UNC (Urgent) Modification Proposal 0044: “Revised Emergency Cash-out & Curtailment Arrangements”

1. UNC (Urgent) Modification Proposal 0044: “Revised Emergency Cash-out & Curtailment Arrangements” UNC Transmission Workstream 11th August 2005

2. Content • Ofgem Decision Letter on 0021 • Impact of UNC Modification Proposal 0044 on User Daily Imbalance • Emergency Curtailment Quantity (ECQ) Calculation Methodology • Further Curtailment & Restoration • ECQ Claims Process

3. Ofgem Decision Letter on 0021 • Non-discrimination • Appropriate demand threshold for applying ECQ trade process • Facilitation of OTC Trades during an Emergency • Disputes Process • De Minimis Pricing Methodology

4. Introduction • UNC Modification Proposal 0044 is seeking to; • Change Cash-out Prices applicable within a Gas Deficit Emergency • Assign the Quantities of gas, associated with Emergency Curtailment actions undertaken by Transporters, to an effective trade (NBP title transfer) • The trade would be between Transco NTS (in its role of residual system balancer) and the relevant User. • The introduction of an Emergency Curtailment Quantity (ECQ) title trade would ensure that a Users’ Daily Imbalance position, prevailing at the time of a relevant Emergency, is maintained. This presentation focuses on the former

5. Impact of the Modification Proposal on User Daily Imbalance - Start • For each User the "Daily Imbalance" in respect of a Day is the imbalance between the quantities (adjusted to take account of Trade Nominations including System Trade Nominations) treated as delivered to and offtaken from the Total System by the User on that Day.

6. User Daily Imbalance - short shipper User Daily Imbalance = -1

7. User Daily Imbalance - Post Physical Curtailment (Prevailing Arrangements) User Daily Imbalance = +2

8. User Daily Imbalance - Post Physical Curtailment + ECQ Trade (Revised Arrangements) User Daily Imbalance = -1

9. Emergency Curtailment Quantity (ECQ) • “Emergency Curtailment Quantity” means, in respect of a User, the quantity of gas determined as: • The quantity of gas (in kWh) which the Transporters, in aggregate, reasonably estimate that a User would have offtaken from the Total System at System Exit Points in respect of which Emergency Curtailment has occurred but for the fact that Emergency Curtailment had occurred at those System Exit Points • A methodology is required that can be used to calculate the ECQ for any period of Curtailment

10. Relevant Exit Points • The ECQ trade quantity applies to the reduction of the offtake of gas at all System Exit Points other than those that include; • NDM Supply Point Components • Priority Supply Points. • These excluded System Exit Points are those that are protected by the GSMR Safety Monitor under the NEC Safety Case • It would be inappropriate to incentivise a demand response at such Supply Points as it would not be possible to accept or validate a Market based demand response.

11. ECQ Calculation Methodology • The Methodology is in three Stages; • Stage 1 ~ ‘OPN’: OPNs when available, represent the most accurate proxy for ECQs as they can be used if Emergency Curtailment occurs within day. • Stage 2 ~ Historical Consumption: An algorithm will be used to assess the curtailed Quantity for non-OPN Supply Points based on historical consumption to quantify the Curtailment Quantity • Stage 3 ~ Scaled SOQ: If no OPN or appropriate historical data is available then the Registered Capacity (SOQ), scaled to match the forecast demand, can be used

12. Why Not Use User Nominations? • Nominations do not provide any information about within day flows and therefore may be inappropriate for the assessment of the ECQ when Emergency Curtailment is initiated part way through a Gas Day.

13. Commercial/User “Interruption” • Any notified User commercial “interruption” should not count towards the Emergency Curtailment Quantity • The process for the notification of User commercial “interruption” will be expanded to cover commercial “interruption” at both Interruptible and relevant Firm System Exit Points • Additional “P70 Firm” form for relevant Firm System Exit Points • Prevailing “P70” form will continue to be applicable for Interruptible SEPs. • These processes will apply at all stages of a Potential or actual GDE. • Must be clarity in regard to the notification of User “interruption” at both Interruptible and relevant Firm System Exit Points. • A User should notify User “interruption” only if the Supply Point reduces or stops the offtake of gas under any commercial arrangement with that User. • If a User offers demand reduction via a physical or locational action on the “OCM” then the initiated demand reduction should be covered by a “P70” or “P70 Firm”. • If a User “interrupts” a Shared Supply Meter Point* then it should not issue a “P70” if it intends to act as the User for that Supply Point* under other contractual arrangements such as the purchase of gas by the end-consumer.

