National Grid: Gas Transmission System Operator Paul Gallagher NTS Optimisation Manager National Grid

Gas Transmission in Great Britain ~8,200km pipeline Operating pressure 70 - 94bar 7 Beach Reception Terminals 3 LNG Importation Terminals 3 Interconnectors 10 storage sites 23 compressor stations 200+ Exit Points Highest Demand Day : 465 mcm Lowest Demand Day : 117 mcm Annual Throughput : 85 bcm St. Fergus Teesside Barrow Easington Burton Point Theddlethorpe Bacton Milford Haven Isle of Grain

Gas Technical Supply Maximum vs. 1 in 20 Peak Demand

Changing Network Flows 2013 on…

Role of NG as Transmission System Operator

Key roles of the System Operator Residual Energy Balancing of the Gas Market Safe, reliable and efficient operation of the National Transmission System (NTS) Facilitation of efficient market operation Response to events and emergencies

Statutary / Commercial Framework RULES Legislation, e.g. Gas Act, GS(M)R, Pipeline Regs, HASAW etc Safety Case (PGT and NEC) Uniform Network Code / Offtake Arrangement Document Transmission Licence EU Regulations and codes (new and increasing) CONTRACTS NEXAs, NEAs, SCAs etc INCENTIVES Balancing, Shrinkage, Capacity, Demand forecast etc Customer Satisfaction

Commercial Frameworks HSE Ofgem UNC Safety Cases GT Licence Incentives Network Entry Agreement (NEA) Network Exit Agreement (NEXA) Entry Facilities National Grid NTS Directly Connected Consumers Uniform Network Code (UNC) Offtake Arrangements Document (OAD) Storage Connection Agreement (SCA) Distribution Networks Shippers Storage

System Operator Incentives Incentives play a key role in defining how we operate our business Obligations define what we should do, whereas incentives define how we should carry them out to align with customer requirements Incentives change over time and are reviewed regularly based on customer feedback. The RIIO regulatory framework created three categories of incentive: Cost Incentives – These are schemes where if we reduce costs to below the target level then we can share a proportion of savings or conversely share a proportion of the overspend with users Performance incentives – Stakeholders have specific performance requirements. We recover additional income if we meet/beat them and vice versa Reputational incentives - These set out areas where we have obligations to carry out activities including reporting on them to our customers and stakeholders 9 9

Balancing

Balancing Responsibilities Shippers Role Obliged to provide commercial input and output nominations to National Grid before the day (forecasts) Can chose to re-nominate throughout the gas day Incentivised to ensure nominations / re-nominations are accurate Incentivised rather than obliged to physically balance portfolio NTS Connected Sites Obliged to provide physical entry profiles (DFN’s) NTS Connected Sites Obliged to provide physical exit profiles (OPN’s) Gas Supply Gas demand

Shipper Balances by Gas Supply Gas demand Supply Nominations Shippers send nominations to National Grid via Gemini what gas they propose to input into the NTS for the gas day Beach / Imports / LNG Storage Withdrawals Trades - NBP Buys Demand Nominations Shippers send nominations to National Grid via Gemini what gas they propose to take out of the NTS for the gas day DM Load Nominations NDM Load Nominations Storage Injections Exports Trades - NBP Sells Gas Supply Gas demand

Imbalance Cashout Shipper paid the SMP(S) for ‘excess’ gas Shippers incentivised to nominate accurately through Scheduling charges. Shippers Incentivised to balance through Imbalance Cashout – it is based on physical allocations not nominations and is faced by ‘out of balance’ shippers. Lesser of: Lowest Priced National Grid Gas Action OR SAP - 0.88p/therm Shipper Over-delivery Shipper paid the SMP(S) for ‘excess’ gas Shipper penalised for overdelivery as the SMP(S) is a “poor” price. Shipper penalised for underdelivery as the SMP(B) is a “high” price. Shipper Balanced Shipper pays the SMP(B) for its ‘deficit’ gas Greater of: Highest Priced National Grid Gas Action OR SAP + 0.88p/therm Shipper Underdelivery

