Transmission Workstream, 2nd March 06 Initial thoughts on methods to optimise capacity availability between ASEPs Transmission Workstream, 2nd March 06

Content AMSEC auction results Options to optimisation capacity availability Key development areas

AMSEC auction results (Winter 2007) BA = Bacton, EA = Easington, HS = Hornsea, SF = St Fergus, TE = Teesside, WF = Wytch Farm

Optimisation of Capacity between ASEPs AMSEC auction results show Several ASEPs sold out for some periods, often with bids far in excess of available capacity Limited ability to complete investments to seek to satisfy user requirements within constrained period Other ASEPs with unsold capacity Are there methods by which unsold capacity at an ASEP could be “transferred” to other ASEPs to allow optimisation of available capacity?

Optimisation methods Assuming baselines remain fixed, two potential ways in which capacity may be optimised: Option 1 - Transfer of Unsold Capacity between interacting ASEPs Option 2 - Transfer of Sold Capacity between interacting ASEPs – “Market Maker”

Option 1. Transfer of unsold capacity - Principles Provide shippers at an ASEP with ability to obtain unsold capacity at other interacting ASEPs Amount of transfer dependant on “exchange rate” between ASEPs results in areas of possible transfer e.g. Easington, Hornsea, Aldborough, Theddlethorpe, Bacton, Teesside Unsold capacity for year ahead after AMSEC auction aggregated into one “pot” Allocate aggregate unsold capacity to interacting ASEPs based on unsatisfied bids in AMSEC auction; or bids placed in new auction held after AMSEC and before RMSEC

Option 1. Transfer of unsold capacity - Principles B C D E F Aggregate Unsold Capacity Unsold Capacity Allocated based on price and volume of bids subject to exchange rates

Option 2. Transfer of sold capacity - Principles After AMSEC auction, issue buy back tender to all ASEPs include [2] months period for acceptance by National Grid If any offers, then undertake additional AMSEC type auction Release non-obligated capacity (within [2] months of receipt of offers) where value of bids exceed cost of required buy back offers, subject to exchange rates

Option 2. Transfer of sold capacity - Principles B C D E F Aggregate Sold Capacity Allocated based on price and volume of bids subject to exchange rates Sold Capacity – Buy back offer

Possible Annual Timetable Issue buy back tenders for next gas year Publish allocations Based on principles of option 1 and/or option 2 Feb Mar April May Oct Sept AMSEC Auction Rerun AMSEC Auction for next gas year only Capacity transfers effective Alternative timetables possible under option 1 : allocate unsatisfied bids in AMSEC auction for following capacity year using aggregate pot of unsold capacity If methods implemented this year, timetable would be on transitional basis

Key Development Areas Exchange rate methodology Allocation methodology If capacity transfers do not result in required changes in gas supplies, then additional buy back costs could be incurred Deal with through buy-back incentive or factor into exchange rate? Allocation methodology Dependant on exchange rate methodology Treatment of costs and revenues Recovery of TO revenue Any resulting buy-back costs Licence obligations Obligation to offer capacity in at least one clearing allocation auction ……discuss at next Transmission Workstream