RATCHETS

What is a Ratchet?

A Ratchet is a penalty charge incurred by gas consumers during the winter period (October to May) when demand for energy is at its highest. Ratchet penalties apply to all Class 1 and Class 2 meters (previously known as Daily Metered (DM) meters) when their daily metered consumption capacity, known as Users Daily Quantity Off-taken (UDQO) exceeds their agreed daily capacity, known as the Daily Metered Supply Offtake Quantity (DMSOQ). The penalty cost depends on how much the UDQO consumption exceeds the DMSOQ.

Ratchet penalties for Class 1 and Class 2 meters are calculated differently, due to the Network Modification 665: Changes to the ratchet regime for Class 1 and Class 2 penalties.

How do they occur?

Rachet penalties may simply occur due to an increase in gas consumption that has not been accounted for in your supply contract. However, they are more often caused by metering issues, such as the following:

Incorrect AMRs and datalogger reads due to a variety of telemetry reasons
Engineers on-site may have amended a meter with a catch-up read

Suppliers receive a notification when a customer exceeds their agreed capacity (DMSOQ), from which they have five days to investigate the consumption before a ratchet is raised. If you find your gas consumption has increased, it is important to contact your supplier to review your DMSOQ as soon as possible.

How can I avoid a ratchet penalty?

Gas customers at Brook Green Supply have access to our Ratchet Notification Customer Service throughout the winter period. This service will alert you when you are at risk of reaching or exceeding your DMSOQ, so it can be reviewed and adjusted if necessary to avoid a ratchet penalty. Your DMSOQ can be reviewed and increased all year round, and we can provide the information required to make an informed decision.

How does this Ratchet Notification Customer Service work?

From October – May, Brook Green Supply will alert you when your site’s daily automated reads have used 90% or more of your DMSOQ
Your Client Relationship Manager will send you a pre-ratchet notification (D+1) email informing you that you are close to breaching your DMSOQ. This will happen each time your site exceeds 90%* or more of your current DMSOQ*.
You have until the date stated on the provisional ratchet notification to get in touch with us and discuss your usage**.
Once you get in touch, a solution will be investigated by our Operations Team and relayed to you by your Client Relationship Manager.

*If you anticipate your consumption will consistently be more than 85% but below breaching the DMSOQ, please contact us to increase this percentage for you.

**If your Client Relationship Manager cannot get in touch with you and you do not respond prior to the date stated on the provisional ratchet notification, a ratchet penalty may be raised and invoiced within the following three months.

How do I tell if my meter is Class 1 or Class 2?

Class 1:

Class 1 metered sites have an Annual Quantity (AQ) greater than 58,600,000 kWh
These sites are daily metered, and a read is required for each day
A Daily Metered Service Provider (DMSP) provides the reads for Class 1 sites
A datalogger is attached to Class 1 meters, which allows readings to be collated remotely every day

Class 2:

Class 2 metered sites have an Annual Quantity (AQ) of less than 58,600,000 kWh
Shippers will nominate sites as Class 2 sites
These sites are daily metered, and a read is required for each day, and are sent a day later (D+1).
An Automated Meter Reading (AMR) - or datalogger device is usually attached to Class 2 meters, which allows readings to be collated remotely each day.

How are Class 1 penalties calculated?

Class 1 ratchet penalties are calculated by comparing the actual capacity used (UDQO) with the relevant capacity transportation charges based on your agreed capacity (DMSOQ). The difference between the two is then doubled (this encourages behaviour change) to become the ratchet charge, and penalise consumers exceeding their DMSOQ.

Your capacity charge is calculated based on the number of kilowatt-hours you have booked daily from your Local Distribution Zone (LDZ) and is comprised of the System Capacity Charge, Customer Capacity Charge, and Exit Capacity (ECN) Charge.

During the ratchet season, a sites’ DMSOQ automatically increases once it is breached. This will continue each time your UDQO exceeds your DMSOQ, until the supply reaches the maximum amount of capacity available to you, known as Provisional Maximum Supply Capacity (PMSOQ).

Please note we can calculate your PMSOQ indicatively as explained above. If requested, we can approach industry partners to establish your current PMSOQ. Please be aware that it may take some time to receive the information.

