
Ofgem must promote efficiency and economy; protect the public from dangers arising from licensed activities; and seek to secure a diverse/viable long-term energy supply.<br>
slide5. Decision-makers (2 of 2) UK’s primary competition and consumer authority
Price control appeals are heard by the CMA – it will seek to ensure Ofgem’s reg. frameworks are well-reasoned and implemented correctly. Responsible for inspection and enforcement of safety legislation and regulations, e.g.
Gas Safety (Management) Regulations 1996;
Pipeline Safety Regulations 1996.
Overseeing the Iron Mains Replacement Programme
Likely to be closely involved in any possible hydrogen roll-out – to establish relevant safety standards and scrutinise/monitor safety issues. 375 councils in England and Wales, with almost 18,500 elected councillors
Key responsibilities in relation to this project:
Social housing
Planning & development – e.g. building & development control; investment & regeneration.
Traffic management and road safety (affects network costs given restrictions on street works)
Public transport – discounted travel schemes and local transport co-ordination
Future district heating programmes are likely to have a local focus and require LA involvement. Devolved govts. have varying roles including planning permission and certain policy aspects.
Scotland Act 2016 was enacted in March, giving Scottish Parliament expanded role in energy.<br>
slide6. Companies - Gas Distribution Networks (GDNs) Borealis; SSE plc; and Ontario Teachers’ Pension Plan. Ownership information Cheung Kong Infrastructure (CKI); Power Assets Holding Limited; and SAS Trustee Corporation (Australian pension fund). National Grid plc (listed on London Stock Exchange). Has announced plans to sell its four network licences in near future. Cheung Kong Infrastructure (CKI) Independent Gas Transporters (IGTs) develop, operate and maintain local gas transportation networks. Six IGTs currently operate local networks in the UK.
Primarily these companies connect new housing and commercial developments - c.1 million customers are connected to IGTs.
Regulated by Ofgem – prices are set relative to the main GDNs. Investors currently have large sunk investments with long-term recovery profile<br>
slide7. Companies - Gas Transmission Network (NTS) National Transmission Network (NTS) is owned and operated by National Grid Gas plc (NGG).
NGG must ensure adequate capacity to support NTS customers’ gas flow requirements.
NGG makes available NTS entry & exit capacity which is booked by shippers:
Entry capacity made available via a number of long and short term reserve price auctions;
Exit capacity made available via an annual application window, but shorter term capacity rights can also be acquired at the day ahead and within day stage. Opening RAB in 2015 of c. £5.1bn (2014/15 prices).
Network length: 7,500KM<br>
slide8. Customers CAB is the consumer advocate during price control reviews (replaced Consumer Futures).
CAB makes submissions to Ofgem during price reviews, representing customer interests. Current and Future customers Any recommendation for regulatory or institutional reform should consider the impact on different customer groups.
Key question will be whether there is a differential impact across these groups. Business vs. Residential customers Transmission Grid-connected vs. D-grid Different user types e.g. requirements for capacity/back-up fuel vs. primary fuel consumption Geographical effects – e.g. rural vs. urban customers; licence areas. Fuel-poor network users Gas-fired generators<br>
slide10. Summary of likely incentives/issues – decision makers Relevant considerations for regulatory/institutional reform proposals Are there sufficient cross-vector decision making powers?
Are there areas where Ofgem’s responsibilities overlap/conflict with other regulators? Eg:
Safety: minimum standards will need to be met and monitored by HSE. Repex programme has placed strong constraints on networks – could over-burdensome HSE requirements preclude some scenarios?
Transport: if hydrogen demand is led by transport sector, does Ofgem’s network regulation need to be consistent with oversight of transport infrastructure?
Is there a need for technology-neutral or vector-neutral regulation?
Local heating solutions may be led / designated at a local level. Is there sufficient scope for co-ordination between national regulators and local authorities (or an alternative local decision making entity)? Issue Decision-makers Co-ordination Cross-vector fairness Localised action<br>
slide11. Summary of likely incentives/issues - networks Existing gas network companies and owners Investors will strongly resist proposals which imply increased stranding risk. Could also be subject to CMA appeal/review (e.g. PNG case). Strong commitment in GB to RAB recovery.
