Following Ofgem’s approval of CMP376 on 13 November 2023, which enables the ESO to impose termination linked milestones into existing and new transmission connection offers (including directly connected demand) in a bid to unblock the transmission connection queue, much attention has been focused on the manner in which the milestones will be introduced.  CMP376 has been codified via a new CUSC Section 16, which came into force on 27 November 2023 (the “Implementation Date”).  This allows for the introduction of a new Appendix Q incorporating “User Progression Milestones” into the following Construction Agreements:

1. all offers made by the ESO from 27 November 2023 in response to a new or modified connection application; 
2. all existing Construction Agreements (as at 27 November 2023) with a Completion Date (as defined in the Construction Agreement) after 27 November 2025 (termed “Existing CMP376 Construction Agreements”); and 
3. all existing Construction Agreements (as at 27 November 2023) with a Completion Date on or before 27 November 2025, in respect of which the customer is not able to demonstrate to the ESO’s reasonable satisfaction that the project is progressing in accordance with and is reasonably aligned to the Construction Programme outlined in the Construction Agreement.   Of 232 projects (~45GW) due to be connected on or before 27 November 2025, 144 projects (~29GW) have been classified by the ESO as potentially being at “high risk” of not meeting their Completion Date – this third group is therefore reasonably significant.

Projects with a BEGA, BELLA or SoW will remain unaffected by this new transmission queue management process whilst offshore projects will be impacted to the extent that their connection arrangements include an onshore transmission connection.  

In a bid to clarify the impact of CMP376, the ESO has been holding a series of webinars regarding its implementation and has published some useful guidance entitled Guidance for the Queue Management Process for Transmission Customers, which also provides an indication of likely User Progression Milestone dates. Whilst we recommend that all affected ESO customers read the guidance, there are several “headline” items that connecting parties should be aware of:

1. A customer with an Existing CMP376 Construction Agreement (i.e. group (ii) above) is entitled to make an election by 27 May 2024 between two options:

• option 1 enables the customer to submit a Modification Application to the ESO to move (i.e. push back) the project’s Completion Date.  This will trigger the issue of a Modification Offer by the ESO which will include User Progression Milestones aligned with the new Completion Date.   Whilst there is a risk the new Completion Date will be significantly later than the existing date, a customer may wish to consider this option if it is facing lengthy project delay and is unlikely to meet the existing Completion Date (and ensuing User Progression Milestones) as doing nothing risks termination of the Construction Agreement by the ESO (and triggering of a cancellation sum payment) if a User Progression Milestone is missed; or
•  option 2 enables the customer to retain their current Completion Date which will trigger the ESO to issue an Agreement to Vary (AtV) to incorporate User Progression Milestones into the existing Construction Agreement.  

This election is important as once a Modification Offer or AtV with User Progression Milestones has been issued by the ESO, the milestones remain fixed and cannot be varied by the submission of subsequent Modification Applications even if a change is made to the Completion Date (unless there is a specific exception recognised by the ESO or the ESO uses its discretion in relation to termination).  Therefore, a customer only has until 27 May 2024 to push back their project’s Completion Date and User Progression Milestones which are pegged against the former date. 

2. A customer with a Completion Date on or before 27 November 2025 that falls within group (iii) above will be provided with the same election right as those customers with an Existing CMP376 Construction Agreement save that they will be required to make their decision within 2 months of issue by the ESO of the relevant notice.

3. If an AtV is not accepted by a customer, the ESO will rely on the variations clause within the existing Construction Agreement to implement the required changes.  Consequently, there is little to no benefit to be gained by the customer in seeking to delay the process. 

4. If a User Progression Milestone is missed, a 60-day remedy period will apply from the date of issue by the ESO of a Milestone Default Notice.  If the relevant milestone remains outstanding after the remedy period and the milestone is (i) a “Conditional Progression Milestone” (being milestones 1-3), the ESO will terminate the Construction Agreement; or (ii) a “Construction Progression Milestone” (being milestones 5-8), the ESO may terminate the Construction Agreement subject to completion of an internal ESO escalation process which requires engagement with the customer and relevant TSO to establish the likelihood that the customer will be in a position to progress to the Completion Date.  Any decision by the ESO to terminate due to a Construction Progression Milestone being missed will be “informed and reasonable”.   On termination of the Construction Agreement, the customer can expect to have to pay the full cancellation charge.   

5. Staged connections, connections with two technology types or co-located sites will have separate and distinct Appendix Q (i.e. User Progression Milestones) for each stage / technology / site – these will act independently of each other.

6. The ESO has confirmed that any dispute regarding the queue management process will be treated as an “Other Dispute” for the purposes of the CUSC dispute process (Section 7 - specifically paragraph 7.4), which ultimately refers the matter under dispute to arbitration pursuant to the rules of the Electricity Arbitration Association.

Whilst the publication of the ESO’s guidance has been useful in providing some clarity on certain “grey” areas, the roll out of CMP376 will be closely monitored by the industry, particularly with respect to the ESO’s use of its newly created termination rights and the ability of a customer to challenge the process.