Update on Entry Capacity Substitution

1
Update on Entry Capacity Substitution

• Transmission Workstream
• 6th March 2008
• Summary of consultation responses

2
Introduction

• Last PCR introduced several fundamental changes
  to the entry regime which included Entry Capacity
  Substitution
• A key intention of the policy measures is to
  ensure that capacity does not become sterilised,
  i.e. an obligation at one ASEP where capacity is
  not required does not prevent use of that
  capacity elsewhere.
• Key Licence deliverables are
• Entry Capacity Substitution Methodology Statement
• Submit to the Authority for approval by 6th
  January 2009
• Amendment of Incremental Entry Capacity Release
  Methodology Statement to include substitution.
• On 1st February National Grid issued consultation
  document seeking views on a range of issues.

3
Capacity Available for Substitution.

• What proportion of baseline capacity should be
  withheld from QSEC auctions (and substitution)
  for use in later auctions (the current Licence
  requirement is 10)?

4
Capacity Available for Substitution.

• Should allocated capacity or forecast flows be
  used in defining substitutable capacity?
• Licence defines substitution of unsold
  non-incremental obligated entry capacity.
• Would forecast flows impact TBE data?

• Alternative suggestion
• Use previous years peak flow.

5
Single Quarter Problem.

• Where capacity is currently booked at an ASEP for
  a single quarter in the future should this
  prevent capacity at that ASEP, to the level
  booked, being available for substitution in the
  period prior to that booking?
• Users say this should not prevent substitution
  but a workable solution is not evident at this
  stage.

6
Lower NPV Test.

• Should different User Commitment tests be applied
  for incremental capacity satisfied from
  substitution and from investment?
• Comments
• Combined Substitution / Investment Competing
  Bids is complex, but should not be an issue with
  a single test.

7
Exchange Rate Cap.

• To avoid excessive capacity degradation should
  capacity substitutions be prohibited if the
  exchange rate exceeds a specified value?
• If yes, what should the cap on exchange rates be?
  

8
Availability of Capacity for Substitution.

• Should National Grid substitute capacity to
  release incremental capacity ahead of 42 months?
• If yes, should any limit be placed on the timing
  of such release, e.g. 18 months, 30 months?
• Should substitution be limited to single donor
  ASEP or should combinations (substituted at
  different times) be allowed?
• Responses
• Mainly in favour of early release (from 18
  months) provided capacity has previously been
  available in AMSEC.
• Is this feasible? QSEC / AMSEC do not overlap
  sufficiently.
• Impact on incentives to be considered.

9
Other Issues.

• New Entry Points
• Support for a delaying substitution until a
  regular QSEC auction.
• Unlikely to be an issue with April 2009
  implementation date.
• Assuming UNC mod implemented for April 2009 QSEC.
• Alternative Economic Test / User Commitment
• No support for changing now.
• Willing to review.
• Reserve Price Discounts
• Conflicting views 1 totally against discounts, 3
  in favour.

10
Other Issues.

• We would be interested in peoples thoughts as to
  how the substitution process may impact upon
  other elements of the entry capacity regime.
• 6 respondents specifically commented on the need
  for more time to consider potential consequences
• 5 refer to a holistic approach consider
  interactions.
• 4 respondents identify potential price increases
  as a consequence of substitution
• 1 reference to regulatory Impact Assessment.

11
Next Steps

• Arrange workshops
• Establish workgroup.
• Develop policy / processes.
• National Grid to draft
• Entry Capacity Substitution Methodology Statement
• Contains process to identify donor ASEPs and
  quantities.
• Incremental Entry Capacity Release Methodology
  Statement
• Likely to include most of the business rules to
  be developed
• National Grid consultation to commence Nov 2008
• Submit to Authority for approval by 6th January
  2009
• May need to be earlier to accommodate Impact
  Assessment