OT05440 | PRT: valuation of non-arm's length disposals and appropriations - gas - capacity payments

In order to meet peak demand for gas a buyer may seek a contract which imposes very little constraint on his pattern of offtake, permitting him to require deliveries to be made at a very high rate when wanted, but also allowing very small amounts (or none) to be taken at other times. This is known as a ‘low load factor’ supply, the load factor being the ratio of average rate of supply to maximum rate of supply.

The installation of facilities which have the capacity for a high production rate requires a large investment. In return for making this investment the companies will probably be guaranteed a minimum cash inflow by arranging a contractual ‘capacity payment’ which will be made periodically regardless of the amount of gas actually delivered. For PRT such payments are treated as extra consideration for the gas sold under the contract. They are included in the PRT gross profit of the period for which they are ‘paid or payable’ which should be taken as the period in which the liability to pay arises (FA84\S114(5)).