Ofgem Consults on National Grid’s Intended Sale of its Gas Distribution Networks

Ofgem Consults on National Grid’s Intended Sale of its Gas Distribution Networks

  • 21 Jul 0

Gas is transported through the National Transmission System to eight Gas Distribution Networks (GDNs) to reach around 22 million consumers in Great Britain. Each GDN covers a separate region. All eight GDNs were originally owned by National Grid PLC. On 1st June 2005, National Grid sold four of the eight GDNs. These are now operated by Northern Gas Networks, Scotia Gas Networks and Wales & West Utilities. National Grid has retained ownership to date of the remaining four GDNs and its distribution network delivers gas to around 10.9 million consumers. In 2005, National Grid also retained obligations with regard to gas distribution that cut across all GDNs (for example providing the emergency call handling service on behalf of all GDNs and acting as the backstop meter provider of last resort). In November 2015, National Grid publicly stated that it plans to sell a majority stake in its UK Gas Distribution Network business, presently owned by National Grid Gas PLC. National Grid has now formally informed Ofgem that it is in early stages of discussions in relation to the sale.

Ofgem regulates the GDNs as they have a monopoly over the region served to ensure consumers receive the service at an efficient cost using an RIIO (Revenue = Incentives + Innovation + Outputs) price control model. In preparation for the proposed sale, National Grid will seek to transfer the assets and licence of its gas distribution business to a new subsidiary company. Ofgem must decide whether to consent to these proposed transfers. The proposed sale will require its consent in two key areas. Firstly, it is expected that National Grid will transfer its gas distribution network assets placing it outside of its operational control. Second, Ofgem expects National Grid to request consent to transfer its gas distribution licence to the subsidiary company which may result in the need to modify the gas transmission licence held by National Grid.

Through this consultation, Ofgem is seeking views on the impact of the intended asset disposal and transfer of the distribution licence to the new company. To date there are two areas that have been raised as concerns. Firstly, the new company may not retain responsibility for the current obligations regarding the Backstop Meter Provider of Last Resort (BMPOLR) which places an obligation on National Grid through its distribution licence that requires it to comply with any reasonable request by a relevant GDN to provide, install and maintain a traditional (i.e. not smart) domestic gas meter. The rationale for BMPOLR, introduced from 1st April 2014, is to improve the provision of metering services, during the transition to smart meters. This is achieved by allowing a GDN that may not have significant metering capability to use the backstop provider enabling benefits from economies of scale. Should the obligation not pass to the new company the consumer may suffer a detriment through insufficient metering. Secondly, National Grid currently operates the emergency 24-hour gas and carbon monoxide emergency helpline dispatching engineers in each of the GDNs when called. There is concern that the service level, and the resultant safety standards, may decrease should this be devolved from a centralised control point.

Ofgem is keen to hear your views on the intended sale particularly in relation to the areas of concern that have been raised. The consultation closes on 9th September 2016. We are formulating our response to the consultation and would welcome your feedback to incorporate into this. To have your say, please email the compliance team at compliance@carbon2018.com or alternatively complete the contact form. To discuss this further please call Melanie Kendall-Reid on 01252 87 87 22.


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