Entry Capacity Overrun price calculation Transmission Workstream 5th October 2006

Entry Capacity overrun price calculation Issue identified during the constraint actions taken in July and discussed at September Transmission Workstream; Under certain circumstances the overrun price calculation could allow a User to sell their capacity back to National Grid and continue to flow the associated gas. The overrun price is the average price of the top 25% of offers accepted on the day, multiplied by 1.1 This can be less than the price a User receives for their capacity Potentially extends the constrained period Potential for increasing constraint costs

Overrun Price Calculation Overrun Price 4.71 p/kWh

Entry Capacity overrun price calculation Under certain circumstances it is possible for an overrun price to be zero. If there is no constraint on a day then the overrun price calculation that is most likely to be applied is; 8 * A where A is the highest bid price in relation a capacity bid accepted in any capacity auction for the relevant day If no bids were received for the ASEP concerned; or The ASEP has a zero reserve price and the bids are all allocated at zero; then The overrun price will be zero.

Entry Capacity overrun price calculation Proposed changes; Change the overrun price calculation to the following (8 * A) where A is the highest bid price paid by National Grid NTS in relation to any capacity bid accepted in respect of the Day or the Gas Year in which the Day falls. (1.1 * B) where B is the highest allocated offer price, forward price or option exercise price paid by National Grid NTS in respect of any Entry Capacity Management action taken in respect of the Day. (8 * C), where C is the highest reserve price under any invitation for the Day or Gas Year in which the day falls.

Entry Capacity overrun price calculation National Grid believes this proposal better facilitates the relevant objectives by; reflecting the intention that Users are incentivised to purchase a right to flow gas onto the System; Thereby providing signals to National Grid of the intended use of the system; Removes perverse incentives on Users during constraint actions and provides National Grid with the opportunity to more efficiently manage any potential constraint

Entry Capacity overrun price calculation Way forward Submit Modification Proposal to October Mod Panel Request that the proposal proceeds direct to consultation