Possible Alternative to use of SND in Demand Estimation Review Group 176 Possible Alternative to use of SND in Demand Estimation

Use of SND in the Formula Demandt = AQ/365 x ALPt x (1 + (DAF x WCF) ) x SF WCF (Weather Correction Factor – at LDZ level) = (Actual LDZ NDM Demand – Seasonal Normal NDM Demandt) Seasonal Normal NDM Demandt DAF (Daily Adjustment Factor – at EUC level) = WSENSt/SNDt (for EUC) WSENSt/SNDt (for LDZ)

Suggested approach - WCF Use WCF = (Actual LDZ NDM Demand – Σ(AQEUC/365 x ALPt)LDZ) Σ(AQEUC/365 x ALPt)LDZ i.e. Derive an approximation of Seasonal Normal Demand for the LDZ by applying the ALP for the day to total AQ/365 for each EUC Options for frequency of calculation: Annual off-line calculation in September for new Gas Year Infrequent, easy Frequent, complex Monthly off-line calculation throughout Gas Year, reflect evolution of AQs Daily calculation, part of on-line Demand Attribution

Suggested approach - DAF DAF currently published in August for next Gas Year DAF less sensitive to SND than WCF Use DAF = WSENSt/ AQEUC/365 x ALPt WSENSt/ Σ(AQEUC/365 x ALPt)LDZ Options for frequency of calculation: During Spring analysis using prior year AQs In September when AQ amendment window closes Monthly to reflect evolution of AQs Daily calculation – not necessary/desirable? Suggest calculation in advance in Spring – greater accuracy not required

Use of AQ and ALP – Summary Advantages Removes reliance on DN Forecasts AQs already visible to Shippers – more “neutral” No UKLink impact for annual/ monthly calculation Should reduce WCF values if SND is generally overstated Would complement a rolling AQ regime Disadvantages AQs based on historic data – out-of-date? Can’t reflect current trends Impact on UKLink for daily calculations Annual/monthly calculations may not evolve quickly in line with actual AQs