0332 - Removal of a Users ability to allow Quarterly NTS Entry Capacity to lapse

1. 0332 - Removal of a Users ability to allow Quarterly NTS Entry Capacity to lapse Chris Shanley

2. Background – RG221 • Review Group 0221 ‘Review of Entry Capacity and the Appropriate Allocation of Financial Risk’ • Established in September 2008 • Assessed whether the current credit arrangements in place for securing long term NTS Entry Capacity were sufficient • Issues identified: • Single ASEP User’s (small developers) are currently able to defer entry capacity commitments 12 months prior to use and keep deferring without penalty • Currently no security is required at the time a User bids in the long term entry capacity auction

3. Background - 0246 • 0246/0246A/0246B ‘Quarterly NTS Entry Capacity User commitment’ raised in May 09 to address issues identified by RG0221 • Part 1 - prevent Users deferring their QSEC obligations • Part 2 - security required to cover QSEC auction allocations (10% of capacity registered Y2 to 16) and to be put in place prior to the auction • The Authority rejected these proposals on 3rd June 2010 • Costs involved for 0246 and 0246A are likely to outweigh the benefits • The costs for UNC246B seem to be more proportionate. Ofgem had concerns over whether it is discriminatory and might have an adverse effect on competition. • Decision letter recognised widespread support for part 1 of 0246 Mods • “the Authority has already approved a similar proposal with respect to exit capacity and without fettering its discretion, would welcome such a proposal with respect to entry capacity”

4. 0332 Removal of a users ability to allow Quarterly NTS Entry Capacity to lapse’ raised September 2010. • Proposal to amend TPC Section B 2.2.15 • To remove ability for a User to allow their Registered quarterly NTS Entry Capacity to lapse when they have not provided the security required • The relevant User will continue to be treated as holding the relevant NTS Entry Capacity • User will be invoiced for it in the associated timeframe and any failure to pay will be treated in the same way as other transportation related debt • National Grid NTS will reject any further Entry Capacity bids at any ASEP by the User until the above security is provided (see next slide)

5. Sanctions – options for discussion • NG have been assessing what sanctions should be applied and how – including a comparison to the exit capacity credit arrangements • Options – if security is not provided: 1. reject any further QSEC bids at any ASEP (as per 0246 Mods) 2a reject any further entry capacity bids at any ASEP (as currently proposed by Mod 0332) 2b reject any further entry capacity bids and trades at any ASEP 3. apply the sanctions detailed in V3.3.2 (c) (i) and (iii) – reject system capacity applications, trades and assignments • Sanctions currently only apply if a User is in breach of exit capacity credit check (V3.3.4)

6. 0332 Advantages • Reinforces the obligations on Users to pay for entry capacity booked • Reduces the risk to the shipper community of a User failing to pay NTS Entry Capacity charges • Discourages speculative Quarterly NTS Entry Capacity auction bidding thus reducing the risk of inefficient system investment