RIIO-T1 and GD1: Draft licence conditions – First informal ... - Ofgem

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48 RIIO-T1 and GD1: Draft licence conditions – First informal licence drafting consultation Special Condition C8C: NTS System Operation Activity Revenue Restriction [GTC 7] Drafting status: Current working draft provided in Supporting Document 2 3.30. The purpose of this condition is to calculate the maximum SO revenue that NGGT is allowed to recover from customers by bringing together terms from other licence conditions. It also sets out the calculation of the price index adjust ment term used throughout the licence and calculates the correction factor (SOK) for the treatment of over/under recovery of revenue. 3.31. We are proposing to change the title of this condition from „NTS System Operation Activity Revenue Restriction‟ to „Restriction of NTS System Operation Activity Charges‟. 3.32. We are also proposing to make the following changes to the terms that make up the revenue restriction formula: � Introducing the term „SOBR‟ to allow for the annual iteration of the Price Control Financial Model for SO internal costs. The reasons for introducing this are analogous to those set out in relation to the TOBR term for Special Condition C8B. This means the current term SOIntIRC can be removed. � Removing the terms SOEIRC and SOExIRC from the SO control, with funding arrangement for invest ment related parts of the entry and exit capacity expected to move to the TO control. We propose to retain specific dedicated licence conditions for the calculation of entry and exit revenues (currently Special Conditions C8D [GTC3] and C8E [GTC4]). See their respective sections below for more information � Removing the term „SORA‟ (which currently covers income adjusting events) from the licence, and instead making provision for uncertain costs through the SOMOD term in accordance with the new licence condition GTC117: Arrangements for the recovery of SO uncertain costs. � Implementing an updated methodology for calculating the price index adjust ment term. This is consistent with the policy as set out in our decision on RPI indexation in July 2011. We have also proposed to update defined terms and introduce additional defined terms. � Making provision for price control disapplication in a specific dedicated licence condition see GTC29: Disapplication. 3.33. Appendix 4 69 of this document provides more detailed information on how the new proposed licence conditions update or replace existing arrangements under the current condition. 69 Appendix 4: Special Condition C8C: NTS System Operation Activity Revenue Restriction
RIIO-T1 and GD1: Draft licence conditions – First informal licence drafting consultation 3.34. The effect of the changes to this condition is to enable NGGT to recover revenue streams that are consistent with the RIIO regime as currently set out in the Initial Proposals. 3.35. There are a number of outstanding issues that we will need to consider by the Second Consultation, including: � whether terms need to be removed or new terms need to be added to reflect any changes to proposed inputs to allowed revenue, as drafting across the range of conditions to be introduced under our proposed Phase 1 is finalised � how the correction factor (TOK) calculation should operate in the light of whatever decision is taken on conclusion of our consultation on mitigating network charging volatility. Special Condition C8D: NTS gas entry incentives, costs and revenues [GTC3] Annex to C8D [GTC 3] AND Special Condition C8E: NTS gas exit incentives, costs and revenues [GTC4] Annex to C8E [GTC 4] Drafting status: Drafts for these conditions to be provided in the Second Consultation. 3.36. The purpose of these conditions is to determine allowed expenditure levels for entry and exit capacity which will be modelled under the Annual Iteration Process and reflected in TO base revenue allowances through the T OMOD term. 3.37. We expect that there will need to be a number of changes to these conditions to implement the enduring arrangements from 1 April 2013. This includes: � As a consequence of the adoption of the RIIO approach, allowed revenue relating to entry and exit revenue drivers would be provided through the TO rather than the SO as at present. This has the advantage of matching the expenditure with the costs. This approach allows t the expenditure to be reflected in RAV rather than sit in a shadow RAV calculation. However, as the charging regime is not being reviewed at this time we propose that the SO side of the NGGT business should continue to collect charges for entry and exit revenue drivers under the existing charging methodology. We envisage this working as follows: (a) A PCFM Variable Value would need to be created in each of the above conditions (one for entry capacity and one for exit capacity), 49
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RIIO-T1 and GD1: Draft licence conditions – First informal ... - Ofgem

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