Regulation

Storage regulation

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This page summarises the regulatory framework under which Centrica Storage Limited (CSL) operates the Rough gas storage facility and offers storage services to third parties.

THE ROUGH UNDERTAKINGS

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 Undertakings have since been varied in 2005, 2012 and 2016.

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.

REGULATION OF ROUGH AND THE THIRD ENERGY PACKAGE

In 2009, the European Parliament enacted the Third Energy Package (TEP). The requirements of the TEP have been implemented in Great Britain via the Gas Act 1983.

The key requirements impacting on CSL and its operation of Rough include that:

  • CSL must operate, maintain and develop the Rough Storage facility, so far as it is economical to do so, in order to ensure that it is secure, reliable and efficient.
  • CSL must protect commercially sensitive information
  • CSL be legally separated from other parts of Centrica involved the in production, transport and supply of gas, and must make day-to-day operational decision independently of other Centrica businesses;
  • Rough’s capacity is offered under a negotiated Third Party Access regime (nTPA)
  • CSL must make available all capacity, taking system integrity and operation, on a non-discriminatory basis
  • CSL must have sufficient anti-hording arrangements in place and facilitate secondary trading
  • CSL must offer firm and interruptible, long- and short-term, bundle and unbundled storage services from Rough
  • CSL must publish information about access to storage services
  • CSL must publish information about Rough’s capabilities.

Ofgem is responsible for monitoring and enforcing the requirement of the Gas Act 1983. Ofgem can also arbitrate any disputes over access, terms and prices at Rough.

REMIT

On 28 December 2011, Regulation (EU) No. 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT) came into force in all Member States.

REMIT establishes rules prohibiting abusive practices affecting the wholesale energy markets in the European Union (the "EU").

In order to comply with the requirements of REMIT, CSL publishes information about planned and unplanned outages that it considers could potential have a significant impact on gas prices. CSL publishes this information on its REMIT page of the website. CSL may also use the National Grid website to publish this information if there are problems with the CSL website.

Ofgem is responsible for monitoring and enforcing REMIT in Great Britain. CSL must also report information to the Agency for the Cooperation of Energy Regulators (ACER).

LICENSING

In order to operate as a storage facility in Great Britain, CSL must hold licences associated with operating the facility and  meet other requirements for operating its offshore installations.

The Oil & Gas Authority (OGA) is responsible for regulating offshore and onshore oil and gas operations in the UK.

HEALTH AND SAFETY

The Health and Safety Executive (HSE) is responsible for ensuring those involved with the transmission, distribution and storage of natural gas comply with the relevant health and safety legislation.

CSL is fully committed to the achievement of high standards of health, safety and environmental performance. Improvement plans, learning from accidents, incidents and near misses, and progress against targets are reported regularly to CSL’s Directors.

See "Our commitment / Health & safety" for further details on CSL health and safety measures.

EMISSION TRADING SCHEME

Launched in 2005, the Emission Trading Scheme enables the Member States of European Union to achieve their industrial greenhouse emission reduction targets under the Kyoto Protocol cost-effectively by 21% in 2020 compared to 2005.

The scheme works on the "cap and trade" principle: there is a limit on the total amount of gases that can be emitted by the factories, power plants and other installations in the system; within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value. At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed.

The Department of Energy & Climate Change (DECC) is responsible for the implementation of European ETS Directives into the national legislation, including the methodology and the allocation of allowances to installations. The Environment Agency (EA) provides guidance to operators, issues emission permits and runs the ETS national registry.

See "Our commitment / environment" for further details on CSL environmental policy

UNIFORM NETWORK CODE

The Uniform Network Code (UNC) is the hub around which the competitive gas industry revolves, comprising a legal and contractual framework to supply and transport gas.

It has a common set of rules which ensure that competition can be facilitated on level terms. It governs processes, such as the balancing of the gas system, network planning, and the allocation of network capacity.

The Joint Office of Gas Transporters administers the UNC.