Political/regulatory uncertainty could increase cost of capital. Risks to investors could be greater under hydrogen scenarios?
Certain ownership groups (e.g. pension funds) could have a lower risk appetite which is inconsistent with more radical changes in network usage. Will UK infrastructure need to attract a new “type” of investor under some scenarios?
Is there sufficient funding available at the right Technology Readiness Level (TRL)? Relevant considerations for regulatory/institutional reform proposals Issue Stranding risk Cost of capital Risk appetite Network-led innovation<br>
slide12. Summary of likely incentives/issues - customers Customers Any regulatory/institutional reform will need to consider price and bill impact. Customers and regulators will be keen to avoid big price hikes, and also significant price volatility.
Some options are likely to include alternative speed of money recovery. Key question here is around cost-reflectivity and fairness – will current customers have to subsidise future customers?
The changes will result in winners and losers depending on the solutions that are adopted – how will this impact the direction of change?
New roll-out programmes will cause disruption – in particular potential supply interruptions and potentially activity within homes/on private land, as well as likely road travel disruptions.
Do customers need stronger representatives during price reviews and other regulatory discussions? Do customer representatives have sufficient clarity/information to be able to offer informed input? Prices Inter-generational fairness Winners and losers Relevant considerations for regulatory/institutional reform proposals Issue Disruption Giving customers a voice<br>
slide2. Purpose of stakeholder analysis for this project High-level project objective CCC has established future demand scenarios consistent with carbon budgets
Some scenarios are likely to involve significant regulatory and institutional reform in order to be realised.
This project seeks to evaluate what changes might be needed, and how such reform might be implemented. Key questions for understanding the stakeholder environment Who are the key interested parties who are relevant to the process of regulatory/institutional reform?
What are the various interests/incentives at play which may act as a barrier to any necessary reform?
How are key decision-makers influenced by other parties?
Where are there gaps in the current stakeholder environment – e.g. is there a need for greater co-ordination or overlapping responsibilities? We evaluate the three broad stakeholder “groups” Companies Decision-makers Customers Relevant stakeholder environment<br>
slide4. Decision makers (1 of 2) Responsible for setting UK strategic energy policy direction
Role covers energy security; action on climate change; renewable energy; affordability; fairness; supporting growth; and managing UK’s energy legacy.
Defines Ofgem’s remit (e.g. through the Utilities Act 2000) Independent regulator of the gas and electricity markets in Great Britain.
Sets cost allowances, required outputs, and allowed revenue for the networks.
Defines network License conditions.
Objectives and duties are determined by primary legislation:
Principal objective to protect interests of existing and future consumers. Consumer interest taken “as a whole” - including interest in the reduction of greenhouse gases
Ofgem must promote effective competition “wherever appropriate”
Ofgem must have regard to the need to ensure gas demands are met; to ensure licence holders can finance activities; and to contribute to achieving sustainable development.
Ofgem must promote efficiency and economy; protect the public from dangers arising from licensed activities; and seek to secure a diverse/viable long-term energy supply.<br>
slide5. Decision-makers (2 of 2) UK’s primary competition and consumer authority
Price control appeals are heard by the CMA – it will seek to ensure Ofgem’s reg. frameworks are well-reasoned and implemented correctly. Responsible for inspection and enforcement of safety legislation and regulations, e.g.
Gas Safety (Management) Regulations 1996;
Pipeline Safety Regulations 1996.
Overseeing the Iron Mains Replacement Programme
Likely to be closely involved in any possible hydrogen roll-out – to establish relevant safety standards and scrutinise/monitor safety issues. 375 councils in England and Wales, with almost 18,500 elected councillors
Key responsibilities in relation to this project:
Social housing
Planning & development – e.g. building & development control; investment & regeneration.
Traffic management and road safety (affects network costs given restrictions on street works)
Public transport – discounted travel schemes and local transport co-ordination
Future district heating programmes are likely to have a local focus and require LA involvement. Devolved govts. have varying roles including planning permission and certain policy aspects.
