Transmission Workgroup June 7th 2012 Mod 426 - Entry Overruns Transmission Workgroup June 7th 2012

Issue At present, under certain circumstances, a User may deliver gas at an ASEP, above their capacity holdings, and not incur an entry overrun charge This weakens the financial incentive for Users to purchase sufficient capacity to cover their gas flow requirements and may undermine the “ticket to ride” principle Flows in excess of capacity may reduce the efficiency and economic management of the NTS as capacity bookings become less of a proxy for actual flow Issue compounded at ASEPs, where only interruptible is released (with a zero reserve price)

Currently Zero Entry Overrun Charge may occur on any Gas Day where all Entry Capacity at an ASEP is booked at zero price no Entry Capacity is booked at that ASEP The entry overrun charge is highest of either 8*highest bid price paid in any entry capacity release mechanism for that ASEP 1.1 x the top 25% accepted offer price, forward price or exercise price 1.1 x the highest unit price

Entry Overruns Per Month incurring zero charge or where no there is no capacity booked Year Entry Overruns 2008 34 2009 9 2010 27 2011 6 2012 (up to March) 1 No obvious trends

Approach Modification raised to: add 8* current MSEC firm reserve price at that ASEP as a bottom stop to the existing overrun calculation to act as a default price where there are no capacity bids or the bids are allocated at zero price keep the change simple and focussed further align Entry overruns with the Exit overrun calculation

Previous Mod 119 - Amendment to the Entry Overrun Charge (raised in 2006) to add the highest reserve price to the existing calculation to reduce the likelihood of the application of a zero overrun price to change the top 25% average highest accepted offer, forward or exercise price to negate the possibility that a User could incur more revenue from the surrender of capacity than the resulting overrun charge if the User did not change its flows in accordance with the accepted buy back offer Modification 119 was rejected in part due to insufficient evidence of Users being incentivised to offer back their NTS Entry Capacity and not appropriately reduce their flows

Benefits Strengthens the incentivise on Users to book capacity consistent with flows upholding the “ticket to ride” principle Provision of more accurate Entry Capacity may lead to more efficient operation of the pipeline system Facilitates competition in booking Entry Capacity Removes potential discrimination to Users booking sufficient capacity to cover their flow requirements Removes the issue where only interruptible capacity with zero reserve price is released at any ASEP

User Pays Split Propose Transporter 50% / Entry Shippers 50% Seeking views on how the Entry Shippers 50% is apportioned Entry Capacity holdings as at implementation date Entry flows as at implementation date Or a more appropriate suggestion / apportionment ?