Exchange Rate Mechanism for Capacity Transfers in Constrained Transmission Period

1. Entry Capacity transfers in the constrained period Transmission Workstream 5th October 2006

2. Entry Capacity transfers in the constrained period • Based on allowing transfer of capacity between interacting ASEPs • Transfers take place within zones on a 1:1 basis • Capacity transfer allows ASEP capability to transfer • Monthly Capacity made available through a new auction • AMTSEC • Subject to a Nodal maxima • Industry concerns • Doesn’t go far enough • Sterilisation of Entry Capacity • Agreed to further explore the possibility of transfers across zones

3. Transfers between zones • How can this be achieved • Earlier workstream presentations suggested this could be done through; • Commercial exchange rates • Buyer covers the incremental cost of transferring capacity • Physical exchange rates • Exchange rate factors in likelihood of constraints • Is it possible to allow transfers between Zones that are adjacent and have ‘some’ physical interaction • ASEPs with no physical interaction • ASEPs with limited/variable physical interaction • ASEPs with a strong physical interaction

4. Physical exchange rates • Transfers between ASEPs with no physical interaction • Does not allow transfer of physical capability • Any transfer would be using existing headroom (if any) near recipient ASEP or creates incremental risk at recipient ASEP. • Therefore no exchange rate available

5. Physical exchange rates • Transfers between ASEPs with limited/varying physical interaction • Physical interaction only comes into play when capacity transfer reduces flows at the Donor ASEP • Physical interaction limited by configuration of Network • Multi junction • Compressors • Therefore possible for ASEPs in close proximity to have no / minimal transfer of capability as a result of a request to transfer capacity.

6. Capacity Exchange rate

7. Physical exchange rates • Certain ASEPs have a 1:1 exchange rate • Share common areas of pipeline and/or junctions • Highly interactive • If 1 unit of flow decreases at one ASEP then 1 unit of additional flow would be allowed at interacting ASEP • Basis of grouping ASEPs into zones

8. Zonal definition • Zonal Definition • ASEPS placed within the same zone if; • Share common areas of pipeline and multi junctions • Highly interactive • If 1 unit of flow decreases at one ASEP then 1 unit of additional flow would be allowed at interacting ASEP

9. NTS Schematic – Easington Area Teesside Bishop Auckland Barrow Hornsea Garton Carnforth Asselby Easington Scunthorpe Warrington Theddlethorpe Hatton Bacton Alrewas Burton Point Wisbech Peterborough

10. Multiple Transfer requests • Provision of certainty to Users of applicable exchange rates • Prior to participation in an auction to enable transfer of unsold capacity; • Uncertainty around demand for capacity in forthcoming auction • Uncertainty around whether Users would secure the capacity to enable the transfer to take place. • Exchange rate may change after the auction.

11. Multiple requests Baseline Transfer request 10 Units Transfer request 10 Units Capability Transfer request 10 Units Capacity Exchange rate 2:1

12. Multiple requests Baseline Transfer request 10 Units Transfer request 10 Units Capability Capacity Exchange rate 4:1

13. Multiple requests Baseline Transfer request 10 Units Capability Capacity Exchange rate 0

14. Alternative proposals • Unsold Capacity • Provide wide range of exchange rates • ‘Lock in’ Users to transfer request • Sold Capacity • First come first served

15. Way forward • Modification Proposal to go to October Mod Panel? • Does Proposal meet the relevant objectives? • Is the Proposal sufficiently developed? • Is it worthwhile proceeding with Proposal?