The Treatment of

1
The Treatment of Spare / Sterilised Capacity

• Draft for discussion purposes only

2
High Level Policy

• As part of TPCR three new measures were
  introduced to ensure that sterilised / spare
  capacity would not be withheld from the wider
  market
• Capacity substitution
• Trades and transfers
• Reduction in capacity held back for shorter term
  auctions now 10
• In addition Ofgem consider that the charging
  methodology and IECR should take account of these
  developments
• The key is now to develop the measures to
  implement these policies and to ensure they are
  complementary

3
Implementation of these policies

• On the assumption that baselines broadly
  reflect the physical capability of the network, a
  number of options have been developed to consider
  how TT and capacity substitution could be
  enacted
• The options try to cover the broad range of
  possibilities from the very dynamic application
  to the stable and predictable.
• The intent is to seek feedback on these options
  today and to receive any written input until the
  31/8.
• We will then further develop and circulate the
  favoured options ahead of the workshop on the
  12/9.

4
Range Of Options

• Option 1 The Fast Furious
• Capacity substitution
• triggered at QSEC (implemented Sept 08)
• applicable from Y2
• all available capacity subject to substitution
• no NPV test
• no limit on exchange rates
• Trades and transfers
• embedded in RMSEC AMSEC, covering M1 to Y2
• no limit on exchange rates

5
Range Of Options
Option 1 The Fast Furious

• Option 5 Driving Miss Daisy
• Capacity substitution
• undertaken every 5 years as part of TPCR
  following consulted upon Ofgem methodology
• Trades and transfers
• embedded in RMSEC only covering M1
• limit on exchange

6
Range Of Options
Option 1 The Fast Furious

• Option 2
• Capacity substitution
• triggered at QSEC (implemented Sept 08)
• applicable from Y2
• all available capacity subject to substitution
• lower NPV test
• limit on exchange rates
• Trades and transfers
• embedded in RMSEC AMSEC, covering M1 to Y1
• no limit on exchange rates

Option 5 Driving Miss Daisy
7
Range Of Options
Option 1 The Fast Furious

• Option 3
• Capacity substitution
• triggered at QSEC (implemented Sept 08)
• applicable from Y2
• only certain capacity subject to substitution
• lower NPV test
• limit on exchange rates
• Trades and transfers
• embedded in RMSEC AMSEC, covering M1 to Y1
• no limit on exchange rates

Option 5 Driving Miss Daisy
8
Only certain capacity available for substitution

• The key issue seems to be to define sterilised /
  spare capacity. This could be based just on long
  term bookings or alternative metrics could be
  considered.
• For example where there is a degree of long term
  bookings and short term usage the capacity should
  not be substituted away as this would not be
  sterilised / spare capacity e.g.
• If there are bookings in 2 quarters for four
  consecutive years at 50 of the existing baseline
  and flows during the last year have been 90 of
  the baseline no capacity will be substituted
  away.

9
Range Of Options
Option 1 The Fast Furious

• Option 4
• Capacity substitution
• triggered at QSEC (implemented Sept 08)
• applicable from Y4
• only certain capacity subject to substitution
• same NPV test as for incremental
• limit on exchange rates
• Trades and transfers
• embedded in RMSEC AMSEC, covering M1 to Y1
• limit on exchange rates

Option 5 Driving Miss Daisy
10
Open discussion

• Do the options presented represent the full range
  of credible possibilities?
• Are their other aspects that should be developed
  ahead of the 12 September workshops?
• What are your initial reactions?
• Please provide your written comments on the
  options to National Grid NTS by 31/8.