Third Workstream meeting re Baseline Reconsultation and Substitution

1
Third Workstream meeting re Baseline
Re-consultation and Substitution

• 12 September 2007

2
Recap of previous two workstream meetings (1)

• Outlined the basis for Ofgems TPCR baselines
• National Grid provided network analysis following
  Ofgems prescribed methodology
• Based on 2008 network, average of three TBE
  scenarios (Auctions , Transit UK and Global LNG)
  using supply substitution
• Using least favourable node as supply balance
• TPCR baselines were set based on
• Baseflow under each scenario as starting point,
  then split remaining unallocated entry capacity
  on 10YS forecast flows for 2008

3
Recap of previous two workstream meetings (2)

• Resulted in aggregate baselines of 8814 GWh/d
• Discussed alternative methods for splitting the
  unallocated capacity within Ofgems spreadsheet
• National Grid asked for input from workstream
  members, in particular on
• Views on re-cutting of the cake (i.e. aggregate
  the same, i.e. 8814 GWh/d)
• Vs setting higher baselines (aggregate greater)

4
Summary of responses
5
Where do we go from here?

• No real consensus view from the industry
• No particular comments on a methodology to apply
• Consider the two alternative approaches
• re-cutting of the cake (i.e. aggregate the
  same, i.e. 8814 GWh/d)
• Vs setting higher baselines (aggregate greater)

6
Re-cutting the cake how do you allocate the
8814 GWh/d? (1)

• Start with current level of capacity obligations
  (take maximum booked for April 2008 onwards from
  August 2007 report on website) (8210 GWh/d)
• Take off the Incremental Obligated (IO) which has
  been sold in Sept 2006 QSEC auction (1310 GWh/d)
• This leads to 6900 GWh/d having been allocated
• If previously sold out at an ASEP, add back 20
  previously reserved for S-T (based on old TPCR
  baseline)
• This affects Cheshire, Easington, Hornsea and
  Isle of Grain (359 GWh/d)
• This leads to 7259 GWh/d which would be allocated
• this then leaves 1554 GWh/d of entry capacity
  unallocated

7
How do you allocate the 1554 GWh/d?

• Believe need to take account of physical
  capability
• New baselines should be constrained to not exceed
  previous obligations
• Needs to be broadly commensurate with the
  buy-back target
• Therefore, based on the above, need to preserve
  the zonal limits
• Applied above logic and used four different ways
  of splitting the 1554 GWh/d
• On existing obligated level
• 2005 TYS
• 2006 TYS
• Max flow seen over 2 winters, 2005/6 and 2006/7.

8
Possible sets of baselines (1)
Obligated Allocation based on sold 20 old TPCR
baseline where sold out
9
Re-cutting the cake how do you allocate the
8814 GWh/d? (2)

• Start with the current level of capacity
  obligations (take maximum booked for April 2008
  onwards from August 2007 report on website less
  Incremental Obligated) (6900 GWh/d)
• Add back 20 previously reserved for S-T (based
  on old TPCR baseline) at all ASEPs (but cap
  resultant figure at the old TPCR baseline)
• This leads to 8400 GWh/d being allocated
• this then leaves 414 GWh/d of entry capacity
  unallocated

10
Possible sets of baselines (2)
11
Zonal analysis of possible baselines (2)
12
Re-cutting the cake how do you allocate the
8814 GWh/d? (3)

• Alternative starting position - could use
  historical flow over the last two winters
  (subject to the old TPCR baseline)
• Then adjust for the current level of capacity
  obligations
• This leads to 7802 GWh/d being allocated
• this then leaves 1012 GWh/d of entry capacity
  unallocated

13
Alternative re-cutting of cake possible
baselines (3)
14
Zonal analysis of possible baselines (3)
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Alternative of higher baselines Capex
requirement

• Can Use the TPCR agreed revenue drivers as proxy
  for capital expenditure
• If baselines increased back to pre 2007 TPCR
  levels
• Around 275m extra capex needed to provide the
  increased baselines

16
Alternative of higher baselines Buyback
modelling

• Alternatively, can examine the incremental
  buyback risk. Preliminary results indicate that
• Just at Teesside, increasing the baseline back up
  to 70 mscm/d could lead to around 90m
  incremental buyback risk (mean level of 20m) per
  year (assuming that the incremental flow at
  Teesside is off-set by reduction of flow at
  Milford Haven)
• Similar level of risk at Barrow of increasing
  baseline back to 66 mscm/d

17
Summary

• Discussed how baselines were set
• Presented feedback received from industry
• Proposed alternative ways of cutting the cake
• Demonstrated that going back to higher baselines
  means either
• significant capex needed
• or that buy-back risk is likely to be high
• Will provide a summary report to Ofgem in the
  next two weeks
• Ofgem to commence their consultation