In December, I blogged about the peculiar pricing rules for the gas interconnector with Scotland. (The current rules would grant substantial market power to importers of LNG.
The CER has been aware of this for a while, and has now published a draft decision. The proposal boils down to the following elements:
- The interconnector will be moved, legally, from offshore to onshore. It remains to be seen that this would satisfy the European Commission, which is not happy either about the current regime.
- Interconnector capacity will be auctioned.
- There is a reserve price for the auction.
- The reserve price is the long-run marginal cost.
- If the auction do not cover the costs of the pipe-formerly-known-as-the-interconnector, the difference will be split over ALL gas suppliers.
Shannon LNG is understandably cross. They publicly fume about point 5, which will impose a cost on them that rises as they are more successful, but privately they must have hoped that the rules would not change. While I have argued that the rules should change, the current proposal can easily be spun as the regulator protecting a state-owned company from a private competitor.
Point 4 is worrying too. In the decision document, the CER goes back and forth between OPEX for the reserve price and OPEX+CAPEX. In the end, they opt for OPEX+CAPEX. Essentially, they propose to perpetually reward Bord Gais for what increasingly looks like a bad investment decision in the past.
Nothing has been set in stone yet. Let us hope that the CER will reconsider.