Pricing Mechanism redesign to achieve Regulatory Compliance and commercial aims
In March 2014, a 10-year dispensation ended and the regulatory environment for gas traders changed substantially. All traders’ pricing mechanisms were required to comply with all sections of the Gas Act. Section 22 of the Gas Act prohibits arbitrary price discrimination and requires that all customers be given pricing on an objective basis. Our client required a pricing mechanism that would meet the commercial needs of their trading business, compete with other traders, and comply with the Act.
We created a pricing mechanism using a number of objective, measurable features related to customers’ consumption profiles which allowed significant variation in pricing. This mechanism created incentives for customers to improve their efficiency by rewarding customers who use gas in a more consistent manner with lower prices. Creation of the pricing mechanism required use of non-linear mathematical optimisation techniques under multiple constraints in order to satisfy the competing requirements.
Expertise: Advanced Financial Modelling, Analysis of Legal regulatory Frameworks, Build Customer-facing spreadsheet tools, Client Representation at Public Hearings, Commercial Strategy, Detailed Stochastic Analysis, Hedging analysis, Incentive analysis, Mathematical Optimisation Techniques, Price Indexing, Pricing Mechanism Development, Regulatory Economics, Regulatory Engagement, Scenario Assessments, Tariff Design