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Capacity Methodology Statements: Impact of Mod 452

Tx Workgroup Meeting1st August 2013

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Background The NTS Gas Transporter Licence sets obligations on National Grid to

produce seven statements setting out various capacity methodologies. We have amalgamated some obligations, such that we have five statements:

ExCR: Exit Capacity Release ECR: Entry Capacity Release ExCS: Exit Capacity Substitution and Exit Baseline Revision ECS: Entry Capacity Substitution T&T: Entry Capacity Transfer and Entry Capacity Trade

We are seeking to keep the Mod 0452 Methodology Statement changes minimal.

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Entry and Exit Capacity Substitution

We are not proposing to change any of the fundamental rules of the substitution processes.

The process for substitution analysis (i.e. network analysis) is not affected by the changes proposed in Mod 452.

But there are four key areas of change to the substitution processes being considered.

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Entry and Exit Capacity Substitution: Specific Changes

Substitutable Capacity will be redefined to exclude capacity reserved (at the time of the analysis) pursuant to a PARCA.

References to ARCAs will be retained on a Transitional basis.

Capacity can be reserved from a donor point for substitution to a recipient.

Substitution proposals are subject to non-veto by the Authority

Proposals currently submitted to the Authority at allocation.

To provide certainty to planning processes, substitution proposals for PARCA’s need to be submitted to the Authority earlier, i.e. prior to reservation.

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Exit and Entry Capacity Release Principles

No new PCA and ARCA contracts will be agreed and will be replaced with PARCAs.

Introducing the concept of capacity “reservation”.

Incremental capacity will not normally be released through existing processes (QSEC / July Window).

Substitution will be possible.

Changes will align to the proposed PARCA process e.g.

Application of the NPV test for incremental entry release at the reservation and allocation stages.

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Exit Capacity Release: Summary of Changes The ExCR identifies three ways to obtain Enduring Annual NTS Exit (Flat)

Capacity PARCA Process Annual Window Ad-Hoc Process

Removal of most references to PCAs and ARCAs. Existing agreements continue in effect.

Annual Window and Ad-hoc Application largely unaltered Revenue Drivers only needed for PARCA applications must be agreed and

published before progressing to Phase 2. Inclusion of new NTS Exit Points in the Licence

Currently considering whether this could be changed to an external document so as to take this step out of the critical path.

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Exit Capacity Release: PARCA Process Inclusion of references to PARCAs.

Definition, consistent with Mod proposal

Clarification that only with a PARCA will there be certainty of incremental capacity release.

High level description of what a PARCA is, how it is funded, and the rights and obligations created under one, e.g.

National Grid will reserve and allocate capacity National Grid will identify capacity substitution opportunities National Grid will publish information on agreed PARCA in

advance of (and after) reserving capacity. Capacity may be reserved from a donor Exit Point pending

substitution, (subject to non-veto by the Authority).

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Exit Capacity Release: Summary of Changes Annual and Ad-hoc applications

Will be accepted where the application can be satisfied through (or in combination):

Unsold Capacity (including Substitution) Non-obligated capacity.

Therefore can only be used where a Revenue Driver is not required.

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Exit Capacity Release: Summary of Changes User Commitment associated to formal capacity booking

Does not apply to reserved capacity

Does not apply to Reservation Parties,

Is based on the indicative price at the time of allocation (not reservation).

Default lead time

24 months from the next 1st October after allocation.

Applies to all enduring annual allocation processes although in practice only PARCAs lead to incremental release.

Removal of references to the Permit scheme.

Other potential change:

New chapter on Long Term Non Firm Capacity.

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Entry Capacity Release: Summary of Changes

The ECR identifies the PARCA as the only way to guarantee the release of Firm Entry Capacity in excess of the prevailing Obligated Entry Capacity level.

Entry and Exit PARCAs follow the same principles. Capacity is reserved for later allocation (including from donor ASEPs)

March QSEC Auction process is largely unchanged Bids will be accepted where they can be satisfied through (or in

combination):

Unsold capacity (including substitution) Non-obligated capacity.

Removal of references to the ad-hoc QSEC auction Other entry capacity auctions: no change.

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Entry Capacity Release: Specific Changes Removal of most references to PCAs and ARCAs.

Existing agreements continue in effect. Inclusion of references to PARCAs.

As described for ExCR Inclusion of ASEP in Licence

As for ExCR, we are currently considering whether this could be changed to an external document.

Revenue Drivers only needed for PARCA applications and must be agreed and published before progressing to Phase 2.

Other potential change:

New chapter on Long Term Non Firm Capacity.

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Entry Capacity Release: Specific Changes User Commitment / NPV Test

The NPV test will be carried out at the time of capacity reservation based on the User’s / Reservation Party’s capacity profile and current prices (these prices are indicative).

For National Grid to proceed to the Phase 2 PARCA Works; either The test must be passed if capacity above available unsold is required If NPV test is not required then capacity must be requested for at least 16

of 32 quarters. The NPV test will be repeated using the latest (actual) price at the time

of allocation. The [Nominated] User may be able to revise their bid profile (but not

the incremental quantity) to ensure the test is passed. Default lead time

24 months from the next 1st October after allocation. Removal of references to the Permit scheme.

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Timetable Consultation on the various methodology statements is expected to

broadly follow the timetable outlined below.

AUG SEP OCT NOV DEC JAN FEB MAR APR MAY

Timeline for “RIIO” ECR & ECS. Applicable from Feb 2014

AMSEC.

Timeline for ECR / ECS & ExCR / ExCS updates for PARCA. Applicable from May 2014.

Consultation

Consultation

Reviewand

updateProposal with the

Authority for approval

Proposal with the Authority for approval

Potential informal consultation

Reviewand

update