Why the demand side must have transmission property rights, and how you might go about it?

1
Why the demand side must have transmission
property rights, and how you might go about it?

• Nigel Cornwall
• 19 May 2003

2
Demand side must have option of property rights

• More than political correctness
• contractual right (not necessarily about
  charging)
• enables compensation against network failure
• provides cost certainty (incl. constraints) and
  risk management if longer term rights are
  available
• tradability will enable within year adjustments
  and switching
• parity and equity with generation
• gas exit regime?
• Continuum of benefits
• provides baseline to trade interruptibility
• opens up options

3
What form should they take?

• Consumption right expressed as MW in any half
  hour
• By TNUoS/GSP zone
• Ex ante definition
• Annual definition but could be shorter or longer
• Choice firm and non-firm rights?
• Many definitional issues to be addressed (e.g
  access charging overrun)
• Use it or loose it probably not an issue for
  demand if overrun mechanism

4
NGCs building blocks
5
Block 1
INITIAL ALLOCATION OF RIGHTS

• Rights must be offered by NGC, but optional.
• Physical limitation up TOC.
• Reservations determined by offtaker.
• Commercial nomination as with injection rights.

6
Block 2
ENTITY ACQUIRING ACCESS RIGHTS

• Any connected offtake customer, including
  directly connected customers.
• Supplier with Use of System agreement.
• It is a physical market and you must have a
  contract with NGC.

7
Block 3
VOLUME OF EXISTING ACCESS RIGHTS

• Up to levels specified in current agreements.
• Or at any higher level agreed with NGC subject to
  physical availability.
• No incentive on NGC to exceed present levels.

8
Block 4
NEW PROVISION OF RIGHTS

• As for injection.
• Incremental release of new exit capacity would
  need to be subject to new agreement.
• Price control and RAB interactions.

9
Block 5
SURRENDERING OF RIGHTS

• Buy back through any options available to NGC as
  SO e.g. energy purchase, Balancing Service
  procurement or BM acceptance.
• Interruption as BS?
• Do rights transfer with energy rights in BM?

10
Block 6
TIME PERIOD OF ACCESS RIGHTS

• Annual duration or longer at customers option.
• Maximum up to duration of existing commercial
  agreement for existing capacity?
• Unbundling of rights for shorter durations?

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Block 7
PRICE OF ACCESS RIGHTS

• As specified in prevailing TNUoS tariff for
  initial allocation.
• Buy back at market rates.
• Secondary trading (if any) would also provide
  market benchmark.

12
Block 8
TRADING OF RIGHTS

• At holders discretion.
• SO might have automatic repurchase right under
  BS?
• On-sale possibilities but zonal and nodal
  matching?
• But physical market.

13
Block 9
COMPENSATION FOR NON-PROVISION

• Yes.
• To be determined in CUSC.
• CAP48 seems to offer right starting point.
• Similar rights to generation.
• Interruption contracts different?

14
Block 10
REMEDIES FOR BREACH OF RIGHTS

• Licence breach if CAP 43 position is
  extrapolated.
• Enduring arrangement involving overrun charges
  would need to be developed.
• Personal preference for administered price.

15
Rights definition and charging (1)
Which baseline?
100 MW
COC
Non firm
Firm
70 MW
TOC
Negotiable
50 MW
IOC
IOC Interruptible Offtake Capacity
16
Rights definition and charging (2)
Which baseline?
100 MW
COC
Non firm
Firm
70 MW
TOC
Negotiable
50 MW
IOC
IOC Interruptible Offtake Capacity
17
Some implications

• Triad could be retained if desired
• Compatible with UoSCM-M-08 type changes
• Retains strong incentive to manage load at times
  of high demand
• Stronger commercial incentives for controllable
  load
• Alignment with energy market
• Would not inhibit development of further
  interruption options e.g. through Balancing
  Service contracts and would probably facilitate
  this
• Facilitates competition between suppliers

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Issues (1)

• No reason why not but
• costs/benefits?
• HH vs NHH issues
• revenue recovery for NGC
• duration
• supplier vs distributor
• others?

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Issues (2)

• Devil in detail viz P80
• New issues
• overrun, under/over recovery, but no different
  for generation
• Resolution of tx charging issues but probably
  easier with plug and socket
• Consistency with likely post April 2004 SO
  incentive scheme
• incremental capacity and buy back
• Gas exit rights to be resolved
• April 2004 commencement at earliest
• BETTA crossover and alignment of Scottish charging

20
Conclusions (1)

• Optional demand side transmission rights will
• facilitate competition in supply
• Enable more efficient development of demand side
  balancing services and dynamic supply
  arrangements (AMR, teleswitching etc)
• widen competition for dealing with constraints
  (not a big issue)
• provide valuable investment signals

21
Conclusions (2)

• More benefits provided they are
• vested in suppliers and directly connected
  customers
• combined with an evolution of balancing services
  arrangements
• independent of complex agency roles.
• Their development is not unduly complex and
  offers clear market structure benefits.