1. The calculation of the NTS Optional Commodity tariff (NTS Shorthaul) in the Enduring Exit Period Richard Hounslea/Debra Hawkin National Grid NTS, Gas Charging & Access Development Transmission Workgroup 5 th April 2012

2. Background  The NTS Optional Commodity tariff is calculated using the following equation… 1203 x [(SOQ)^-0.834] x D + 363 x (SOQ) ^-0.654 p/kWh … where SOQ is a capacity related element and is a proxy for the Exit Point Capacity (EPC).  SOQ is not a defined term in the UNC, however EPC is defined in UNC TDIIC.  SOQ is either the shipper nomination/booking for SMP’s / SSMP’s or the exit capability for NTS CSEP’s.  From 1 st October 2012, the EPC (Exit Point Capacity) is renamed as “Supply Point Capacity” in UNC TPD Section B 3.12.10 (b) and defined as “… the sum of the Baseline NTS Exit (Flat) Capacity and Baseline NTS Exit (Flexibility) Capacity”.  The UNC definition is effectively the obligated level as defined under the NTS Licence.  There are sites in the Enduring Exit Period that have an obligated level of zero. Zero cannot be used in the shorthaul equation  We need a workable methodology for implementation on 1 st August 2012 for charges effective from 1 st October 2012.

3. What options do we have? The following have been identified by National Grid as possible alternatives to using the obligated level as the Supply Point Capacity 1.NTS Exit (Flat) Capacity Booking 2.Demand Forecast 3.MNEPOR (Maximum NTS Exit Point Offtake Rate) converted to a kWh/d figure.

4. Supply Point Capacity Options and thoughts… 1.NTS (Exit) Flat Capacity Booking  Analogous to the SOQ  Transparent/publically available  Some sites have a zero booking which can’t be used 2.Demand Forecast  Industry concerns around transparency of forecasts  Bi-directional sites with physical entry capability have a forecast demand of zero on a peak day. 3.MNEPOR (Maximum NTS Exit Point Offtake Rate)  Capability of offtake  Transparent  One Interconnector, however, has an MNEPOR of zero. Not withstanding the issue identified with MNEPOR, our view is that the MNEPOR is the only practicable option.

5. MNEPOR Options and thoughts… 1.Use MNEPOR recognising that for one Interconnector the MNEPOR is zero.  Shippers at this Interconnector cannot have Shorthaul under this option and therefore could be at a disadvantage.  Interconnector A has physical exit (& entry) capability (and commercial reverse flow capability in the opposite direction to physical flow in both entry and exit modes).  Interconnector B has commercial reverse flow capability in the opposite direction to physical flow on entry only – is shorthaul appropriate at Interconnector B?  Physical capability at Interconnector B could be achieved relatively easily resulting in an MNEPOR figure being established – is this economic & efficient? 2.Use MNEPOR at all exit points but use the entry capability as a proxy for the MNEPOR at interconnectors where no physical exit capability exists as this would be the figure that the connected pipe could carry in the opposite direction, all other things being equal. 3.Use MNEPOR other than at all interconnectors, where the highest of entry and exit physical capability is used.

6. Conclusion  Our least preferred options are 1 & 3 because;  In respect of option 1 it may create a perverse incentive for Interconnector B to invest so as to enable the application of Shorthaul.  In respect of option 3 it seems illogical not to use an exit capability number where one exists. It would also be inconsistent with other exit points.  Our initial preference is for option 2, use MNEPOR except where no physical exit capability exists where we would use entry capability because:  It allows Interconnector B to have Shorthaul, which promotes competition.  In the event that physical capability at Interconnector B became a reality the resultant MNEPOR would be used.  As this inconsistency will only apply in one current circumstance we believe it is the most pragmatic approach.