IN Brief:
- Ofgem has delayed decisions on urgent code modifications CMP474 and CMP475.
- The proposals would define when fixed BSUoS tariffs can be reopened during a charging period.
- The review must balance NESO’s cost recovery and working-capital position against charging predictability for market participants.
Ofgem has extended its assessment of two urgent code modifications intended to change how fixed Balancing Services Use of System tariffs can be revised during a charging period.
CMP474 and CMP475 were raised after National Energy System Operator forecasts indicated that balancing expenditure and associated working-capital requirements could exceed the assumptions used when the tariffs were fixed.
Although decisions had been expected in July, the regulator has delayed its determinations while it examines the final modification reports and the commercial, operational, and governance consequences of reopening a published tariff.
BSUoS charges recover costs incurred by NESO in balancing Britain’s electricity system. Those costs include actions taken to match generation and demand, manage transmission constraints, and preserve secure operation when physical conditions differ from market schedules.
The total expenditure is converted into fixed tariffs for defined charging periods, giving liable parties advance visibility over the rate they will pay. Forecast error remains with NESO’s working-capital arrangements until it can be recovered through later charges.
CMP474 would create a formal mechanism and defined criteria for revising a fixed BSUoS price within the relevant charging period. It also covers publication requirements, governance, and the circumstances in which the process could be used.
CMP475 would amend the existing reset mechanism where NESO forecasts that its working-capital facility will be exceeded. It would allow the facility’s position to move back towards a neutral level within the same tariff period rather than leaving recovery until a later settlement.
Urgent status was granted because the issue concerns NESO’s ability to finance unexpectedly high balancing costs without exceeding its available working capital. The shortened code timetable does not remove the need to assess charging predictability, implementation, consumer effects, and consistency with the objectives of the Connection and Use of System Code.
Balancing volatility reaches fixed network charges
Balancing expenditure reflects the combined cost of keeping the power system within operational limits as weather, plant availability, interconnector flows, transmission constraints, and demand change. Larger volumes of variable generation can increase the range of actions required, although no single technology accounts for the complete cost.
Transmission constraints remain a major component. Generation may be available in one region but unable to reach demand because the network lacks sufficient capacity at that moment.
NESO can pay one generator to reduce output and another resource elsewhere to increase production, discharge storage, or lower demand. The resulting cost maintains secure operation but may rise sharply when network constraints persist or replacement energy is expensive.
Fixed tariffs reduce the need for market participants to forecast every balancing action and allow costs to be incorporated into contracts, hedges, and budgets. Their stability also leaves NESO carrying the difference when actual expenditure departs materially from the original forecast.
A mid-period reset would transfer part of that forecast risk back to liable parties. The trigger therefore needs to be objective, transparent, and high enough to preserve the purpose of fixing the tariff while remaining available before working-capital pressure becomes unmanageable.
Notice periods will influence how readily revised charges can be absorbed. Suppliers, generators, traders, and large energy users may have priced agreements using the original rate, while billing systems, settlement forecasts, and customer charges may require updates.
Where insufficient notice is available, a technically justified reset could still create commercial disputes or unexpected reconciliation adjustments. Publication requirements and supporting data should allow market participants to monitor the approach of any trigger rather than learning of a change only after it has been activated.
The two modifications must also operate coherently. CMP474 offers a broader framework for reopening the tariff, while CMP475 addresses the specific circumstance in which the working-capital facility may be exceeded.
Clear precedence will be required so that overlapping mechanisms do not create inconsistent decisions or duplicate recovery. Governance should also define who verifies the forecast, which assumptions are disclosed, and whether later corrections apply if actual expenditure falls below the revised estimate.
Britain’s transmission network is entering a period of major reinforcement, but new lines and substations take years to consent, procure, and build. During that interval, balancing arrangements must manage renewable growth, interconnector operation, storage, plant outages, and large new electrical loads across a network that cannot remove every constraint immediately.
Forecasting will remain uncertain even after a reset mechanism is introduced. Weather, outages, commodity prices, demand, network availability, and market behaviour can shift rapidly, and any revised tariff will still be based on assumptions rather than final expenditure.
Ofgem’s determination will need to state when a fixed price may be reopened, what evidence is required, how much notice must be provided, and how the approach preserves a meaningful distinction between a fixed tariff and a continuously variable charge.
The code modification documents and eventual decisions are available through Ofgem’s energy-code publications.
