National Grid disappointed with Ofgem decision on Drax contract

Energy regulator Ofgem has rejected a request by National Grid to recover costs it incurred under a Drax contract as it failed to meet the test criteria.

National Grid had been looking to recover the costs of two contracts for grid services that it agreed with SSE and Drax worth £113m in total.

The request was made as an ‘income adjusting event’ where National Grid applies for an increase in its cost targets to cover unforeseen events beyond its control.

National Grid will spend significantly more under the two contracts than the agreed target and in May it applied to Ofgem to be able to recover these costs in their entirety.

But Ofgem has decided that costs the company incurred under the Drax contract did not meet the test for an ‘income adjusting event’.

As a result of Ofgem’s decision, National Grid will bear up to £17.7m in costs itself, which is 30% of the costs of the Drax contract, and will recover at least £95.3m via balancing charges on suppliers and generators.

However, the regulator has allowed the claim for SSE’s Fiddler’s Ferry contract in full, £54m, as it did meet the test criteria for that and Ofgem said the costs were deemed outside of National Grid’s control.

National Grid said on Tuesday that it is “disappointed with Ofgem's decision regarding the Drax contract as it believes the costs could not have been reasonably foreseen”.