A regulatory framework for gas quality treatment facilities: recap and update

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A regulatory framework for gas quality treatment
facilities recap and update
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GB regulatory framework

• HSE
• Safety regulatory authority all GB gas
  activities
• Sets G(S)MR limits
• Sets monitors compliance with safety case
  requirements

• DTI
• Regulatory authority for offshore
• Licensing for offshore exploration
• Liaise with HSE on G(S)MR

• Ofgem
• Regulatory authority for GB gas market
• Sets and monitors compliance with regulatory
  framework

Ofgem to work together with HSE and DTI on any
options developed
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Ofgem - work so far

• Ofgem Workshop in September 06
• Gas Quality is a material issue
• Ofgem led two workstreams (Sep-Dec 2006)
• Scenario development workstream considered the
  extent of issue
• Economic Regulation workstream considered
  possible regulatory framework to support
  construction of a gas processing facility
• Conclusions document published 30 January
• Work in Europe
• Gas interoperability
• ERGEG Taskforce

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What is the extent of the issue?
Future Source and spec of gas Highly Uncertain
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Economic Regulation What was considered
Economic regulation workstream considered three
broad approaches

• No regulation of facility
• Pure commercial incentives apply

Unregulated approach
Not favoured due to concerns over timeliness of
investment.

• NGG builds facility
• Investment included in the RAB
• Costs smeared across all gas customers

Pure regulated approach
Not favoured as risk of asset stranding would be
smeared across all gas customers.

• NGG builds facility
• Investment potentially included in RAB subject
  to user commitment meeting 100 NPV
• Costs recovered through user charges

Favoured but with scope to allow NGG to add
capacity above the level of user commitment at
its own risk (i.e. not automatically included in
the RAB)
User commit approach
NOW FURTHER DEVELOPING THIS REGULATORY MODEL
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Proposed regulatory approach summary
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Next consultation document (May)

• Flesh out main issues in the allocation of risks
  among parties
• e.g. competition impacts, balancing risks to
  consumers, etc.
• Present initial views on how risks might be
  allocated the associated regulatory framework
• Taking into account submissions to Workstream
  Conclusions
• Industry feedback key
• Framework to rely on strong user signals

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Draft Proposals published late July/early Aug
Final proposals early Oct
Next consultation doc published 31 May
Responses due early Sep
Responses due early July
Apr
Jun
Sep
May
Oct
Jul
Aug
Ofgem decision Oct
Workstream completes dev July
NGG First Workshop 23 Apr
Panel Recommendation Sep
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