1. Non-approved draft Transmission Workstream, 6th December 2007
Trades and Transfers
Non-approved draft
Transmission Workstream, 6th December 2007

2. Recap From Last Workstream2
Broad consensus reached:
Process carried out on an ASEP to ASEP basis
Capacity surrender allowed before RMSEC (with reserve price)
RMSEC moved to earlier in month, any unsatisfied bids go forwards into T&T process
Bids are ranked, exchange rate maximised and allocations made
Actual exchange rates calculated once bids have been seen so transfers are more efficient
Timeline identified

3. Topics for this Workstream3
Exchange Rate Calculation
Draft Modification Proposal
Key aspects
Timeline
Specific issues for discussion
Draft Methodology Statement
High Level Process
Example

4. Exchange Rate Calculation
Two main potential methods, for an auction based allocation:
Generic Exchange Rates
Generic exchange rates are determined and published ahead of an allocation mechanism, e.g. an auction, and cover a range of potential outcomes both in terms of the ASEPs, between which the trade or transfer is being transacted, and also the quantity of the trade or transfer.
Fixed Generic exchange rates were used in the interim regime.
Specific Exchange Rates
Specific exchange rates are determined once the precise details, e.g. the ASEPs and quantity, of each trade or transfer are known.
Specific exchange rates have been proposed for the enduring regime.

5. Pros & Cons Generic Exchange Rates Specific Exchange Rates Advantages
Provides certainty of allocation mechanism outcomes, both in terms of quantity that could be moved to and from Recipient / Donor ASEP
Allocation is relatively quick allowing the allocation mechanism to be close to the point of capacity release.
Disadvantages
Have to be calculated for a variety of potential trades and transfers, in terms of both ASEPs and quantities. As each trade or transfer has an impact on subsequent trade or transfers the process is extremely complex.
Due to the number of assumptions that have to be made, the resulting exchange rates will be more conservative, leading to a less efficient allocation of capacity.
Have to be calculated for a number of discrete quantities or other measures, e.g. NAMs & ZAMs implemented to manage the variability of exchange rates with quantity. This may artificially limit the exchange rates.
Process is lengthy, time consuming and costly.
Specific Exchange Rates
Advantages
Provide the best exchange rate for an individual trade or transfer and therefore lead to the most efficient capacity allocation.
Process is relatively simple. It requires relatively few assumptions to be made and can be undertaken reasonably quickly.
Disadvantages
Does not provide certainty to Users of allocation mechanism outcomes, either in terms of the quantity that could be moved to a Recipient ASEP or the quantity that could be moved from a Donor ASEP.
The allocation is a lengthier process as it requires network or risk analysis to be performed. Thus the allocation mechanism needs to be sufficiently in advance of the point of capacity release.

6. Application example
Table opposite shows actual and theoretical TTSEC allocations for November 07.
At the most constrained ASEP Easington, this could have resulted in over 60% more capacity being allocated.

7. How to address the disadvantages of Specific Exchange Rates?
Uncertainty of amount of capacity that could be moved to and from Recipient / Donor ASEPs
Undertake the process frequently e.g. monthly in order to provide indicative exchange rates for the following auction.
Speed of allocation process
Undertake the process frequently to improve process and “chunk up” the number of transactions to be dealt with at any one time.

8. Trades and Transfers: Draft Modification Proposal
Transmission Workstream, 6th December 2007

9. Modification Proposal (1) Key Features9
RMSEC to consist of four key processes
Trade Initiation Process
Users able to surrender capacity for reallocation in RMSEC
Rolling Monthly Invitation
Process as current RMSEC auctions
Users bid for capacity at ASEPs where they want it
Satisfied using unsold/surrendered capacity (“Available Capacity”)
Initial Stage
Allocation of Available Capacity at the ASEP where available
Process consistent with current RMSEC allocations
Allocation of Surrendered Capacity then unsold capacity.
Unsatisfied bids will be considered in the Transfer and Trade Stage
Transfer and Trade Stage
Allocation of Available Capacity at different ASEPs

10. Overall Process Timeline10
Publication of aggregate results on National Grid website
Trade Initiation invitation
Rolling monthly Invitation
Allocations completed. User results visible on Gemini
Last Business Day
RMSEC auction
Surrender Process
<= 3 days
1 day
Initial and
Trade & Transfer Stages
<= 2 days
<= 5 days*
>=5 days
1 day
<=20 days
* Business Days

11. Modification Proposal (2) Initial Stage: Key Features11
For each ASEP
Available Capacity (surrendered and unsold) will be allocated to the highest bidder.
Surrendered allocated first.
Highest Surrender Price first.
In the event of insufficient Available Capacity
Bids may be partially satisfied
Equally priced bids will be allocated pro-rata
Unsatisfied bids will cascade to the Transfer and Trade Process.

12. Modification Proposal (3) Transfer and Trade Stage: Key Features12
For each ASEP with unsatisfied bids from the Initial Stage
Bids will be grouped to improve potential Exchange Rates; and
Will be ranked according to WAP
For each group Available Capacity will be transferred from the most favourable Donor ASEP(s)
Exchange Rate determined in accordance with Methodology Statement
Partial allocations will be undertaken where necessary
If a bid does not get satisfied, it drops down into the next group for that ASEP
Allocations will progress through the Recipient ASEPs until:
All bids are satisfied
There is no more Available Capacity
Any remaining bids can only be satisfied by breaching
The upper Exchange Rate limit of 10:1
A Surrender Price
Minimum quantities.

