The gas settlement arrangements allocate energy volumes to shippers based on meter readings. Shippers that failed to submit timely meter readings – or that submit incorrect readings – impact the volumes of gas allocated to other shippers. Such impacts, outside of their control, are an inherent settlement risk for all shippers.
A Performance Assurance Workgroup (PAW) was formed to consider options for addressing this risk via a performance assurance regime. The group needed to identify and quantify these issues so that they could propose proportionate and cost effective incentives and remedies.
We are independent experts in the gas settlement arrangements and are highly experienced in engaging with a diverse set of stakeholders. We are also experts in the performance assurance framework that operates for electricity settlement – and have strong settlement and risk modelling capabilities.
We reviewed the existing gas arrangements and associated issues logs – and identified, categorised and catalogued material risks to fair and equitable settlement. With the agreement of the PAW, the 15 key risks we identified were taken forward to a detailed assessment stage.
Our assessment needed to support identification of cost justifiable incentives and remedies as well as enable priorities to be set. We therefore developed a methodology that was an adaptation of a financial “value at risk” assessment. This looked at the frequency and severity distribution of historical issues and used the 95th percentile (a 1 in 20 years occurrence) to quantify the annual value at risk. This was undertaken for the risk to the initial allocation of energy volumes to shippers as well as the risk to the reconciled volume allocations.
Our report and the risk model we produced, provided the PAW with a quantification of the key risks to fair and equitable gas settlement. It enabled them and their successor to establish a performance assurance incentives regime – and the risk model is now an integral part of the regime’s ongoing operational process.