In December 2003, Centrica plc and Centrica Storage Limited (CSL) agreed undertakings with the Secretary of State under section 88 of the Fair Trading Act 1973 (‘the Undertakings’). These behavioural Undertakings were designed to address the risks that the Competition Commission identified with Centrica, which had the largest market share of the retail gas market, owning the largest storage facility in Great Britain.
See the Competition Commission’s (now the Competition and Markets Authority’s (CMA)) report for more detail.
The key provisions of the Undertakings include:
- Rough Capacity must be sold to third-parties on non-discriminatory terms (see "capacity allocation" for further details on the allocation mechanism and "contracts" for terms and conditions of sales)
- CSL must sell at least the Minimum Rough Capacity* and Additional Space (1534GWh) ahead of the Storage Year (1 May to 30 April)
- Centrica can compete for up to 25% of Minimum Rough Capacity* in the primary market
- at least 20% of the Minimum Rough Capacity must be offered on annual contracts; capacity should also be offered on a range of other durations and with the possibility of fixed or indexed pricing; some capacity may be sold as non-SBU** products under new forms of contract, subject to Ofgem approval and market consultation
- legal, financial and physical separation must be maintained between CSL and all other parts of Centrica Group; no commercially sensitive information arising from operations at Rough and Easington may be passed to other parts of Centrica
- information relating to the storage operations are disclosed to all market participants simultaneously (see "data transparency")
- CSL is required to facilitate the efficient operation and development of the secondary market in Rough capacity
- CSL can apply to Ofgem to changes to the Minimum Rough Capacity and Additional Space it must if there is a significant change in Rough’s physical capabilities
* Minimum Rough Capacity means 455 million SBUs.
** SBU means standard bundled units of gas storage at Rough (each comprising 1 kWh/day deliverability, 66.593407 kWh of space, and 0.351648 kWh/day injectability).
Both Ofgem and the CMA have responsibility for monitoring compliance with the Undertakings. They also share concurrent enforcement powers for breaches of the Fair Trading Act 1973.