Transfer

1
Transfer Trades

• Special Transmission Workstream
• 28-06-07

2
Agenda

• Background
• Recap on Mods 150(a) and 151(a) and reasons for
  rejection
• New proposals for transfer and trades
• New proposal for interruptible services

3
Background
4
Background

• Transmission Price Control Review (TCPR) proposed
  obligations on National Grid NTS to
• Facilitate Capacity Trades (Sold NTS Entry
  Capacity)
• Facilitate Capacity Transfers (Unsold NTS Entry
  Capacity)
• National Grid NTS brought forward 2 modification
  proposals on 10th May 2007
• 0150 Introduction of the AMTSEC Auction (Unsold
  Capacity)
• 0151 Transfer of Sold Capacity between ASEPs
• Eon brought forward 2 alternative modification
  proposals
• 0150A
• 0151A
• All 4 proposals were rejected by Ofgem on 12th
  June 2007

5
Reasons for Ofgem Decision re modifications 0150
0150A
6
The efficient and economic operation of the
pipeline system

• Mod 0150
• Lack of clarity re Transfer Rates
• Ex ante rates are only indicative
• Firm rates are only applied during allocation
  process
• Commitment to transfer without seeing firm rate
  would result in inefficient decisions by Users
• Discourage Users from participating in the
  Transfer process
• Timeframes for end to end process
• Allocation process of 15 business days would
  limit proposed trading process under 0151

• Mod 0150A
• Transfer Rates
• Proposed rate of 11 is arbitrary
• Proposed rate may result in perverse auction
  behaviour expose Users to unlimited buy back
  costs
• Does not fully account for specific factors
  affecting each individual transfer, may distort
  longer term signals given in auctions resulting
  in inefficient allocations

7
The securing of effective competition between
Shippers

• Mod 0150
• N/A

• Mod 0150A
• Sequencing of Trading of Sold Capacity prior to
  Transfer of Unsold Capacity
• Positively discriminates in favour of those Users
  with greater existing amounts of capacity rights
• Frustrate competition between those with large
  amounts of capacity and those with small

8
The efficient and economic operation of the
pipeline system

• Mod 0151
• Inefficient allocation of bids via fax based
  first come first served process
• Queue limits National Grid NTS to processing one
  request at a time, this may
• Limit number of transfers
• Frustrate economic efficient operation of
  the system
• Result in less efficient transfers of capacity
  when first in the queue

• Mod 0151A
• Transfer Rates
• Proposed rate of 11 is arbitrary
• Proposed rate may result in perverse auction
  behaviour expose Users to unlimited buy back
  costs
• Does not fully account for specific factors
  affecting each individual transfer, may distort
  longer term signals given in auctions resulting
  in inefficient allocations

9
The securing of effective competition between
Shippers

• Mod 0151
• Inefficient allocation of bids via fax based
  first come first served process
• Could result in less efficient trade being
  completed first
• Favour those trades that are first in the queue
  over those that may be more efficient which could
  reduce the potential for competition
• Could result in lengthy queues

• Mod 0151A
• As per mod 0151
• Sequencing of Trading of Sold Capacity prior to
  Transfer of Unsold Capacity
• Positively discriminates in favour of those Users
  with greater existing amounts of capacity rights
• Frustrate competition between those with large
  amounts of capacity and those with small

10
Principal Industry Concerns

• Timing/Timeframes
• Increase Regulatory Uncertainty
• Proposals are hurried
• Insufficient time to assess proposals
• Unsuitable use of Urgent modification process
• Complexity
• Lead to less flexibility in the network
• Deter other sources of gas from coming to market
• May result in stranded gas
• Transfer Rates gt11
• Lack of clarity
• Not ex ante may deter Shippers from participating
• Take too long to calculate
• Inefficient, large use of capacity for minimal
  return

11
So why bring forward new proposals?

• We believe that it is important that the maximum
  amount of gas can flow on to the system this
  winter
• It is consistent with our obligations and duties
  to operate an efficient and economic system and
  to facilitate competition
• There is market demand for these new processes

12
Additional Context

• Many of the original concerns were expressed
  before the AMSEC, now there is greater certainty
  ahead of this winter.
• National Grid NTS has published a significant
  amount of network data, which provides greater
  clarity.
• Undertaking a process for this winter will
  provide valuable insight in developing enduring
  arrangements.
• National Grid NTS will also bring forward an
  interruptible Mod to allow discretionary release
  of capacity above obligated levels.

