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Action NTS0507: Potential impact of EU Framework Guidelines on GB Charging

Action NTS0507: Potential impact of EU Framework Guidelines on GB Charging. NTS Charging Methodology Forum (NTSCMF) 23 rd June 2014. Agenda. Overall aims Overview and key assumptions Analysis: Scenarios

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Action NTS0507: Potential impact of EU Framework Guidelines on GB Charging

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  1. Action NTS0507: Potential impact of EU Framework Guidelines on GB Charging NTS Charging Methodology Forum (NTSCMF) 23rd June 2014

  2. Agenda • Overall aims • Overview and key assumptions • Analysis: • Scenarios • Potential impact of EU Framework Guidelines on GB Charging – December 2013 Scenarios (for reference) • Potential impact of EU Framework Guidelines on GB Charging – New Scenarios Analysis • Summary

  3. Overall Aim (1) • Give potential impacts the Draft EU Tariff Code on the GB NTS Charging Arrangements • Help industry understand potential impacts of the EU Draft Tariff Code on GB NTS charging that may help inform any responses to the code consultation • To support Ofgem’s Gas Transmission Charging Review (GTCR) and the technical modelling workshops scheduled over the Summer

  4. Overall Aim (2) • Considered two approaches • Minimal approach – just on Interconnection Points (CAM Points) • Impact on all of domestic entry and exit points (CAM and non-CAM Points) • Analysis provides indicative impacts – does not provide any forecasts • The options presented here are indicative and are not how we propose or suggest the Framework Guidelines be implemented

  5. Overview:Summary of data used in Analysis • Analysis used formula year 2012/13 to look at what the potential impacts would have been if we applied the EU Tariff Code at: • Interconnection Points only (CAM Points); • All Entry and Exit points of GB (CAM and non-CAM Points) • Assumed no changes in bookings / behaviour / flows • Uses a number of assumptions due to uncertainties or areas that need consideration • Looks at the revenues that would be need recovered under the scenarios and how they might be recovered

  6. Overview: Key Assumptions (1) • What we mean by implementing the EU Draft Tariff Code: • Where used, the commodity charge as per the EU Draft Tariff Code is to recover the cost to flow gas • We have used costs for shrinkage as a proxy for fuel costs • Cost Allocation Methodology for the charging regime for the calculation of charges using the LRMC methodology (“Virtual point variant A” in EU Draft Tariff Code) remains • Any targeted charges (linking to “Dedicated Services”) or specific charging arrangements (e.g. current arrangements for storage) assumed to remain in place

  7. Overview:Key Assumptions (2) • Charges set to aim to recover the target allowed revenue for the year including a mechanism to recover any shortfall • When considering how revenue shortfalls could to be recovered in the different scenarios this could be: • Through a mix of capacity and commodity; and • Potentially recovered in either a uniform method across all GB points or via a dual methodology for CAM and non-CAM points

  8. Analysis

  9. Analysis:Reminder of Current Methodology • TO allowed revenue recovered from capacity charges and commodity charges • Effective 50:50 split between Entry and Exit charges TO Allowed Revenue SO Allowed Revenue SO Charges TO Charges St Fergus Compression + Shorthaul +Legacy Incremental Entry/Exit* + Neutrality DN Pensions Deficit & NTS Metering Entry Commodity (All) Exit Commodity (All) Entry Commodity (All) Exit Commodity (All) Exit Flat Capacity (All) Entry Capacity (All)

  10. Analysis:Scenarios to be covered

  11. Action NTS0507: Potential impact of EU Framework Guidelines on GB Charging – December 2013 Scenarios (for reference)

  12. Scenario 1 (Dec 2013 analysis)Overview: Apply EU FGs at CAM Points only • TO Revenues / charges • Allowed revenues unchanged • Same charging methodology for capacity as now • No changes to Capacity charges / revenues • EU FG Commodity charge (shrinkage) for all • Commodity charges recover shortfall • Apply to domestic only (Non-CAM Points) as exclude IPs (CAM Points) under EU FGs • Therefore use a smaller charging base to recover commodity • Targeted charges / pass through items remain as is

  13. Scenario 1 – Implementing EU FGs at IPs(CAM Points) only SO Charges TO Charges St Fergus Compression + Shorthaul + Legacy Incremental Entry/Exit* + Neutrality DN Pensions Deficit & NTS Metering Entry Commodity (Non-CAM only) Exit Commodity (Non-CAM only) Entry Commodity (Non-CAM) Exit Commodity (Non-CAM) Exit Flat Capacity (All) Entry Capacity (All) Commodity (All)

  14. Scenario 1: TO Analysis(Entry and Exit Commodity) - 2012/13 16% Increase 5% Increase

  15. Scenario 1: SO Commodity Analysis – Entry and Exit 2012/13 10% Increase 70% Decrease

  16. Scenario 2 (Dec 2013 analysis) Assumptions: Apply EU FGs across all GB • Total allowed revenues unchanged (combined TO+SO) • SO Commodity charge only recovers shrinkage • Apply to all points with any under recovery on what we have as remaining SO Commodity would move onto TO Capacity charges • Same charging methodology for capacity as now • Capacity charges (Entry and Exit) would need to be adjusted on top of those calculated using the Transportation Model to collect allowed revenue (TO+SO) • There are a number of options that could be applied to achieve this • Targeted charges / pass through items remain as is

