1. APX OCM Collateralisation
Alex Thomason
National Grid NTS
5th October 2006

2. Background
APX has requested all parties to provide collateralisation for trades on the OCM
National Grid will provide separate collateral to cover its two roles as Shrinkage Provider and Residual Balancer
It is proposed that the cost of collateral for these two roles will be dealt with in different ways

3. Shrinkage Provider Collateral proposal
Cost expected to be c.£10k per annum
Propose that Shrinkage Provider collateral cost be included in the SO System Balancing (Shrinkage) incentive mechanism.

4. Options for Residual Balancer collateral costs
Cost expected to be c.£50k per annum (based on historic use)
(Dependent on extent of Res Bal role and gas costs)
National Grid proposes to pass through the cost in line with other Residual Balancer role costs
Annual reporting through SMPS audit processes
Option 1: Cost passed through System Operation Internal Costs incentive scheme
Each User would face a proportion of the costs of providing collateral, depending on the incentive scheme in place in any given year
This option would not require a UNC Modification

5. Options for Residual Balancer collateral (2)
Option 2: Costs passed through Balancing Neutrality process
This option would require a UNC Modification to include a new element in Balancing Neutrality pot.
Propose that costs are smeared daily based on the following formula : Prevailing Annual cost
365 (or 366 in leap year)

6. Next Steps
Topic raised at October Transmission Workstream for industry discussion
Depending on favoured option, National Grid NTS to raise UNC Modification Proposal