13
New Mod Proposals for Trades and Transfers

• Core elements
• Combined process for trades and transfers
• Trades accounted for through a surrender
  mechanism
• Exchange rates based on the physical capability
  of the network, with greater clarity on exchange
  rate calculation and rates ahead of the auction
• Allocation based on price exchange rate
• A minimum of one auction to handle all requests
  ahead of the winter
• Utilises largely existing system functionality

• Addresses key concerns of
• Trade and transfers should occur simultaneously
• Provides greater transparency on exchange rates
• Quicker process, with no queuing
• More efficient allocation

14
National Grid NTS View

• We have listened to and read the arguments of all
  stakeholders and have developed a concept that we
  believe should be consistent with the Licence
  Condition and which attempts to strike a balance
  between the concerns of all market parties.
• The key features of the proposal in addition to
  the core elements are
• a within zone process before an out of zone
  process
• the ability for users to bid at donor ASEPs in
  competition with users bidding at recipient ASEPs
• extensive use of zonal capabilities and exchange
  rates between zones to simplify the process
• process limited to this winter

15
New Mod Proposals for Trades and Transfers

• Variant elements
• Within zone transfers could be undertaken before
  or at the same time as all transfers
• Capacity can be bought for the same period at the
  donor ASEP, this could be
• Before the auction
• After the surrender
• More than one auction
• Additional rounds
• Re-run in December for Jan, Feb, Mar 08
• RMSEC brought forward and run monthly

16
Other options considered (not all directly
related to Trade and transfer)

• Commit to non-obligated capacity release based on
  look-up tables demand, related ASEP supply,
  price related etc min release of say x mcm
  non-obl for the winter
• Intelligent smear target smear on unflowed
  holdings (poss adj for WAP) / smear more on
  TT/non-obligated capacity/ capacity amnesty
• Facilitate secondary trading market eg active
  market maker role, 11 (or pre-set rates) within
  day, add in non-obl volume
• Underrun/increase scheduling charge (enables
  within-day non-obl)
• Bid-reflective baseline hold auction to adjust
  baseline up/down over time/demand, reducing at
  other times intelligent baseline
• Related change to buyback regime shippers
  obligated to offer, max offer price
• SO Capacity trader model buy capacity if
  justified, trade across ASEPs poss as mkt maker
• TT purchases conditional - buyer grants SO
  option to buyback on x days shippers bid at
  fixed price but offer number of buyback days we
  allocated highest no. of days first etc
• Variants of 150/151 eg nearer D, pre-qualify
  bids/ASEPs to reduce analysis

17
Conceptual Overview (1)
18
Conceptual Overview (2) Zonal Capabilities
19
Conceptual Overview (3) Buy-back risk
20
Buy-back risk Is it real?
21
Conceptual Overview (4)
22
Conceptual Overview (5) - January
Note Max flow for Teesside and Glenmavis capped
at Baseline level
23
Conceptual Overview (6)

• For each month a zonal maximum is set, based on
• current baselines and associated risks
• a demand level for the month
• the zonal maximums of other zones
• Within zone transfers and trades are undertaken
  at a 11 exchange rate up to the zonal maximum
  and the specific nodal maximum
• The zonal maximum can be increased / decreased
  due to transfer and trades between zones
• Fixed ex-ante exchange rates are provided for
  between zone transfer and trades, these may vary
  depending on exchange quantity

24
Conceptual Overview (7) Within zone process

• To avoid capacity destruction within zone
  transfer are performed before out of zone.
• So for Northern Triangle likely to be
• 1 recipient Teesside and
• 2 donors St. Fergus and Glenmavis
• Zonal capability set at X mcm/d for the available
  month
• All existing capacity holders can trade
  (surrender) their previously bought capacity,
  this may create uncommitted capacity i.e. the
  difference between the zonal capability and the
  new sold level.
• All users can then bid at any of the ASEPs for
  the uncommitted capacity up to the obligated
  level for non-sold out ASEPs and up to the nodal
  max for sold out ASEPs.