  17. Scenario 2 – Implementing EU FGs Charges (FG) – Step 1 Charges (FG) – Step 2 DN Pensions Deficit & NTS Metering DN Pensions Deficit & NTS Metering Entry SO Shortfall (All) Exit SO Shortfall (All) Exit Shortfall (All) Entry Shortfall (All) Entry Commodity (All) Exit Commodity (All) Exit Flat Capacity (All) Recalculation of Exit Capacity Charges Exit Flat Capacity (All) Entry Capacity (All) Entry Capacity (All)

  18. Scenario 2 – Potential Impacton Entry and Exit Revenues – 2012/13

  19. Action NTS0507: Potential impact of EU Draft Tariff Code (DTC) on GB Charging – New Scenarios

  20. Overview – New Scenarios • The following scenarios follow on from the analysis done in December 2013 • Analysis used formula year 2012/13 to look at what the potential impacts would have been if we applied the EU Draft Tariff Code • Assumed no changes in bookings / behaviour / flows • Uses a number of assumptions due to uncertainties or areas that need consideration • All key assumptions within the December 2013 analysis are applicable to this analysis

  21. Scenario 3 – Apply EU DTC at all points with TO and SO split • Total allowed revenues unchanged (combined TO+SO) • SO Commodity charge only recovers shrinkage • Apply to all points with any under recovery on what we have as remaining SO Commodity would move onto TO charges • Capacity Floating and Floating Regime (split by TO and SO) • Targeted charges / pass through items remain as is

  22. Scenario 3 – Apply EU DTC at all points with TO and SO split SO Charges TO Charges St Fergus Compression + Shorthaul + Legacy Incremental Entry/Exit* + Neutrality DN Pensions Deficit & NTS Metering Entry TO and SO Shortfall Exit TO and SO Shortfall Entry Commodity (All) Exit Commodity (All) Exit Flat Capacity (All) Entry Capacity (All)

  23. Scenario 3 – Apply EU DTC at all points with TO and SO split £340m £50m £190m £50m

  24. Scenario 4 - Apply EU DTC at all points with CAM and Non-CAM split • Revenue Amount - Values based on model and what is allocated to IPs (CAM Points) and non IPs (Non CAM Points) • New Capacity Rates at both IP’s (CAM Points) and Non IPs (Non-CAM Points) • Total Revenue split by CAM and Non-CAM points • Commodity charge only recovers shrinkage • Revenue not collected would need to be collected from Capacity • Floating Regime (CAM and Non-CAM split) • Targeted charges / pass through items remain as is

  25. Scenario 4 - Apply EU DTC at all points with CAM and Non-CAM split DN Pensions Deficit & NTS Metering CAM Shortfall Non-CAM Shortfall Non-CAM Capacity (All) CAM Capacity (All) Non-CAM Commodity CAM Commodity St Fergus Compression + Shorthaul + Legacy Incremental Entry/Exit* + Neutrality

  26. Scenario 4 - Apply EU DTC at all points with CAM and Non-CAM split £44m £195m £6m £30m £44m £145m £6m £17m

  27. Scenario 5 – Apply EU DTC at all points (mix of Capacity/Commodity) • Fixed regime is today for IP’s (CAM Points) and Non-IP’s (Non-CAM Points) • Remove Shrinkage Revenue from the SO Commodity Revenue • The shortfall in SO Commodity Revenue needs to be collected by an alternative Commodity Charge • The TO Commodity Revenue needs to be collected by an alternative Commodity Charge

  28. Scenario 5 – Apply EU DTC at all points (mix of Capacity/Commodity) SO Charges TO Charges St Fergus Compression + Shorthaul + Legacy Incremental Entry/Exit* + Neutrality DN Pensions Deficit & NTS Metering TO Entry Alternative Commodity TO Exit Alternative Commodity SO Entry Alternative Commodity SO Exit Alternative Commodity Exit Flat Capacity (All) Entry Capacity (All) Commodity (All)

  29. Scenario 5 – Apply EU DTC at all points (mix of Capacity/Commodity) £220m £120m £45m £145m

  30. Summary (1) • Where considering floating charges, capacity charges could be subject to an additional adjustment to aim to recover target allowed revenues for the year (e.g. on top of any existing adjustments) • Could include revenue uplift (like Exit), inflation adjustments or other • Options include taking revenue shortfall recovering based upon: • Adjusting using baselines or obligated levels • Adjusting using forecast bookings • Issues to consider would be: • Application of any uplift considering (amongst other items): • The methodology to be applied in the Transportation Model • The application of discounts for short term capacity • How to apportion any uplift or adjustment

  31. Summary (2) • EU Draft Tariff Code gives some flexibility in the adoption of fixed or floating tariffs • Becomes a GB discussion about optimal balance between charges and points to recover revenue • Ofgem’s GTCR and modelling workshops will be looking at this in some detail and there will be assumptions within this work on the EU Draft Tariff Code

  32. Questions • Any Questions?

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