NTS Entry Charging Review Update

1. NTS Entry Charging Review Update UNC Transmission Workstream 7th January 2010

2. Introduction • In August 2009, National Grid launched a review of entry charging principles through the formation of the Entry Charging Review Group (ECRG). • This was in response to growing concern about the increasing rate of the TO entry commodity charge. • TO Entry Commodity Charges have increased, year-on-year, due to the increasing revenue under-recovery from NTS Entry Capacity Revenue. • The ECRG have identified the following as the key contributing factors to the high level of the TO Entry Commodity Charge • the quantities of firm and interruptible capacity made available at zero reserve price, • the quantities of entry capacity procured ahead of the gas day and • the ability of shippers to profile their capacity procurement. • The review group has suggested a phased approach may be of benefit. • The first phase to involve • the removal of entry capacity reserve price discounts and • a UNC Modification Proposal to reduce the quantities of daily interruptible entry capacity (DISEC) released • Further phases to be developed through the ECRG. • Anticipated to include the re-introduction of daily and monthly capacity reserve price multipliers within the Charging Methodology.

3. Discussion Paper • ECRG agreed that an initial discussion paper be raised (Jan 2010), before a proposal is raised to remove entry capacity discounts, to seek views on; • Principles/objectives of the review • Discarded options • Entry-Exit split & Commodity changes • A Phased Approach • Phase 1: Remove discounts* and reduce interruptible quantity released for 1st Oct ‘10 • Phase 2: Price Multipliers – October 2011 Earliest • UNC Changes • References to zero reserve prices* • Interruptible quantity** & release • Neutrality changes** (within day obligated capacity revenue could be removed) • Licence Changes • Removal of clearing obligation • Revenue mapping (within day obligated capacity revenue is SO but could be TO) • Auction Timings & Frequency *Initial National Grid NTS view no Systems Impact identified ** Initial National Grid NTS view Potential Systems Impact

4. Potential UNC Changes • UNC Changes • References to zero reserve prices • TPD Section B 2.4.13 (f) (ii) • Interruptible release / Quantity • TPD Section B 2.5.11 • Neutrality changes (within day obligated capacity revenue could be removed) • TPD Section B 2.13.2 (a) (i) (1) • Auction Timings & Frequency

5. Potential UNC Changes – Initial thoughts • References to zero reserve prices • Remove UNC references to zero reserve prices • Interruptible release – potential options: • Only release when all firm sold out • Only release when [90%] of firm sold out • Release UIOLI when quantity greater than unsold firm • Interruptible quantity (where applicable) – potential options: • Only release the difference between the UIOLI and the unsold firm • Release the UIOLI quantity

6. Potential UNC Changes – Initial thoughts • Neutrality changes (within day obligated capacity revenue could be removed) • Obligated capacity could be removed from capacity neutrality smear • Auction Timings & Frequency • Likely to depend upon other changes? • Timing of DISEC auction in relation to Day Ahead firm release? • Within Day hourly assessment of firm release will continue

7. Potential Charging Timelines

8. Potential UNC Timeline • There is an expectation that any UNC changes would be progressed on a similar timeline to the Charging Methodology changes such that they could be considered by Ofgem as part of a single Regulatory Impact Assessment (RIA) Easter causes issues with the timeline. May need to request short notice inclusion (for recommendation) at April Mod Panel.