Mod 0452 (PARCA) – Further thoughts

1. Mod 0452 (PARCA) – Further thoughts TX Workgroup 6th June 2013 Mike Wassell

2. Background • We have been in regular dialogue with Ofgem regarding the PARCA modification • Ofgem believes the solution has merit but beneficial to further explore certain aspects • We would therefore welcome further discussion on following specific aspects: • PARCAs that can be met entirely through unsold capacity • alignment to the emerging EU incremental policies

3. Mod 0452 - Unsold Capacity (1) • Phase 1 of the PARCA will identify when and how the requested capacity can be delivered: • reinforcement or contractual alternative (incremental capacity requiring a revenue driver) • existing capability (incremental capacity that does not require a revenue driver) • substitution (unsold capacity from other locations) • unsold capacity at the PARCA location • a combination of the above • The PARCA Applicant can then choose to progress to Phase 2 (capacity reservation) of the PARCA based on the Phase 1 output

4. Mod 0452 - Unsold Capacity (1) • Phase 1 of the PARCA will indentify when and how the requested capacity can be delivered: • reinforcement or contractual alternative (incremental capacity requiring a revenue driver) • existing capability (incremental capacity that does not require a revenue driver) • substitution (unsold capacity from other locations) • unsold Capacity at the PARCA ASEP / NTS Exit Point • or a combination of the above • The PARCA Applicant can then choose to progress to Phase 2 (capacity reservation)of the PARCA based on the Phase 1 output

5. Mod 0452 - Unsold Capacity (2) Amendments for discussion: • Where Phase 1 identifies that the PARCA request can be met entirely by unsold capacity (incl substitution) the PARCA is no longer required • unsold capacity is available via the existing auction / application processes • retains the competition and economic principles of the existing auction / application processes • limits parallel routes for the release of long term unsold capacity • less certainty for the PARCA Applicant, however if unsold capacity is booked by another party, the PARCA route is still open • step away from current ARCA arrangements for non-UNC signatories

6. EU incremental arrangements (1) • The CEER blue print for Incremental Capacity suggests: • auctions utilised for Incremental Capacity release for simple projects • “Open Season” arrangements with defined window for “more complex” scenarios / builds • The PARCA modification is similar to these arrangements • auctions can be used to satisfy demand for Incremental where existing capability can satisfy request (e.g. substitution) • PARCA is the route where demand for incremental can not be satisfied by existing capability (i.e. revenue driver required) • similar to “Open Season”, but no defined period to consider other PARCAs i.e. PARCAs can be initialised at any time of the year

7. EU incremental arrangements (2) Amendments for discussion: • Introduction of a defined minimum period where PARCA Applications are considered • could be a fixed annual window (more certain) or min period triggered by an initial PARCA request (more flexible) • closer alignment to emerging EU incremental policy • facilitates transition to EU wide arrangements • greater certainty to our customers of when PARCAs are considered by National Grid NTS • not as flexible for PARCA Applicants • may allow for efficiencies in reinforcement decisions

8. Next steps • Consider feedback for further development of Mod 0452 • Publish revised PARCA contract for comment (June) • Develop draft legal text for Mod 0452 (July workgroup) • Engage and seek feedback on potential methodology statement and licence changes (July / August)