Safety Monitor modifications: Ofgem’s recent decisions Simon Bradbury

1 December 2005 Background Oct-04  Safety Monitors introduced following removal of top-up Mar-05  NEC Safety Case revisions –new Monitor Breach Emergency –ability for NEC to revise storage flows

1 December 2005 Recent modification proposal decisions Mod 035  Defining GS(M)R Safety Monitor Breach in UNC  Introducing ability for NEC to curtail storage into UNC Mod 050  Enabling NG NTS to revise monitor levels in response to material changes in its supply/demand forecasts

1 December 2005 Considerations  In reaching its decisions, the Authority considered:  Its assessment of the modifications against the relevant objectives –Standard Special Condition A11 (a), (b), (d), (e)  Its wider statutory duties –Protecting customers –Security of Supply

1 December decision  REJECT - on balance, mod 035 did not better facilitate the achievement of the relevant objectives Relevant objective (a)  Perverse incentives to withdraw gas from store as curtailment would not be compensated  May not need emergency interruption if no supply/demand issues  Detrimental impact on storage investment Relevant objective (d)  Discrimination

1 December decision  ACCEPT – on balance, mod 050 did better facilitate the achievement of the relevant objectives Relevant objective (a)  Dynamic storage monitors can more accurately reflect supply/demand conditions  NG NTS discretion (accompanied by transparency) appropriate Relevant objective (d)  Recognise that variations in monitor levels could have large commercial impact

1 December 2005 Issues for development  Form and level of compensation for curtailment  Commercial incentives on NG NTS  Improved transparency  Market based way to meet Safety Monitor requirement

1 December 2005 Main areas for development in short term  Cash payment compensation and title transfer  Commercial incentives for NG NTS to manage costs  Improved transparency/info release  Remove emergency interruption abilities in Monitor Breach

1 December 2005 Main areas for development in longer term  Develop market based mechanisms for procuring overall requirements  Develop appropriate LR commercial incentives for NG NTS  Align commercial framework of UNC and Safety Case

1 December 2005 Way forward  For market participants to react to short term issues  Ofgem led review to be initiated in relation to longer term issues –more info to be provided shortly

1 December 2005 Promoting choice and value for all gas and electricity customers