13. Modification Proposal (4) Treatment of Surrendered Capacity and Charges13
Where Surrendered Capacity is re-allocated:
Transferor User shall remain liable for Capacity Charges
The Available System Capacity of the Transferor User shall be reduced
The Transferee User will pay as bid. Revenue will pass through to the Transferor User.
The Transferor User will receive the Unit Offer Price,
Unit Offer Price = Recipient bid price / Exchange Rate
Unit Offer Price shall be averaged in respect of capacity re-allocated to satisfy more than one bid.
National Grid will assign income in respect of unsold capacity to appropriate revenue streams.
Potential for TO / SO over-recovery.

14. Issues (1) Upper limit on Exchange Rate14
Upper limit on Exchange Rate
Prevents excessive capacity destruction,
Remaining Available Capacity available for daily auctions
But limits potential capacity moved to where required.
Proposal for a 10:1 limit; 6:1 suggested.
Views?
Withhold an amount of any Available Capacity remaining after the Initial Stage for daily auctions.
Increases capacity available for short term adjustments
Limits potential capacity moved to where required.
Could be complex e.g. fixed quantity or percentage? How much?

15. Issues (2) 15
After the Transfer and Trade Stage have a “sweep up” without (or with a higher) Exchange Rate limit.
Add to allocation process time
Maximises potential capacity moved to where required
Increases capacity destruction / removal of capacity from daily auctions.
Views?
Surrender Price must not be greater than prevailing reserve price.
Prevents Users buying capacity at a “cheap” ASEP solely with a view to trade by setting a high reserve price and freezing out “incumbent” Users, but
Prevents capacity being allocated to ASEPs where Users value it most.
Ensures consistency with obligation to sell all available capacity at prevailing reserve price.
Surrendered Capacity will be allocated before unsold capacity.
Maximises capacity available for daily auctions

16. Discussion
Issues…….?

17. Trades and Transfers: Draft Methodology Statement
Transmission Workstream, 6th December 2007

18. Methodology Statement (1)18

19. Methodology Statement (2): Example19
Select test scenario
Historic supply patterns at 350 mcmd +/- 10%.
Select 5 most severe
Average and rebalance at 350 mcmd
Example
Transfer and Trades for Nov.
Supply patterns as below
Identify demand level
Historical and forecast demand 272 – 407 mcmd
Test at 350 mcmd
Identify recipient ASEP
In accordance with UNC
Teesside ASEP with bids 10 mcmd above the obligated level.
Demand level 350 mcmd. – Recipient Teesside
Supply mcmd
Ave.
Re-balanced supply
 St Fergus
110
120 95
130
107.2
 Easington
100 97
94.6
 Teesside 30 25 20 26
25.3
 Bacton 80 70 79
77.0
 Milford Haven 55 40 45 60 35 47
45.8
 Total
375
365
330
385
340
359
349.9

20. Methodology Statement (3): Example20

21. Methodology Statement (3): Example21
Assume obligated and sold capacity levels
ASEP
Obligated level
Mcmd
Sold capacity
mcmd
St Fergus
117
100
Easington
Teesside 30
Bacton
150 70
Milford Haven 60
Increase flow at Teesside to obligated level
25.3 to 30 mcmd
Rebalance at least interactive ASEP
Milford Haven 45.8 – 4.7 mcmd

22. Methodology Statement (4): Example22
Identify most favourable donor ASEP
St Fergus
Adjust test scenarios
Increase flows at recipient ASEP for the T&T
Teesside, 30 to 40 mcmd
Decrease obligated level at donor ASEP by the same amount
St Fergus, 117 to 107 mcmd
Impact on flow = – 107 = 0.2 mcmd
Rebalance network
Decrease Milford Haven flows from 41.1 by 9.8 mcmd
Test network
If “pass”:
Exchange Rate is 1:1

23. Methodology Statement (5): Example23
Test network
If “fail” re-adjust test scenario
Adjust test scenarios
Decrease (incrementally) the obligated level at donor ASEP
No lower than sold level
St Fergus: to 100 mcmd
Re-balance at Milford Haven
= 38.3 mcmd
If “pass”: Exchange Rate is
(117 – 100) : (40 – 30)
1.7 : 1

24. Discussion & Next Steps
Issues…….?
Assuming no major issues:
Mod Proposal to be submitted to Mod Panel around 12th Dec; and
Consultation on proposed Methodology Statement to commence around 20th Dec.

25. UNC Mod & Methodology Statement Approval Process25
Methodology Statement
UNC Modification
6 Nov T&T workshop
20 Dec Issued for consultation
20 Dec Mod Panel
21 Dec Issued for consultation
7 Feb Extraordinary Mod Panel held after Transmission workstream
8 Feb Sent to Ofgem
6 Dec Draft presented to Transmission workstream
17 Jan Deadline for representations
15 Jan Deadline for representations
15 bus. days
28 days
28 days
29 Feb Deadline for Ofgem response
29 Feb Last day for approval in order to achieve Nov Gemini release
2 June Deadline for M/S revision
12 Dec
Mod to Panel
Implemented June for July allocations (manual workaround)
Implemented November for December allocations (full system solution)
1 Feb Sent to Ofgem
Drafting cons. report