Options for the Development of a Demand Side Response Mechanism 15 May 2014

Significant Code Review (SCR) Security of Supply (SoS) Background Aim of the Gas SoS SCR: to reduce the likelihood, severity and duration of an emergency; ensure that market arrangements provide sufficient incentives on shippers to maintain SoS ensure that in an emergency Market Rules appropriately incentivise shippers to balance supply and demand. Develop appropriate payment arrangements for voluntary and involuntary DSR

Background A Draft Licence Obligation on NGG Ofgem’s SCR SoS Review – Final Policy Decision issued 12 February 2014 Included as part of consultation: A Draft Licence Obligation on NGG to develop a DSR Methodology in consultation with the industry. (Statutory Licence Consultation Summer 2015)

Proposed DSR Licence Obligation Draft Licence Condition on NGG to; Develop a draft DSR Methodology, in consultation with stakeholders; and Submit the DSR Methodology, to the Authority, by March 2015 Where directed by the Authority run a trial (paper based) of the DSR Methodology; and Report back to the Authority on the outcome of the trial; and Subject to the trial, implement the revised arrangements by winter 2016/17.

DSR Methodology and Mechanism Timescales 2014 2015 2016 ? Summer 2014 Stat consultation on Licence changes 12/02/2014 09/04/2014 01/03/2015 01/10/2016 ? ? ? ? May 2014 – Jan 2015 ? May – Jul Sep - Dec Feb - Sep Industry Development of a draft DSR Methodology & DSR Mechanism Run Trial (subject to Authority Direction) Final Modification and consult System Design, Build, Test & Implementation Consultation closes SC8I draft published Implement methodology & mechanism Submit a draft Methodology to Ofgem Submit report on trial to Ofgem Ofgem decision

Customer Engagement Throughout April and May NGG holding DSR Development 121s with industry parties to understand needs, opinion and concerns/ideas of End Customers and Shippers/Suppliers. The SoS SCR Final Policy Decision consultation also provided industry with the opportunity to record initial views and recommendations regarding DSR licence obligations Outcome of 121s and consultation responses may provide initial building blocks for DSR Methodology draft strawman options Continued development of DSR Methodology would now benefit from a more centralised collaborative industry engagement.

Proposed way forward Development of the DSR Methodology will require: UNC revisions to enable the DSR offers to be accepted under specified arrangements, which differ from existing Market Balancing Actions arrangements Requirement for Industry engagement to develop DSR Methodology, in particular Shippers, Suppliers, large Industrial End Consumers and the DNOs Development area focused on Market and Energy Balancing arrangements Industry engagement should be undertaken with the most efficient use of industry parties time and resources in mind. We propose that the changes are best placed being developed through the governance of the Modification Rules using Transmission Workgroup attendees as experts in this area.

Proposed options for development route Option 1: Raised as an ‘Issue’ at the next Transmission Workgroup - Raised 5th June Transmission Workgroup - Further meetings scheduled by Workgroup Option 2: Raised as a high-level Modification Proposal with a recommendation that it goes to Transmission Workgroup for development. - Submit Modification Proposal to 19th June Panel - Send to 3rd July Transmission Workgroup Alternatively raise DSR as an A.O.B. item at the June Transmission Workgroup and submit Draft Proposal for development to June Panel

DSR proposed plan and timescales

DSR mechanism three way party interaction End User Offers to reduce gas offtake Shipper Offers Volume on the OCM (to NGG only) NGG Accept Offers for volume certainty of volume & level of cashout exposure certainty of volume for operational purposes cost and risk mitigation