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.
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:
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.
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.
*If you anticipate your consumption will consistently be more than 95% 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.
Class 1:
Class 2:
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.
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.
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.
Glossary of terms
Last week saw bullish moves in power and gas despite overall bearish fundamentals in weather and LNG supply. The key supporting factor for this move in power were the bullish moves in carbon contracts.
The beginning of last week saw Freeport LNG terminal seek permission to start injecting natural gas into its cooling pipes, signalling the imminent return to operational capacity, this saw front month gas markets shed value aggressively.
Last week saw the market begin to be laced with short term bullish sentiment as low wind generation and cold temperatures helped to support gas demand across Europe.
Last week saw the market dominated by bearish sentiment as wind generation and wild temperatures helped to reduce gas demand across Europe. Weather forecasts continue to the driving force for movements in markets.
Last week saw a major sell off particularly in front month contracts but also along the curve as a result of bearish weather fundamentals and plentiful supplies of LNG arriving on UK shores.
Last week saw the market begin very bullishly as a result of significant emerging weather fundamentals, namely: cold temperatures and low wind generation (20% below seasonal norms). This resulted in some highly volatile price action along the curve.
Early last week saw markets come off hard, while still littered with volatility as prices were jumping around and very large trading ranges emerged across most contracts. However, the markets well and truly closed in a bullish manner.
Early last week saw a lot of market volatility with prices jumping and very large trading ranges across most contracts, this was primarily due to market uncertainty and fundamentals such as an ‘incident’ at a Norwegian gas terminal.
The one commodity that defied the weak close to the week was Brent crude, which off the back of OPEC+’s production cut announcement saw its Dec 22 contract rally 8.74% closing in on $100/barrel again.
Welcome to October, the beginning of winter delivery and the start of a new gas year for the entirety of Europe. The ever-changing energy markets saw another week of volatility last week, as four leaks were found on the two Nord stream pipelines.
The ever-changing energy industry saw another week of volatility as governments across Europe looked to protect their consumers and economies from large scale increases in prices going to winter.