Capacity Conversion – 616s 1st June 17

Recap Purpose: to provide a process for converting unbundled capacity into bundled capacity in compliance with the amended EU CAM code for the 1st Jan 18. ENTSOG consultation on capacity conversion model launched on 14th April. Closed out 5th May. NG will adhere to the ENTSOG model, but will consider interpretation that falls within the generic model. (Tx WG action ref 0502) NG will review modification proposal in light of any changes to the ENTSOG model.

Proposed changes to ENTSOG model after consultation Topic Old model Revised model Capacity Products Annual, quarterly and monthly only Annual, quarterly and monthly ... voluntary offer of daily services at a National level. Eligible Capacity Contracted capacity before 1st Nov 15. For unbundled capacity...specific conditions under which service may be limited (e.g. only capacity < 1st Nov 15) may be proposed by TSOs subject to NRA approval. Deadlines n/a Request to be received by TSOs 3 days after the auction. Responses to be received by the shipper 3 days after submission.

Available Capacity with Adjacent TSO Original proposal was to offer a capacity conversion service when there was insufficient unbundled capacity offered by the adjacent TSO. NG now propose to amend this. Availability of unbundled capacity with the adjacent TSO will not form part of commercial validation process. This is no issue with the ENTSOG model, as the model is silent on this matter. This is in response to WG feedback, and satisfies Tx WG action ref 0501. NG will monitor applications, against availability of unbundled capacity from adjacent TSO (not mod rule).

Capacity Products NG proposed solution is for annual, quarterly and monthly products only. This is in line with CAM and the ENTSOG model. Daily products are a matter of national discretion. NG will support the development of a daily service modification, if a party raises such a proposal. Considerations would be: systems impact (automating process to make sure capacity is available for next auction). timelines for delivery. Cost/benefit of service (assess against relevant objectives other than g)

Capacity Validation: ‘Sufficient’ Capacity Mod states that NG NTS shall perform a capacity check to ensure that the shipper user holds sufficient capacity. To clarify what is meant by sufficient: Shipper shall hold an unbundled capacity amount* equal to or more than the amount submitted for capacity conversion. Shipper shall hold the amount for the entire period (being annual, quarterly or monthly) that is covered in the request. *subject to further consideration, the capacity amount will either be the capacity entitlements or the registered capacity holdings.

Capacity Validation: Legacy Capacity Why ‘legacy only’ option: in theory this is a transition issue. New IP capacity is offered as bundled, except for remedying existing contractual mismatches, so issue will naturally go away. process will have a natural end date. Why ‘any unbundled’ option (legacy & non-legacy): no legal basis to restrict to legacy only. shippers may end up with unbundled capacity due to processes that potentially unbundle, such as Surrender and Buyback, even though bundled capacity was originally purchased.

Capacity Validation: Legacy Capacity & Trading Can ‘traded in’ capacity be converted, or should the service be limited to the shipper who paid the TSO for the capacity? to allow conversion of traded in capacity, NG can validate requests against a shipper’s firm unbundled entitlements. to prevent conversion of traded in capacity, NG can validate requests against a shipper’s firm unbundled Registered holdings. Enforcement of ‘legacy only’ capacity can only practically be done by checking registered capacity holdings. alternative is to try and split entitlements into ‘legacy’ and ‘non-legacy’, which from both a commercial rules and systems point of view creates undue complexity.

Next Steps 3 feasible options regarding rules for legacy capacity and trading. Option Legacy or Unbundled Validate against Registered Capacity or net Entitlements Allow conversion of traded in cap. 1 Legacy Only Registered No 2 Any Unbundled 3 Entitlements Yes Industry feedback sought on options. Additionally NG will be engaging with Xoserve regarding the whole process, including above options. Considering information received in above 2 points, NG will bring a firm proposal to next WG.