Encore Internation, DN Interruptible Reform for the UK Gas Market


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DN Interruptible Reform for the UK Gas Market
April 18th 2008

If you have a Daily Nominated (DN) Interruptible gas supply contract you must decide what you would like to do about this issue before 1st June 2008 and if you want to have a realistic opportunity to manage the change you will need to start taking action now.

Who’s affected

The reform of rules for DN Interruptible gas supplies only affects companies that manage gas for sites in the UK that are interruptible i.e. consume gas but have the ability to reduce their gas consumption requirement within 4 hours notice for 24 hour periods.

The issue

The rules governing interruption in the UK are changing. In April 2008 they will change and if you do not act before June 2008, you will be paying higher gas transportation costs from 2011.

Currently you receive a discounted gas transportation cost because you are classified as an interruptible supply.

This will change from 2011 but you can still make a commercial benefit from your interruptible capability by participating in the new scheme. Under this scheme you can bid your interruptible capability into an auction and this will allow you to receive revenue for your interruptible supply.

The disadvantage of this scheme is that you will now have to take decisive commercial action and participate in a relatively complex process to achieve a benefit.

The advantage of the scheme is that you may receive an increased commercial benefit.

Encore offers a cost effective support service that can manage the process for you.

The Timetable

The timetable is tight and the final rules for the new regime are still evolving so you need to start preparing for this now.

Proposal Implementation 1st April 08

Interruption Requirements published 1st May 08

Auction Bid window opens (interruption offers) 4th June 08

Auction Bid Window closes 15th June 08

Bid Notification of successful bid 13th July 08

The Process

In order to successfully complete this process you need to follow the tasks outlined below.

Identify the primary value drivers for interruption in your business, including: Efficiency of Alternate Fuel, Carbon Impact, Number of Days Storage, LIFO or FIFO Accounting Principles, Process Impact, Time to Switch Fuels, Minimum Operational Time on Alternative Fuel and so on

Create opportunity cost valuation model to determine the commercial benefit

Model the supply and demand for interruption in your area

Create a bidding strategy to achieve the desired commercial return

In order to simplify this and make it practical for you to achieve the required results, Encore will work with you to ensure:

That the necessary analysis is completed

An appropriate strategy is agreed

Your bids are properly submitted

Your agreements are correctly executed

The process is properly monitored and controlled

The commercial value of the accepted bids is protected

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