Gas Week

EWN Publishing

Gas price-spikes, or gas-blackouts the key risk for GridX: and, if GridX goes bust – then customers face monster bills of uneconomic grid connection

Posted by gasweek on 25 September, 2007

While GridX argued in its NSW retailer supplier licence application to the Independent Pricing and Regulatory Tribunal while the chances of its distributed generation system becoming uneconomic the key risk was the price of gas. GridX told IPART “the price of gas would need to escalate by a factor which is not reflected in the costs of electricity. GridX believes that this is unlikely since gas fired generation currently sets the wholesale price of electricity during peak supply”.

The gas price-spike plan: GridX argued if it were unable to operate its network, but its systems remained viable, it is likely that another operator would purchase the business from GridX or its receivers and its customers’ supply would not be interrupted.

Shocker loop hole: The Tribunal noted that even if GridX’s systems remain viable, there wasno guarantee that another operator could be found at short notice. Further, if a Retailer of Last Resort (RoLR) was appointed, this operator may favour connection to the grid rather than maintaining onsite generation. (and would have the rights to so so, and full consumer cost, under the NSW rules ).

Gas supply contract risks: IPART said ” It may also be necessary for an additional licensing obligation to be imposed that would ensure continuation of gas supply contracts where a RoLR event has occurred.

Customers vulnerable to exploitation: Customers would have poor rights as “If GridX goes into receivership and another operator is not forthcoming, GridX argues that the local DNSP would be obliged to connect GridX’s customers to its assets…each customer would be required to pay the costs of connecting them to the DNSP’s network. IPART warned “Connection to the main grid could involve considerable cost and inconvenience for customers”

No obligation to warn user of risk or cost: IPART said “The exact cost and time involved would depend on the size and location of the GridX network and the capacity of the neighbouring DNSP network. However, as GridX has indicated that most of its off-grid networks will be installed in locations where the existing electricity network’s capacity is constrained, both cost and time could be significant. The Tribunal considers that while connection to the local DNSP’s network may provide a long term solution in a last resort supply event, contingency plans would need to be in place to ensure supply continued until this connection was completed”.

Gas supply failures contingency plans IPART said “These contingency plans may involve the types of precautions GridX has suggested for gas supply failures (ie, back-up diesel generators and/or auxiliary service of LPG). The Tribunal has identified two key issues associated with the potential for a retailer of last resort event, on which it seeks stakeholder views:

• Should Retailer of Last Resort (RoLR) arrangements be established to protect customers in the event of a bundled supplier business failure?

• Should customers be protected (or partly protected) from the costs of connection to the national grid due to a RoLR event? For example, in the form of customer funded insurance factored into their electricity tariffs.

Reference: Independent Pricing and Regulatory Tribunal, GridX Power Pty Ltd – retailer supplier licence application. Electricity Licensing – Consultation Paper, May 2007. Inquiries regarding this document should be directed to a staff member: Gary Drysdale Phone: (02) 9290 8477 Email: gary_drysdale@ipart.nsw.gov.au Website: http://www.ipart.nsw.gov.au

Erisk Net, 21/8/2007

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