The Entry Capacity Transfer & Trade Methodology Statement

1. The Entry Capacity Transfer & Trade Methodology Statement Transmission Workstream 02-08-07

2. Prompt Buy Back Historical Information "The information/data set out above has been provided by National Grid on a good faith basis for information purposes only. It should not be relied on by any person for any purpose, and any person uses or relies on such information/data entirely at their own risk. National Grid accepts no liability arising from any such use or reliance.”

3. Background (1) • An initial consultation on the T&T MS was conducted in May 07, this was designed to provide individual exchange rates. • The two new Mods 150/A and 163 require fixed ex-ante exchange rates for multiple trades and transfers. • The Mods also specify specific parameters to be derived from the Methodology Statement e.g.: • Zonal allocation maximum • Nodal allocation maximum etc. • Therefore a major revision of the draft T&T MS has been necessary.

4. Background (2) • The new T&T MS is much more complex as it needs to provide fixed ex-ante exchange rates for multiple trades and transfers. As discussed at previous meetings every trade or transfer has a knock on effect to the next transaction. • In addition the exchange rate provided must also meet the Licence Obligations, broadly speaking: • Make effective use of the NTS • Be compatible with the physical capability of the NTS • Avoid material increases in cost • The T&T MS needs to considered together with the proposed Mods.

5. Timetable • T&T MS consultation launched on the 30 July 07 • T&T MS consultation closes on 28 August 07 • Section 23 on the associated Licence Obligation closes on the 28 August 07. • Section 23 needs to be consented to and directed before the T&T MS can be approved. • The associated Mods cannot be implemented without an approved T&T MS. • Based on the above there will not be a trade and transfer process for October 07.

6. Conceptual Overview – Within Zone • For each month a zonal allocation maximum (ZAM) is set according to the T&T MS. • Within zone transfers and trades (surrenders) are undertaken at a 1:1 exchange rate up to the zonal allocation maximum and the specific nodal maximum (according to the T&T MS)

7. Conceptual Overview – Out of Zone • Exchange rates are calculated for related zones i.e. zones that have a physical interaction i.e. reduction in flows in one zone allow more flow out of another zone. • These exchange rates will vary according to quantity and will not be on a 1:1 basis.

8. To be noted • The following slides describe the T&T MS at a simplified and abbreviated level. • For a full and accurate understanding of how the process works please refer to the T&T MS • The theoretical examples and data provided are for illustration purposes only.

9. Base Data • Demand – determine range for the month being considered based on historical data • Nodal allocation maximum – where possible based on network analysis data shared with the industry on 6 July. However if other limiting factors exist, constrained to maximum historical gas flow over the last 5 years. • Entry Zones – for winter 07/08 based on current Ten Year Statement • Merit Order – Prioritises ASEPs within a zone according the likelihood of them flowing at the demands determined for the particular month. • Supply scenarios – TBE scenarios flexed to reflect historical and potential future supply patterns

10. Calculation of the Zonal Allocation Maximum (ZAM) – High Level Process Theoretical Example January [301 – 454 mcm/d] Northern Triangle Teesside (NAM = 44.3 mcm/d)

11. ZAM – Scenario Analysis (Step i & ii) • What are we are trying to achieve? • To reach the maximum ZAM without an expected material increase in costs of doing trades and transfers at 1:1 rate up to this level. • Starting point is: ZAM = sum of baselines within zone • Test scenario is set (initially TBE base Case) • Scenario shown represents a realistic supply pattern for demand level of 365 mcm/d.

12. Theoretical example continued Reverse merit order

13. Theoretical example continued • Network analysis is then performed based on the new flows and balancing the remaining volumes out of zone based on swing factors. • For simplicity the balancing in this example is all shown at Bacton. • If the network does not fail, then under this scenario the ZAM could equal the sum of the baselines. • If the network fails it would suggest that it would not be possible to do trades and transfers up to the sum of the baselines without avoiding material increases in costs. +16.5 -0.1 -16.4

14. Under the assumption that it fails…. • Gradually reduce the MPFL at the other ASEPs until no material increase in costs or the flow increase from obligated level to the NAM is all met within zone. • The ZAM is then the sum of the MPFLs i.e. • 0 + 0 + 118.8 + 44.3 = 163.1 • If there are still material increases in costs reduce NAM at Teesside towards its obligated level. -4.1 +16.5 -0.1 -7.1 -5.2

15. Calculation of the Zonal Allocation Maximum (ZAM) – High Level Process Theoretical Example January [301 – 454 mcm/d] Northern Triangle Barrow (NAM = 42.8 mcm/d) Teesside (NAM = 44.3 mcm/d)

16. Cross Zone Check & “final” ZAM • The results of steps i) to iii) will provide the potential for Recipient ASEPs to flow above obligated levels. • The interaction between these ASEPs flowing at their obligated level needs to be assessed. This would not have been covered under Step ii) • If this leads to expected material increases in costs adjustments to the relevant ZAMs need to made. • After this has been completed the “final” ZAM is calculated by summing up the MPFLs.

17. Inter-zone Exchange Rates • The inter-zone exchange rates are calculated for related zones i.e. zones that have a physical interaction i.e. reduction in flows in one zone allow more flow out of another zone. • These exchange rates will vary according to quantity and will not be on a 1:1 basis. • The basic process is similar to that used in the calculation of the ZAM.

18. Theoretical example • Merit order: • Isle of Grain • Bacton • Merit order (Recipients): • Teesside • Barrow

19. Set test scenario Move 10 mcm/d from Isle of Grain to Teesside. Test network If network fails 1:1 not possible, reduce increase at Teesside until does not fail. This sets the exchange rate for this scenario Test scenario Theoretical example continued +10 -10

20. Inter-zone exchange rates – example output table • Available Capacity for Allocation: ACfA= ZAM – sold capacity + surrendered capacity • Example 1: With all ACfA unused in zone 1, to move 10 units to zone 1 requires 25 units from zone 2: First 10 units in zone 1 = 5 units in zone 2 Second 15 units in zone 1 = 5 units in zone 2 Total 25 units in zone 1 = 10 units in zone 2 (2.5:1 exchange rate) • Example 2: With 10 units of ACfA in zone 1 allocated, to move 10 units to zone 1 requires 36.67 units from zone 2: First 20 units in zone 1 = 6.67 units in zone 2 Second 16.67 units in zone 1 = 3.33 units in zone 2 Total 36.67 units in zone 1 = 10 units in zone 2 (3.667:1 exchange rate)

21. Discussion & Questions • Consultation closes on the 28/08/07 • Please note that definitive ZAM values and inter zone exchange rates can only be provided once all potential Recipients have been analysed. • Are there limited pieces of analysis that would be useful to have before the consultation closes, for example up to Step ii) for certain ASEPs?