The formula for calculating a Class 1 ratchet penalty is as follows:

**(((A + B + C) * D) * 365 – ((E + F + G) * H) * 365))*J = Ratchet Penalty:**

LDZ System Capacity Charges on the UDQO;
LDZ Customer Capacity Charges on the UDQO
LDZ ECN charge for the UDQOD
System Capacity Charges on the registered user’s supply point capacity (DMSOQ)
LDZ Customer Capacity Charges on the registered user’s supply point capacity DMSOQ)
LDZ ECN charge or the registered user’s supply point capacity (DMSOQ)
The registered user’s supply point capacity; and
Multiplied by two

Examples of a Class 1 ratchet and how it is calculated

A meter has a DMSOQ booked capacity of 2,000,0000kWh.
On the 15th of January 2021, they ratcheted and used 2,200,000kWh ( UDQO).
The one-off penalty for this ratchet would be £93,440.00

Penalty Calculation

Charge Type	Charges on the UDQO (2,200,000 kWh) Pence per kWh	Charge on the Current DMSOQ (2,000,000 kWh) Pence per kWh
LDZ System Capacity Charges	0.0529 (A)	0.0540 (E)
LDZ Customer Capacity Charges	0.0046 (B)	0.0470 (F)
ECN Charge	0.0185 (C)	0.0185 (G)

Transportation Charges (based on 2020 calculations) - These charges have been calculated using the industry standard transportation charge calculator

(((A + B + C) * D) * 365 – ((E + F + G) * H) * 365))*J = Ratchet Penalty

(((0.0529 + 0.046+ 0.0185) * 2,000,000-((0.0549+ 0.0470+ 0.018) * 2,000,0000)* 365)) * 2 = £93,440.00

The site then proceeded to use 2,150,000kWh UDQO on 16 January 2021. No penalty applied as site DMSOQ automatically increased to ratchet level of 2,200,000 kWh) until it gets to the Provisional Maximum Supply Capacity (PMSOQ), which in this case is 4,000,000,000kWh
Then the site used 2,30000 ,000 UDQO on 17th January 2021. Site is then charged a further one-off penalty of £43,555.00

Penalty Calculation

Charge Type	Charges on the UDQO (2,300,000 kWh) Pence per kWh	Charge on the Current DMSOQ (2,200,000 kWh) Pence per kWh
LDZ System Capacity Charges	0.0524 (A)	0.0524 (E)
LDZ Customer Capacity Charges	0.0046 (B)	0.0046 (F)
ECN Charge	0.00185 (C)	0.00185 (G)

Transportation Charges (based on 2020 calculations) - These charges have been calculated using the industry standard transportation charge calculator

(((A + B + C) * D) * 365 – ((E + F + G) * H) * 365))*J = Ratchet Penalty:

((0.0524 +0.0046+ 0.00185) * 2,3000,000) * 365 – (.0524 +0.0046+ 0.00185) * 2.,200,000) * 365))*2 = £43,555.00

Class 2 Penalty Information

Class 2 ratchet penalties are calculated by comparing the actual capacity used (UDQO) with the relevant capacity transportation charges based on your agreed capacity (DMSOQ). The difference between the two is then multiplied by the number that has elapsed from the beginning of the gas year (1st October) to the day that you exceeded your DMSOQ, or the last time you changed your DMSOQ. This is due to the fact that Class 2 meters consume much smaller volumes.

*A Class 2 ratchet charge is the sum of the following:

**(((A + B + C) * D) – ((E + F + G) * H)) * J / 365 = Ratchet penalty**

LDZ System Capacity Charges on the UDQO;
LDZ Customer Capacity Charges on the UDQO
LDZ ECN charge for the UDQOD)
System Capacity Charges on the registered user’s supply point capacity (DMSOQ)
LDZ Customer Capacity Charges on the registered user’s supply point capacity DMSOQ)
LDZ ECN charge or the registered user’s supply point capacity (DMSOQ)
The registered user’s supply point capacity (DMSOQ)
The number of days in the period between:
- for which the user was the registered user prior to the start of the gas year in which the supply point ratchet occurred, the preceding the 1st of October
- for which the user was not the registered user prior to the start of the gas year in which the supply point ratchet occurred, the supply point registration date;

Examples of a Class 2 ratchet and how it is calculated

Penalty Calculation

Charge Type	Charges on the UDQO (80,000 kWh) Pence per kWh	Charge on the Current DMSOQ (50,000 kWh) Pence per kWh
LDZ System Capacity Charges	0.06644 (A)	0.0763 (E)
LDZ Customer Capacity Charges	0.0065 (B)	0.0072 (F)
LDZ ECN Charge	0.0196 (C)	0.0196 (G)

Transportation Charges (based on 2020 calculations) - These charges have been calculated using the industry standard transportation charge calculator

(((A + B + C) * D) – ((E + F + G) * H)) * J / 365 = Ratchet Penalty