25
Conceptual Overview (8) Out of Zone Process
26
Conceptual Overview (9) Out of Zone Process
27
Conceptual Overview (10) Out of Zone Process

• South East is only zone with an individual ASEP
  sales significantly below flow expectations used
  in credible scenarios
• Through contractually reducing the ability of the
  zone to flow, this will reduce the potential for
  certain credible scenarios and thus improve the
  minimum capability in other zones

28
Conceptual Overview (11) Out of Zone Process

• All unsatisfied bids following the within zone
  process are considered in the outer of zone
  process.
• Bid stacks are created for each donor ASEP
  according to the bid price multiplied by the
  exchange rate and allocated according to the
  highest bid value.
• The allocation continues until all the
  uncommitted zonal capability is allocated.

29
Process Registration process initiation

• NGG provides Users with a list of sold out ASEPs
  recipients on a monthly basis, where there is
  head room above the existing obligated level
• First AMTSEC will cover period Oct 2007 March
  2008

2. AMTSEC recipient ASEP selection process
initiated
1 Mod implementation date
Total 2 days
2
Business days
30
Process Recipient ASEP registration

• Users register interest for specific sold out
  ASEPs in the AMTSEC

3. Users register interest
2. AMTSEC recipient ASEP selection process
initiated
1 Mod implementation date
Total 4 days
2
2
Business days
31
Process Trade Invitation

• NGG invite Users to Trade sold capacity in the
  auction and NGG publish
• Definitive list of recipient ASEPs
• Information on relevant zonal and nodal
  capabilities at each recipient ASEP
• For within zone donors, NGG will provide a merit
  order of preferred donors
• Exchange rates between zones
• Available months

3. Users register interest
2. AMTSEC recipient ASEP selection process
initiated
1 Mod implementation date
4 Trade invitation
Total 6 days
2
2
2
Business days
32
Process Trade Registration

• Users register the maximum amount of capacity per
  ASEP that they want included in the auction
  process.

4 Trade invitation
3. Users register interest
2. AMTSEC recipient ASEP selection process
initiated
1 Mod implementation date
5 Trade registration
Total 8 days
2
2
2
2
Business days
33
Process Auction Invitation

• NGG invite Users to participate in the AMTSEC
  auction and NGG publish
• Definitive list of recipient ASEPs
• List of donors within zone
• List of donors out of zone
• Exchange rates for within zone transfers
• Exchange rates for out of zone transfers may be
  different rates for different amounts up to a
  zonal max
• Available months
• Day of auction

3. Users register interest
2. AMTSEC recipient ASEP selection process
initiated
6 Auction invitation
1. Mod implementation date
4 Trade invitation
5 Trade registration
Total 13 days
2
2
2
2
5
Business days
34
Process Auction Invitation

• See next slide for auction details

3. Users register interest
2. AMTSEC recipient ASEP selection process
initiated
7. Auction held
6 Auction invitation
1 AMSEC results or Mod implementation date
4 Trade invitation
5 Trade registration
Total 15 days
2
2
2
5
2
2
Business days
35
Auction details

• Users can place, amend and withdraw bids on the
  day of the auction from 0800-1700.
• Information required
• Identity of user
• Recipient ASEP or Donor ASEP
• Available month
• Amount of entry capacity kWh/day
• Minimum amount of entry capacity kWh/day (must be
  more than minimum eligible amount)
• Bid price in p/kWh, which must not be less than
  reserve price at ASEP
• Maximum 3 bids per User at anyone time for each
  ASEP and available month

36
Process Allocations

• NGG provide following information to Users that
  have been allocated capacity
• Available month
• ASEP
• Capacity amount (kWh/day)
• Price paid (p/kWh
• NGG provide following information to Users that
  have had traded capacity allocated
• Available month
• ASEP
• Reduced amount
• Average price paid at ASEP (p/kWh)
• See next slide for allocation process

3. Users register interest
2. AMTSEC recipient ASEP selection process
initiated
7. Auction held
8. Allocations provided to users
6 Auction invitation
1 Mod implementation date
4 Trade invitation
5 Trade registration
Total 30 days
2
2
2
5
2
2
15
Business days
37
Allocation Process Within Zone

• All bids are ranked in terms of price
  irrespective of ASEP.
• Bid price is to 4 decimal places
• Where there are equal priced bids the earliest
  submitted valid bid will be processed first
• All uncommitted zonal capability is allocated in
  descending price order .
• Limitations on satisfying a bid are
• Insufficient zonal capability
• Nodal maximum at recipient reached
• Obligated level at donor
• Less than user specified minimum amount available
• Obligations at donor ASEPs reduced according to
  ASEP capacity allocated via a merit order

