Emergency Cashout Prices and Emergency Curtailment Quantity (ECQ) Adjustment Ritchard Hewitt Gas Code Development Manager

Decision Letter on Proposal 0021  Main points - Cashout Prices:  “that the current arrangements potentially create perverse incentives for shippers who are short of gas”  That current arrangements “may encourage shippers to move further out of balance to trigger an emergency”  “There is a risk that the current arrangements will fail to attract price sensitive sources of gas”  “shippers have a weaker incentive to contract for demand response” “ “ – quotations taken from Ofgem decision document on Modification Proposal 0021

Decision Letter on Proposal 0021  Main points - Cashout Prices continued:  SMP buy (*) “is likely to better reflect the prevailing market price for gas”  “Exposing shippers to SMP buy… will promote the economic and efficient operation of the pipeline system”  Clarification of treatment of OTC Trade Nominations (*) during emergency stage 2  However concerns expressed regarding small volumes * See UNC for definition of this term

Decision Letter on Proposal 0021  Main points – Interruption Volume adjustment.  ”this element of the modification proposal in principle better facilitates the relevant objectives” but,  “Critical improvement” areas:  Expansion to include Firm System Exit Points (*)  Inclusion of treatment of disputes in relation to the ECQ * See UNC for definition of these terms ECQ – Emergency Curtailment Quantity includes curtailment of flows at either or both Interruptible and Firm System Exit Points

Proposed developments of 0021 proposal to address “Critical” improvements  Expansion of the proposal to include all System Exit Points except Non Daily Metered and Priority Loads*  Inclusion of new dispute resolution process for the ECQ element of the Proposal. Based on existing resolution process set out in UNC  Clarification of treatment of OTC Trade Nomination process during stage 2 and 3 of a Network Gas Supply Emergency (*) * See UNC for definition of this term

Other changes proposed  Inclusion of requirement for the Relevant Transporter to calculate ECQ and pass to Transco NTS.  ECQ information, by System Exit Point (*), to be made available to Users after the Gas Day (*) to support dispute process including information describing the basis of the methodology used to calculate ECQ. * See UNC for definition of this term

Options for ECQ calculation  Proposal to include all DM System Exit Points  Proposal to include “best estimate” requirement on Relevant Transporter  Possible options for assessing ECQ  Steps  OPN  Based on Historical information (D-1, D-7 etc)  SOQ * % peak day

Dispute process  Replicate current UNC disputes process.  To cover ECQ value  Information released by Relevant Transporter after the day to inform this process.

Marginal Cashout price  Ofgem Decision letter states that “exposing shippers to SMP Buy …. rather than 30 day average SAP will promote the economic and efficient operation of the pipeline system”  Issues raised by respondents to 0021 consultation  Small volume setting SMP buy  Link to electricity regime decisions

Marginal Cashout price  Small trades setting SMP buy has been acknowledged as less of an issue in the gas regime than the electricity regime.  Previous statements made by Transco NTS that it will take all efficient and economic actions. This assessment includes having a reasonable expectation that such trade will have a materially beneficial effect on the system balance position.  Other Marginal price models would need further assessment and development.

Marginal Cashout price  Transco NTS continues to believe that SMPbuy and SAP dual price emergency cashout provide the best combination of incentives both to those shippers who are short and those who are long to both avoid the emergency and to then use the OTC Trade Nomination facility during stage 2 and 3.  SMP buy also provide the best incentive for any trades taken by the Residual System Balancer prior to the emergency to be delivered.

Medium term developments not part of Urgent Proposal  Inclusion of ECQ calculation methodology in the UNC.  Review of Section Q – already a Transmission Workstream Topic.  Other Marginal Price models * See UNC for definition of this term

Timetable  Raise Urgent Mod shortly  If accepted consult over August  Implementation for this Winter  Possible industry meetings during consultation phase to inform responses