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Ofgem issues Penalty Notice for £1.5m redress payment from National Grid ESO

Image: National Grid.

Image: National Grid.

Ofgem has issued its final decision on the financial penalty National Grid ESO must pay following its failure to provide accurate and unbiased electricity demand forecasts.

The operator has been found to be in breach of Standard Condition C16 of its transmission license for a period between April to July and October 2017. At the time, C16 required licensee’s to co-ordinate and direct the flow of electricity onto the transmission system in an “efficient, economic and co-ordinated manner”.

In June 2017, it was amended to include “producing and publishing accurate and unbiased forecasts of demand”, to provide further specificity.

These full findings follow the regulator first announcing the £1.5 million redress payment in April.

Ofgem stated that it does not consider that National Grid ESO deliberately contravened the requirements of the standard, but instead that it failed to put in place adequate senior oversight and compliance controls.

As a result of the inaccurate forecasting, the operator benefited financially from an incentive scheme set up by Ofgem. The ESO stood to gain a maximum of £442,892 in financial returns the investigation found, made up of £312,000 from avoided penalties and £130,892 from the incentive scheme.

It has a particular responsibility to market participants, the regulator continued, and wholesale market participants who acted on the forecasts produced during this time may have incurred increased costs.

“The Authority takes the breach set out above very seriously,” noted Ofgem within its Penalty Notice. “As a monopoly organisation, NGESO plays a vital role in co-ordinating and managing the supply and demand of electricity. Publishing accurate electricity demand forecasts is a critical function of NGESO.”

National Grid ESO has cooperated throughout Ofgem’s investigation, and expressed willingness to settle the case including making a voluntary redress payment into the regulator's fund. As such, the ESO is to pay a financial penalty of just £1, provided it also pays £1.5 million in voluntary redress. Both payments are to be made within 42 days of publication of the final Notice.

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