1. Draft Mod: Update of default System Marginal Prices
Review Group August 2010
Transmission Workstream 02/09/2010

2. Background Current Default System Marginal Prices;
Buy = SAP p/kWh
Sell = SAP – p/kWh
What are the drivers for change?
Licence Condition C27: “Balancing Arrangements”
European Regulation
Default System Marginal Prices (SMPs) unchanged since April 2001
Review Group 0291
Initiated to discuss a number of options to update SMPs
National Grid believes this proposal better facilitates relevant objectives more than other options

3. Nature of Mod
Proposal seeks to reflect the operational costs of managing a imbalance on a per kWh basis using;
Compressor Fuel use (compression & withdrawal from Linepack)
Transmission Owner Allowed Revenue less over / under recovery (space / use of pipeline)
In addition proposal seeks to;
Publish methodology in UNC
Use methodology to update default SMPs in time for 1 April each year
Proposed April 2011 update is p/kWh (1.594p/Th)

4. Benefits of Proposal
Updates widely accepted best practise balancing regime with more appropriate values (rather than the current proxy for ‘avoided’ costs)
More appropriate values will lead to a more balanced system
Mitigates cross subsidy between users by using appropriate value of system flexibility
Satisfies C27 Licence condition
Ensures greater transparency of cashout / balancing within UNC

5. Next Steps Incorporate feedback from Transmission Workstream
Discuss at Review Group 0291 meeting (10th Sep)
Discuss at Panel – seeking consultation (16th Sep)
Panel determination (21st Oct)
Ofgem decision (Nov)
Implementation (1 April 2011)