Large gas buyers lose supply-interruption compensation

16 September 2011

Want the latest procurement and supply chain news delivered straight to your inbox? Sign up for the Supply Management Daily


16 September 2011 | Angeline Albert

Purchasers have voiced anger at having to pay more for gas this winter because interruptible supply contracts are to be scrapped.

Discounts previously offered by suppliers to compensate large industrial gas buyers for interruption to their gas supply will be dropped from 1 October. Energy regulator Ofgem was given extra powers to set up an alternative scheme and buyers had expected a report about it to be published in June, but no proposals materialised.

Currently 1,173 large industrial gas buyers have access to discounts because they are at risk of an interruption. Ofgem, however, said based on its calculations and discussions with gas distributors, only 23 sites are at risk. Furthermore, it said, supply cannot be cut off unless the National Grid declares a gas emergency. As a result, 1,150 have been transferred by suppliers onto firm contracts against their wishes. Meanwhile, gas distributors – the middlemen between the suppliers and buyers – believe 1,600 industrial buyers are still at risk of interruptions.

One buyer told SM the absence of a discount scheme meant her organisation expects to pay more than £1 million a year extra in fuel transportation costs.      

Speaking to SM, Linda Burgess, procurement manager at British Gypsum, a Saint-Gobain company said: “We have been looking at what we can do to mitigate the risk if supply is interrupted and have built in the extra cost of transport when finding a new source.”

Eddie Proffitt, the Major Energy Users' Council’s (MEUC) gas group chairman, and a former UK head of purchasing at Pilkington Glass, said: “Some buyers have told the MEUC they believe the ‘big six’ energy suppliers have managed to secure a delay to the implementation of an alternative scheme in order to benefit from higher prices paid by users this winter.”  

Separately, major industrial gas users have written to UK energy minister Charles Hendry to lobby for more gas storage to minimise gas supply shortages.

A Department of Energy and Climate Change spokesman said: “Under the previous regime some large gas customers were receiving sizeable discounts for interruptible supply contracts even though there was no real prospect of supplies being interrupted due to the capability of the network. That’s why Ofgem has put in place a scheme whereby consumers are no longer subsidising large gas customers and where the automatic right for large customers to have interruptible contracts has been replaced with an auction regime, whereby large customers can bid for the discounts they would accept in exchange for an interruptible contract.”

LATEST
JOBS
Cornwall
£37,191 - £44,697
Cornwall County Council
Hounslow, Heathrow /Richmond upon Thames
Competitive salary depending on experience plus generous share award
Tails.com
SEARCH JOBS
CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates
GO TO CIPS KNOWLEDGE