Project Nexus Unidentified Gas
Total Gas & Power’s urgent UNC modification 0658 is implemented by Ofgem following widespread support from the industry, enabling Xoserve to set up a UIG task force.
The change proposal will provide funding for Xoserve to properly assess the issues as the central industry expert. It will enable Xoserve to take control and lead rather than rely on instructions from various industry committees. It will also allow Xoserve to ring fence experts within the team and recommend actions (mods) to correct the causes.
This modification was recommended for implementation by the UNC modification panel and subsequently implemented by Ofgem.
Background to Project Nexus and Unidentified Gas (UIG)
Project Nexus was a large UK Gas industry project that was implemented in June 2017. The project replaced the previous central IT system and introduced new read and settlement processes. One of the significant consequential changes was the replacement of the Unallocated Gas (UAG) process with an Unidentified Gas (UIG) process.
The new UIG process was designed with the intention of providing a more accurate view of the volume of unidentified gas. Before Project Nexus implementation, an independent expert (the AUGE) calculated, in advance, the volume of unidentified gas for the non-domestic sector using available information. This was then charged out to suppliers in accordance with market share by volume.
Since Nexus implementation the total amount of unidentified gas is derived on a daily basis from a formula that subtracts shrinkage, DM allocations and NDM estimates from the total gas input into the system. The amount of gas that is then “missing” is the Unidentified Gas (UIG) volume.
What has happened?
Since implementation we have seen significantly higher than anticipated levels of UIG across the industry, resulting in a higher charge for which suppliers - and in turn customers (see below) - will need to account. UIG is also unexpectedly volatile which has further compounded the issue and the cause of this volatility is being investigated but is not yet fully understood.
How much has it changed by?
With the previous regime, the cost incurred through UAG for I&C customers was between 1 and 2%. However, under the new regime, we are seeing the monthly costs between 6 and 11%. The reconciliations that we have seen so far over time, as meter reads are submitted, have not made significant reductions to these costs.
What is causing high levels of UIG?
Xoserve’s estimation algorithms appear to be a contributing factor and there are modifications and industry workgroups proposing changes to make these more accurate. If more actual meter reads enter settlement, it should reduce this error as there will be less need for estimation. Total Gas & Power's Mod 658 would give Xoserve the mandate and funding to properly investigate the causes in an organised and coordinated manner.
How have you worked out the cost?
Each day Gas Shippers/Suppliers are informed of the proportion of UIG that is being allocated. In addition, every month a reconciliation is calculated for all previous months since June 2017. Those reconciliations take place when actual reads are processed by XOSERVE that then trigger a re-allocation of the UIG costs.
From the UIG volumes and costs that we have seen so far we have estimated a monthly rate which is then incorporated into gas prices.
What is Total Gas & Power doing about it?
Addressing high levels of UIG is one of the industry’s highest priority issues. We have escalated to the top level within Ofgem and Xoserve. “Along with all of you across our industry, we continue to work hard towards resolving the absolute level and volatility of Unidentified Gas (UIG). UIG is causing significant commercial challenges for most of you and I would like to re-iterate that we are treating this as a very high priority within Xoserve.” Sian Baldwin, CEO Xoserve.
Total Gas & Power has joined forces with other suppliers through our industry trade association (ICoSS), and are actively lobbying the industry, including Xoserve and Ofgem, to support initiatives and actions to reduce levels of UIG and remove volatility. We are also developing and supporting several industry modifications that have been raised to try and bring the levels of UIG down.
Is it affecting everyone?
All suppliers are affected by this change.
How will I know if the situation has improved?
We will continue to provide regular updates to all our customers.