Balancing Responsibilities National Grid’s Role – Residual Balancer Ensure NTS balance is within safe operating limits NG balancing trade actions at times of forecast imbalance Cannot ‘instruct’ users NG neutral to direct costs of system balancing, but NG incentivised to ensure Daily change in line pack < 2.5mcm Impact of actions taken on price is minimised Shippers Role Obliged to provide commercial input and output nominations (forecasts) No obligation to physically balance portfolio Incentivised to balance portfolio NTS Connected Sites Obliged to provide physical entry profiles (DFN’s) NTS Connected Sites Obliged to provide physical exit profiles (OPN’s) Gas Supply Gas demand

Neutrality Costs National Grid is neutral to any charges or credits

Allocations In GB nominations are effectively a forecast of expected flow Allocations are based on physical ‘metered’ flow at the site Where > 1 shipper at a site, then a post event allocation process has to take place to allocate the gas between the shippers At exit points this runs until D+5 At entry points this takes until M+15 Further complications at bi-directional sites such as storage and interconnectors

System Operator Actions Balancing Operational tools (internal) Operational tools (external) Commercial tools Network Integrity Utilise Linepack National Energy Actions Physical Energy Actions Margins Notice Gas Deficit Warning Operating Margins Gas Deficit Emergency Information Provision (MIPI / Website / Gemini) 17

Supply Loss and Response 18

Linepack 19

Operation of the NTS

Drivers of system operation Statutary Pressure integrity Gas Quality Environmental Commercial Delivering obligated and purchased capacity rights to shippers Meeting assured pressures at offtakes Equalising CV across distribution zones Minimising cost of compression Miinimising impact of maintenance on customers

Capacity Release Every Entry and Exit point on the NTS has an obligated capacity Level defined within NGs transportation licence NG must release capacity to this level every day, irrespective of physical capability to allow flow Range of auctions used to release capacity (> 50 run every day) Shippers can buy long term for up to 17 years ahead at entry points, or wait and ‘buy’ capacity on the day Firm and ‘interruptible’ products available Shippers are incentivised to purchase Capacity rights to flow gas onto and off of the NTS If a shipper flows more gas than they have purchased capacity for then they incur overrun charges Total obligated capacity at both entry and exit from the NTS is approximately 2 X peak demand

Data flows into NG To allow NG to operate the network effectively users are obliged to provide information in 2 ways : Nominations / renominations Provided by shippers Define ‘commercial’ daily flow at entry and exit points Provided from 30 days ahead, and updated on ad-hoc basis Feed through to allocations, billing, scheduling charges Very limited operational use Notifications Provided by site operators (subterminals / storage / interconnectors at entry, Distribution networks / power stations / storage / interconnectors at exit) Define a ‘physical’ hourly profiled flow expectation at entry and exit points Provided from day ahead, and updated hourly within day NG use these for forecasting flows on the network, modelling pressure profiles and identifying capacity constraint risks Feed into supply, demand and linepack forecast calculations etc Wide range of operational uses. Basis of network configuration decisions.

Before the Day Day Ahead Gas Day After the Day Network Analysis & Risk Envelope Day-Ahead Off-peak Capacity Incentive Performance Long Term Capacity Sales Day-Ahead Firm Capacity Within-day Firm Capacity Capacity Revenue Rolling Capability Assessment Post Event Analysis & Lessons Learnt Initiates Constraint Management / Balancing Strategy Demand Forecasts D-1 Initial OPN OPN Revisions Supply & Demand After-the-day Analysis Supply Forecasts D-1 Initial DFN DFN Revisions Planned Maintenance Post Event Analysis Plant trips/failures Unplanned Maintenance Reliability Data OCS Assured Pressures Agreed Pressures Pressure KPI Contractual Obligations Linepack & Pressure Monitoring

