1. LTSEC summer auction Transmission Workstream 6 th April 2006 Dave Adlam, National Grid NTS

2. LTSEC Auction timetable  Currently runs in September (UNC obligation)  An earlier timetable may be beneficial because:  Greater notice of requirements for incremental capacity  Potential to reduce the requirement for the request for extension to lead times under the IECR  Align with TBE process  Greater information to formulate supply and demand position  Annual auction would potentially be better in May  Can’t achieve it this year  Uncertainty for 2007 onwards

3. Requirements to enable an early 2006 LTSEC auction  Amendments required to allow an early 2006 LTSEC auction  Approval of UNC Mod Proposal  IECR review and consultation  Extension to investment lead times consultation

4. UNC Modification Proposal  UNC Modification Proposal  To include transitional legal text to enable an early auction this summer [July]  Workstream comments on draft proposal?  Support for a 10 day consultation

5. Requirements to enable an early 2006 LTSEC auction  IECR  Commence IECR review in early April (draft issued to workstream)  Introduction of a methodology describing how the incremental costs will be generated each year.  Submit to the Authority by beginning of May  The proposed changes for the IECR are  Introduction of a methodology to determine the future cost of investment  Amendment from Transco to National Grid

6. IECR Proposals  Introduce a Methodology to determine the future cost of investment  Currently the IECR contains a table which indicates the cost (in £m per km) of future investments  National Grid undertakes work to establish these values each year and are affected by:-  Steel Prices  Construction costs  Inflation  The proposal is to replace the existing formula with a methodology that demonstrates how these values are derived.

7. Investment Cost Methodology  National Grid would utilise projects that have been undertaken in the last 4 years and are planned and projected to complete in the next four years as a basis for deriving the cost of the release of any incremental capacity  Produces an average cost for each project per metre, dependent on pipeline diameter  This data is normalised, by use of the Structural Steelworks Labour Price costs index according to the construction year to take account of changes in  Steel Prices  Construction Costs  Inflation

8. Investment Cost Methodology  Once the costs have been normalised the values are plotted onto a scatter graph and a trend line is drawn between the data to establish the values that will populate the pipeline cost formula.

9. Investment Cost Methodology Cost per metre £ Pipeline Diameter (mm) £/m range of existing schemes Linear regression Values for Trancost formula

10. Pipeline Cost Formula Pipeline cost £m per km = 0.0012507 * diameter (mm) – 0.01507 / km Revised Formula Pipeline cost £m per km = 0.000407 * diameter (mm) + 0.38561 / km Current Formula

11. Requirements to enable an early 2006 LTSEC auction  Request to adjust investment lead times consultation  Requirement to amend lead time to ensure efficient delivery of incremental capacity  Finalising our requirements

12. Next Steps  UNC Mod Proposal  Submitted to April Mod Panel  IECR annual review & Consultation to extend investment lead times  Released for consultation shortly  28 day consultation