Scotland Act 2016 was enacted in March, giving Scottish Parliament expanded role in energy.<br>
slide6. Companies - Gas Distribution Networks (GDNs) Borealis; SSE plc; and Ontario Teachers’ Pension Plan. Ownership information Cheung Kong Infrastructure (CKI); Power Assets Holding Limited; and SAS Trustee Corporation (Australian pension fund). National Grid plc (listed on London Stock Exchange). Has announced plans to sell its four network licences in near future. Cheung Kong Infrastructure (CKI) Independent Gas Transporters (IGTs) develop, operate and maintain local gas transportation networks. Six IGTs currently operate local networks in the UK.
Primarily these companies connect new housing and commercial developments - c.1 million customers are connected to IGTs.
Regulated by Ofgem – prices are set relative to the main GDNs. Investors currently have large sunk investments with long-term recovery profile<br>
slide7. Companies - Gas Transmission Network (NTS) National Transmission Network (NTS) is owned and operated by National Grid Gas plc (NGG).
NGG must ensure adequate capacity to support NTS customers’ gas flow requirements.
NGG makes available NTS entry & exit capacity which is booked by shippers:
Entry capacity made available via a number of long and short term reserve price auctions;
Exit capacity made available via an annual application window, but shorter term capacity rights can also be acquired at the day ahead and within day stage. Opening RAB in 2015 of c. £5.1bn (2014/15 prices).
Network length: 7,500KM<br>
slide8. Customers CAB is the consumer advocate during price control reviews (replaced Consumer Futures).
CAB makes submissions to Ofgem during price reviews, representing customer interests. Current and Future customers Any recommendation for regulatory or institutional reform should consider the impact on different customer groups.
Key question will be whether there is a differential impact across these groups. Business vs. Residential customers Transmission Grid-connected vs. D-grid Different user types e.g. requirements for capacity/back-up fuel vs. primary fuel consumption Geographical effects – e.g. rural vs. urban customers; licence areas. Fuel-poor network users Gas-fired generators<br>
slide10. Summary of likely incentives/issues – decision makers Relevant considerations for regulatory/institutional reform proposals Are there sufficient cross-vector decision making powers?
Are there areas where Ofgem’s responsibilities overlap/conflict with other regulators? Eg:
Safety: minimum standards will need to be met and monitored by HSE. Repex programme has placed strong constraints on networks – could over-burdensome HSE requirements preclude some scenarios?
Transport: if hydrogen demand is led by transport sector, does Ofgem’s network regulation need to be consistent with oversight of transport infrastructure?
Is there a need for technology-neutral or vector-neutral regulation?
Local heating solutions may be led / designated at a local level. Is there sufficient scope for co-ordination between national regulators and local authorities (or an alternative local decision making entity)? Issue Decision-makers Co-ordination Cross-vector fairness Localised action<br>
slide11. Summary of likely incentives/issues - networks Existing gas network companies and owners Investors will strongly resist proposals which imply increased stranding risk. Could also be subject to CMA appeal/review (e.g. PNG case). Strong commitment in GB to RAB recovery.
Political/regulatory uncertainty could increase cost of capital. Risks to investors could be greater under hydrogen scenarios?
Certain ownership groups (e.g. pension funds) could have a lower risk appetite which is inconsistent with more radical changes in network usage. Will UK infrastructure need to attract a new “type” of investor under some scenarios?
Is there sufficient funding available at the right Technology Readiness Level (TRL)? Relevant considerations for regulatory/institutional reform proposals Issue Stranding risk Cost of capital Risk appetite Network-led innovation<br>
slide12. Summary of likely incentives/issues - customers Customers Any regulatory/institutional reform will need to consider price and bill impact. Customers and regulators will be keen to avoid big price hikes, and also significant price volatility.
Some options are likely to include alternative speed of money recovery. Key question here is around cost-reflectivity and fairness – will current customers have to subsidise future customers?
The changes will result in winners and losers depending on the solutions that are adopted – how will this impact the direction of change?
New roll-out programmes will cause disruption – in particular potential supply interruptions and potentially activity within homes/on private land, as well as likely road travel disruptions.
Do customers need stronger representatives during price reviews and other regulatory discussions? Do customer representatives have sufficient clarity/information to be able to offer informed input? Prices Inter-generational fairness Winners and losers Relevant considerations for regulatory/institutional reform proposals Issue Disruption Giving customers a voice<br>