Modification of PTL licence to allow deferral of capital expenditure allowances

Today we publish a decision to modify the Premier Transmission Limited (PTL) licence to allow the deferral of defined capital expenditure (capex) allowance, following a consultation between 14 May and 14 June 2021. 

Transmission charges, which comprise around 10% of a domestic gas bill, are calculated using a postalised regime, which is fully reconciled every year to facilitate the lower financing costs available for mutualised pipelines.

Currently, certain cost allowances which need to be deferred into the following Gas Year cannot be carried forward and are treated as underspend in the current Gas Year and as overspend in the following year. These amounts comprise part of the year-end reconciliation which is either collected from, or paid back to, suppliers. The licence modifications will allow relevant deferred capital allowances to be carried forward into the following Gas Year without going through the year-end reconciliation.

These modifications arose as a result of discussion with PTL to explore ways to reduce the volatility of the year-end reconciliation amounts.

These will operate by adding defined unspent capital allowances to the actual expenditure in the year and then subtracting it in the following year.

If the deferred allowance is not subsequently spent, it will be treated as underspend one year later than it would otherwise have been.

This could reduce the volatility of the year–end reconciliation amounts by up to £1m or 2% of the total required revenue and is likely to be of interest to gas shippers, suppliers and network operators.

As the reconciliation amounts in the transmission charges comprise a small proportion of the final price charged by suppliers, this modification is not expected to have any impact on consumer prices.

We received three responses to the consultation, from:

Following consideration of the points raised in the responses, the modifications will proceed unchanged from the consultation.

The licence modifications will become effective on 24 September 2021.