14. Information Transfer (To Transporters) • The Modification Proposal places an obligation; • on all relevant Shippers at multi-Shipper System Exit Points to provide the division method for the System Exit Point ECQ to the relevant Transporter not more than one hour after curtailment has been initiated, otherwise a Transporter default will be used. • on all relevant Transporters to calculate the ECQ for all relevant System Exit Points and pass the data, aggregated by Shipper, on to Transco NTS as soon as is reasonably practical after curtailment has been initiated.

15. Information Transfer (From Transporters) • The Modification Proposal places an obligation on all relevant Transporters to provide to each User; • Specific data on to the relevant Users SEPs • The basis for the calculation • To be provided as soon as is reasonably practical after the day that Emergency Curtailment has been initiated and in any case no later than D+4.

16. Further Curtailment • Further Emergency Curtailment within Day would be managed by a Further ECQ trade • User disposing trade • Restoration within Day would be managed by an ‘opposite’ ECQ trade • User acquiring trade

17. User Daily Imbalance - Post Physical Curtailment (Revised Arrangements) User Daily Imbalance = -1

18. User Daily Imbalance - Further Physical Curtailment (Revised Arrangements) User Daily Imbalance = -1

19. User Daily Imbalance – Restoration (Revised Arrangements) User Daily Imbalance = -1

20. ECQ Claims Process • Transco NTS will, in consultation with the UNC Committee, appoint an appropriately qualified person as "claims reviewer" to review each claim. • This claims reviewer will; • advise Transco NTS whether or not the calculated ECQ appears to be justified and (if not); • what the ECQ should be. • If the claims reviewer advises of a lower(higher) Emergency Curtailment Quantity, then • the User will be required to pay(be paid by) Transco NTS an amount determined by multiplying the Emergency Curtailment Trade Price by the difference between the calculated ECQ and determined ECQ. • The relevant User’s imbalance account for the Gas Day in question would be adjusted. • Either party may appeal the claims reviewer’s decision to the Authority.

21. De Minimus Pricing • The cash-out price for Users with a • negative Daily Imbalance will be set to the System Marginal Buy Price* prevailing on the day the GDE commenced; and • positive Daily Imbalance will be set to the System Average Price prevailing on the day the GDE commenced. • 0021 decision letter reflected concerns related to the potential for small quantity trades to set high marginal prices for a long emergency period • We have not included any mechanism for a more aggregated marginal approach incorporating either averaging of a number of trades or “de minimus” cash-out prices for the reasons set out in the Modification Proposal

22. Why SMP buy • Provides consistent incentive between normal operation and Emergency arrangements which could otherwise lead to unintended consequences. This is in line with Ofgem decision letter on P135. • Residual balancing action assessment would include assessment of whether such action would have a discernable positive impact on the supply and demand position. • Provides the necessary incentive to encourage delivery of residual balancing actions and encourage Users to continue to actively manage their balancing position.

23. Ofgem Decision Letter on 0021Revisited • Non-discrimination • ECQ Trades associated with both Firm & Interruptibles Curtailment • Facilitation of OTC Trades during an Emergency • Clarified within the legal text • Disputes Process • ECQ claims process included • De Minimus Pricing Methodology • SMP/SAP retained from 0021 • Potential area for further development

24. Timetable • Close out for reps – 22/08/2005 • FMR to the Joint Office – 26/08/2005 • Panel approve treatment of Reps – 31/08/2005 • Mod Panel Recommendation – 02/09/2005 • Ofgem Decision expected – 07/09/2005 • Further Meetings required?

26. ECQ Methodology - Overview

27. ECQ Methodology – Stage 1a

28. ECQ Methodology – Stage 1b