UNC0843 Uniform Network Code proposed changes

What changed

Ofgem has rejected UNC0843, a modification proposed by OVO Energy in September 2025 to create two new mechanisms within the Uniform Network Code: an Independent Shrinkage Charge and an Independent Shrinkage Expert. The decision, published 15 April 2026, means neither mechanism will be introduced. The existing arrangements for allocating shrinkage costs across gas shippers remain in place with no changes.

Shrinkage — unaccounted-for gas lost through leaks, theft, and measurement error on gas distribution networks — is a real physical and financial cost. OVO's proposal attempted to create a direct cost signal by establishing a dedicated charge linked to each GDN's shrinkage performance, overseen by an independent expert who would set benchmarks and monitor delivery. The intent was to shift from the current model, where shrinkage costs are socialised across all shippers regardless of which network caused the losses, toward one where GDNs faced financial consequences proportionate to their actual shrinkage volumes.

What this means in practice

For gas shippers and consumers: Nothing changes. Shrinkage costs continue to be recovered through existing UNC mechanisms and allocated across shippers on a socialised basis. There is no new charge, no new expert body, and no new performance incentive on GDNs. The cost of unaccounted-for gas — estimated at several hundred million cubic metres annually across the four GDNs — remains embedded in transportation charges without a mechanism that ties the cost to the network responsible for the losses.

For gas distribution networks (Cadent, NGN, SGN, WWU): The rejection removes what would have been a new financial exposure. Under UNC0843, GDNs that failed to reduce shrinkage against independently set benchmarks would have faced higher costs passed through the Independent Shrinkage Charge. Conversely, GDNs that outperformed would have benefited. Without this mechanism, GDNs face shrinkage incentives only through RIIO-GD2 price control mechanisms, which bundle shrinkage performance into broader output targets rather than isolating it as a standalone financial driver.

For OVO Energy: This is the second significant UNC modification OVO has pursued on cost allocation. The rejection signals that Ofgem requires a higher evidential bar for modifications that create new charge types and new institutional roles (the Independent Shrinkage Expert would have been a novel governance body within the UNC framework). Ofgem's decision letter — the 211KB PDF published alongside the rejection — will contain the specific reasoning, but the pattern is consistent with Ofgem's general reluctance to approve modifications that add institutional complexity without demonstrating clear, quantified consumer benefit.

The structural point: OVO's proposal was directionally correct on the economics. Socialised costs create a commons problem: no individual GDN bears the full cost of its own shrinkage, so the incentive to invest in leak detection, pressure management, and mains replacement is diluted. An independent charge tied to measured performance would have moved toward cost-causation — making each network bear the costs it imposes. Ofgem's rejection does not mean the regulator disagrees with the principle; it means the specific mechanism proposed did not meet the threshold. The distinction matters for what comes next.

Methane emissions context: Shrinkage is not just a commercial cost allocation issue. Methane is a potent greenhouse gas, and distribution network leakage is one of the largest sources of methane emissions in the UK energy system. The Iron Mains Risk Reduction Programme (IMRRP), which replaces old metallic pipes with polyethylene, is the primary physical intervention, but it operates on a multi-decade timeline. A financial incentive mechanism would have complemented the physical programme by sharpening the commercial case for prioritising the leakiest sections of network. Without it, the pace of shrinkage reduction depends entirely on the RIIO framework and the mains replacement schedule.

What happens next

No implementation. The rejection is final for UNC0843 in its current form. There is no appeal mechanism within the code modification process, though OVO or another party could raise a new modification addressing Ofgem's specific objections.

RIIO-GD2 mid-period review. The next opportunity to strengthen shrinkage incentives within the price control framework is the RIIO-GD2 mid-period review. Ofgem could adjust the shrinkage-related output targets or introduce a bespoke incentive mechanism through that process, though there is no indication this is planned.

RIIO-GD3 framework. The more significant opportunity is the next gas distribution price control. RIIO-GD3 framework development is expected to begin in the next 12–18 months. If Ofgem accepts the principle that shrinkage incentives need strengthening but rejected OVO's specific mechanism, the GD3 process is the natural vehicle. A price control mechanism has advantages over a UNC modification: it can be designed holistically alongside other GDN incentives rather than bolted on as a standalone charge.

Read the decision letter. The 211KB PDF contains Ofgem's specific reasoning for rejection. Whether the objection was to the charge design, the governance of the Independent Shrinkage Expert, the evidence base, or the interaction with existing RIIO incentives will determine whether a revised proposal has any prospect of success. The analysis report appendix (262KB) contains OVO's supporting evidence and is worth reading for the shrinkage cost data alone.