Ofgem Rejects National Grid Call to Recover Extra Costs under Drax Contract

LONDON--The U.K. energy regulator, Ofgem Tuesday rejected a request by National Grid PLC (NG.LN) to recover extra costs incurred under a grid services contract with Drax Group PLC (DRX.LN) as it didn't meet the test criteria.

However, it has has allowed the claim for the Fiddler's Ferry contract with SSE PLC (SSE.LN) in full, amounting to 54 million pounds ($71.1 million).

In May National Grid put in a request to recover the costs of two contracts for grid services agreed with SSE and Drax worth GBP113 million in total, as it would spend significantly than the agreed target. The request was made as an 'income adjusting event' where National Grid applies for an increase in its cost targets to cover unforeseen events beyond its control.

Under the costs targets if National Grid spends less than the target it receives 30% every pound saved. If costs are above the target National Grid has to pay 30% of every pound overspent.

As a result of Ofgem's decision, National Grid will bear up to GBP17.7 million in costs itself, which is 30% of the costs of the Drax contract, and will recover at least GBP95.3 million via balancing charges on suppliers and generators, the regulator said.

Responding, National Grid said it is "disappointed" with Ofgem's decision regarding the Drax contract as it believes the costs couldn't have been reasonably foreseen.

-Write to Ian Walker at ian.walker@wsj.com; @IanWalk40289749

(END) Dow Jones Newswires

August 23, 2016 02:29 ET (06:29 GMT)

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