38
Allocation Process Out of Zone

• For each zone a bid stack is created.
• All recipient bids are ranked in terms of price
  multiplied by exchange rate for each zone, this
  will be compared with bids directly at donors
  within the zone.
• Bid price is to 4 decimal places
• Where there are equal valued bids the earliest
  submitted valid bid will be processed first
• All uncommitted zonal capability is allocated in
  descending value order, where more than one donor
  is in the same zone, the Obligations at each
  donor ASEP is reduced according to capacity
  allocated via a merit order
• Limitations on satisfying a bid are
• Insufficient zonal capability
• Nodal maximum at recipient reached
• Obligated level at donor reached
• Less than user specified minimum amount available

39
Process Publication of results

• See next slide for publication details

3. Users register interest
9. Publication of results
2. AMTSEC recipient ASEP selection process
initiated
7. Auction held
8. Allocations provided to users
6 Auction invitation
1 AMSEC results or Mod implementation date
4 Trade invitation
5 Trade registration
Total 32 days
2
2
2
5
2
2
15
2
Business days
40
Results Publication
Potentially seek to incorporate in existing
reports (Mod137)

• in respect of each ASEP for each Available Month
• the highest, lowest and weighted average price of
  all accepted capacity bids
• the aggregate amount of Monthly NTS Entry
  Capacity allocated
• the total number of Users that submitted capacity
  successful bids
• the total number of Users that submitted capacity
  unsuccessful bids
• in respect of each Donor ASEP for each Available
  Month
• the amount by which the Unsold NTS Entry Capacity
  was changed and
• the remaining amount of Unsold NTS Entry
  Capacity.

41
Open discussion Variants

• Is there anymore information required?
• Variant elements
• Within zone transfers undertaken before or at the
  same time as all transfers
• Capacity can be bought for the same period at the
  donor ASEP, this could be
• Before the auction
• After the surrender
• More than one auction
• Additional rounds
• Re-run in December for Jan, Feb, Mar 08
• RMSEC brought forward and run monthly

42
Next Steps

• National Grid NTS will take on board all feedback
  today and tomorrow
• We will then draft a Mod to be presented at the
  meeting next week for discussion, before
  submitting on an urgent basis.
• Anticipated timeline
• Send to JO 6/7
• Ofgem grant urgency 9/7
• Issue consultation 10/7
• Closed for responses 20/7
• Final Mod report 23/7
• Mod Panel 31/7
• Ofgem decision 6/8
• Implementation 7/8
• Produce work plan to develop enduring solution

43
Proposed Interruptible Arrangements for this
Winter
44
Intro duction

• National Grid NTS believes that as part of the
  current changes being proposed to the Entry
  Regime for this winter, we should also focus on
  providing additional flexibility in the Entry
  interruption arrangements.
• We believe that this would support and protect
  long term User commitments whilst maximising what
  can be delivered for this winter.
• Based on feedback received at the last
  Transmission Workstream we have limited our
  proposal to the existing Daily Interruption
  process.

45
Current Interruptible Capacity Product - (DISEC)

• Daily Interruptible capacity is offered on the
  day before the gas day, the rationale being that
  it is a tool designed to overcome potential
  hoarding of Entry Capacity.
• Quantity Fixed by Algorithm
• Use it or Lose it calculation
• Made available via a Day ahead auction
• Pay as Bid
• Allocate highest bid first
• Discounted Reserve Price (Zero)
• National Grid NTS can scale back at No cost

46
Proposal

• Will expand on the current DISEC process
• National Grid NTS will mirror the current UNC
  terms for the discretionary release of non
  obligated capacity i.e. have the right to release
  any additional interruptible capacity (in
  addition to that released through UIOLI) that it
  may choose to make available for that day.
• The additional Interruptible Capacity be released
  at those ASEPs that have Sold out or where
  insufficient capacity is available.
• The existing UIOLI calculation will be retained
  as a minimum level of release.
• The Reserve Price will be zero.
• Will consider process for restoration of Capacity
  rights post interruption

47
Proposal

• Currently the definition of Available
  Interruptible Capacity at an ASEP in UNC B2.5.10
  is
• an amount of NTS Entry Capacity equal to the
  daily average unutilised firm capacity
• National Grid NTS proposes that this be amended
  to include
• any additional interruptible NTS Entry
  Capacity that National Grid NTS may in its sole
  discretion choose to make available for the day
  (if any)