Ofgem backs new power market rule

UK ENERGY regulator Ofgem has approved proposed changes to power market rules, allowing firms to seek compensation for losses they suffered last year when their contract reporting systems failed.

'We have approved the modification,' said an Ofgem spokesman.

The losses, which industry sources say could amount to about £25m ($36.58m), came as utilities' staff reported incorrect data on contract positions as they grappled with the mechanics of a new power market (NETA) launched in March last year.

London Electricity, which proposed the original rule changes, said it lost £7.5m. Scottish Power has said it lost £10m and is seeking compensation through legal channels. The cash was lost when erroneous data gave a false picture of the companies' contractual positions.

This exposed them to hefty imbalance charges in the NETA market, which penalises firms whose contracted and physical positions do not match.

A spokesman for London Electricity said it planned to make a claim although it did not expect to recoup the full amount.

Scottish could not immediately be reached for comment.

The new rule, which is an amended version of London Electricity's original idea, allows companies to claim 80% of the lost cash. Companies seeking compensation will also have to pay a one-off administration fee of £5,000. Claims have to be filed by 24 May, 2002.

The rule will not apply to similar losses suffered in the future and Ofgem is keen to ensure that companies still have incentives to report market positions correctly.

Claims will be assessed individually by an independent industry panel, according to a set of criteria set out by Ofgem. Claims are likely to face stiff opposition from other companies trading in the UK power market as the cash has already been shared out among them via a central fund, industry sources said.