The Entry Capacity Transfer & Trade Methodology Statement Transmission Workstream

2 Prompt Buy Back Historical Information "The information/data set out above has been provided by National Grid on a good faith basis for information purposes only. It should not be relied on by any person for any purpose, and any person uses or relies on such information/data entirely at their own risk. National Grid accepts no liability arising from any such use or reliance.”

3 Background (1)  An initial consultation on the T&T MS was conducted in May 07, this was designed to provide individual exchange rates.  The two new Mods 150/A and 163 require fixed ex-ante exchange rates for multiple trades and transfers.  The Mods also specify specific parameters to be derived from the Methodology Statement e.g.:  Zonal allocation maximum  Nodal allocation maximum etc.  Therefore a major revision of the draft T&T MS has been necessary.

4 Background (2)  The new T&T MS is much more complex as it needs to provide fixed ex-ante exchange rates for multiple trades and transfers. As discussed at previous meetings every trade or transfer has a knock on effect to the next transaction.  In addition the exchange rate provided must also meet the Licence Obligations, broadly speaking:  Make effective use of the NTS  Be compatible with the physical capability of the NTS  Avoid material increases in cost  The T&T MS needs to considered together with the proposed Mods.

5 Timetable  T&T MS consultation launched on the 30 July 07  T&T MS consultation closes on 28 August 07  Section 23 on the associated Licence Obligation closes on the 28 August 07.  Section 23 needs to be consented to and directed before the T&T MS can be approved.  The associated Mods cannot be implemented without an approved T&T MS.  Based on the above there will not be a trade and transfer process for October 07.

6 Conceptual Overview – Within Zone 1.For each month a zonal allocation maximum (ZAM) is set according to the T&T MS. 2.Within zone transfers and trades (surrenders) are undertaken at a 1:1 exchange rate up to the zonal allocation maximum and the specific nodal maximum (according to the T&T MS)

7 Conceptual Overview – Out of Zone  Exchange rates are calculated for related zones i.e. zones that have a physical interaction i.e. reduction in flows in one zone allow more flow out of another zone.  These exchange rates will vary according to quantity and will not be on a 1:1 basis.

8 To be noted  The following slides describe the T&T MS at a simplified and abbreviated level.  For a full and accurate understanding of how the process works please refer to the T&T MS  The theoretical examples and data provided are for illustration purposes only.

9 Base Data  Demand – determine range for the month being considered based on historical data  Nodal allocation maximum – where possible based on network analysis data shared with the industry on 6 July. However if other limiting factors exist, constrained to maximum historical gas flow over the last 5 years.  Entry Zones – for winter 07/08 based on current Ten Year Statement  Merit Order – Prioritises ASEPs within a zone according the likelihood of them flowing at the demands determined for the particular month.  Supply scenarios – TBE scenarios flexed to reflect historical and potential future supply patterns

10 Calculation of the Zonal Allocation Maximum (ZAM) – High Level Process January Theoretical Example [301 – 454 mcm/d] Northern Triangle Teesside (NAM = 44.3 mcm/d)

11 ZAM – Scenario Analysis (Step i & ii)  What are we are trying to achieve?  To reach the maximum ZAM without an expected material increase in costs of doing trades and transfers at 1:1 rate up to this level.  Starting point is: ZAM = sum of baselines within zone  Test scenario is set (initially TBE base Case)  Scenario shown represents a realistic supply pattern for demand level of 365 mcm/d.

12 Theoretical example continued Reverse merit order

13 Theoretical example continued  Network analysis is then performed based on the new flows and balancing the remaining volumes out of zone based on swing factors.  For simplicity the balancing in this example is all shown at Bacton.  If the network does not fail, then under this scenario the ZAM could equal the sum of the baselines.  If the network fails it would suggest that it would not be possible to do trades and transfers up to the sum of the baselines without avoiding material increases in costs

14 Under the assumption that it fails….  Gradually reduce the MPFL at the other ASEPs until no material increase in costs or the flow increase from obligated level to the NAM is all met within zone.  The ZAM is then the sum of the MPFLs i.e.  =  If there are still material increases in costs reduce NAM at Teesside towards its obligated level

15 Calculation of the Zonal Allocation Maximum (ZAM) – High Level Process January Theoretical Example [301 – 454 mcm/d] Northern Triangle Teesside (NAM = 44.3 mcm/d) Barrow (NAM = 42.8 mcm/d)

16 Cross Zone Check & “final” ZAM  The results of steps i) to iii) will provide the potential for Recipient ASEPs to flow above obligated levels.  The interaction between these ASEPs flowing at their obligated level needs to be assessed. This would not have been covered under Step ii)  If this leads to expected material increases in costs adjustments to the relevant ZAMs need to made.  After this has been completed the “final” ZAM is calculated by summing up the MPFLs.

17 Inter-zone Exchange Rates  The inter-zone exchange rates are calculated for related zones i.e. zones that have a physical interaction i.e. reduction in flows in one zone allow more flow out of another zone.  These exchange rates will vary according to quantity and will not be on a 1:1 basis.  The basic process is similar to that used in the calculation of the ZAM.

18 Theoretical example Merit order (Recipients): Teesside Barrow Merit order: Isle of Grain Bacton

19 Theoretical example continued  Set test scenario  Move 10 mcm/d from Isle of Grain to Teesside.  Test network  If network fails 1:1 not possible, reduce increase at Teesside until does not fail.  This sets the exchange rate for this scenario Test scenario

20 Inter-zone exchange rates – example output table  Available Capacity for Allocation: ACfA= ZAM – sold capacity + surrendered capacity  Example 1: With all ACfA unused in zone 1, to move 10 units to zone 1 requires 25 units from zone 2: First 10 units in zone 1 = 5 units in zone 2 Second 15 units in zone 1 = 5 units in zone 2 Total 25 units in zone 1 = 10 units in zone 2 (2.5:1 exchange rate)  Example 2: With 10 units of ACfA in zone 1 allocated, to move 10 units to zone 1 requires units from zone 2: First 20 units in zone 1 = 6.67 units in zone 2 Second units in zone 1 = 3.33 units in zone 2 Total units in zone 1 = 10 units in zone 2 (3.667:1 exchange rate)

21 Discussion & Questions  Consultation closes on the 28/08/07  Please note that definitive ZAM values and inter zone exchange rates can only be provided once all potential Recipients have been analysed.  Are there limited pieces of analysis that would be useful to have before the consultation closes, for example up to Step ii) for certain ASEPs?