System Operator Actions Network Management Operational tools (internal) Operational tools (external) Commercial tools Network Integrity Reconfigure Network Redistribute Linepack Utilise Compressors Move / cancel Maintenance Agree revised Pressures Flow Swaps Enforce Contractual Offtake Rules Scaleback ‘Interruptible’ Capacity Locational Energy Actions Capacity Surrender Offtake Flow Reductions Constraint Management Agreements Operating Margins Terminal Flow Advice (Entry) Shutdown sites Critical Transportation Constraint Information Provision (MIPI / Website / Gemini) 25

Incentives in NTS operation Capacity (+£20m to -£60m / year) Release > capacity than obligated if users want it Deliver capacity that has been released Shrinkage (+£7m to -£7M / year) Minimise compressor usage Minimise price paid for energy to power compressors Environmental (+£0m to -£unlimited M / year) Reduce compressor gas venting Maintenance (+£1.5m to -£1.5M / year) Reduce days that offtakes are shutdown to allow maintenance Reduce number of plan changes

Facilitating efficient operation

Market facilitation Provide range of services to facilitate efficient market operation, including Information provision (incentivised) Provision of trading and capacity platforms Forecasting (incentivised) Reconciliation Meter assurance (incentivised)

Market Information Provision Initiative (MIPI) – Prevailing View http://www.nationalgrid.com/uk/Gas/Data/prevailingview/

Market Information Provision Initiative (MIPI) - Entry Flow Data http://www.nationalgrid.com/uk/Gas/Data/EFD/index.htm Shows latest telemetered Flows into the NTS for all entry points that are capable of flows greater that 10mcm/d or NG owned & operated Data provided at 2 minute resolutions – delivered to the internet at 12 minute intervals Publishes flows for Individual Entry points ASEPs Total Instantaneous Supply Graphs available for viewing trends Manual Download of data available API’s allow automated download of latest published data

Response to Emergencies

Network Gas Supply Emergencies (NGSE) Emergency affecting the National Transmission System is classified as one of Three types: Gas Deficit Emergency (GDE) Could be caused by a shortage of beach or storage gas, failure of market arrangements, Supply shortage National Supply < National Demand Storage monitor Breach (SMB) Not enough gas in store to safely isolate protected loads Not enough gas in store to deliver the peak 1in50 Critical Transportation Constraint (CTC) Could by caused by damage to a NTS pipeline or compressor station etc A network issue that impedes gas transmission capability Could affect the safe supply of gas to Distribution Networks, NTS power stations, storage facilities, interconnectors Gas Deficit Emergency: Occurs whenever there is insufficient gas available on the NTS to maintain a national supply/demand balance (generally a short duration) Safety Monitor Breach: Safety monitors are levels of storage calculated to protect the public in the event of a statically severe “1:50” winter (See Forecasting Methodology on nationalgrid.com for further information). A Safety Monitor breach could be caused by a far longer, colder winter than forecast. (likely to be a long duration) Critical Transportation Constraint: Where there is sufficient gas on the NTS (supply=>demand) however the gas can’t get to where it is required due to a transportation constraint. (typically short duration) Feedback on the last emergency exercise DFO / SFO obligations in an emergency Possible standalone National Grid emergency exercise in 2014 Request feedback on the new DECC portal

Network Emergency Co-ordinator (NEC) national grid Role performed by National Grid but NEC independent of System Operator Co-ordination of actions of gas industry to prevent or minimise safety consequences of a supply emergency Independent from any commercial interests of industry Industry parties have a duty to co-operate with the NEC

Emergency Actions available to the Network Emergency Co-ordinator NTS Linepack Usage Distribution Co-operation & Storage Usage Gas Specification GS(M)R Rules Stage 1 (Potential) Maximise NTS Supplies Firm Load Shedding National Grid suspends participation in OCM Stage 2 Stage 3 Distribution Network allocation & isolation Public Appeals Stage 4 Restoration of Supplies Purge & Relight