An overview of transmission access arrangements

1. An overview of transmission access arrangements Mark Copley & Colin Sausman 1st and 2nd February 2007

2. Purpose • To take stock of developments in transmission access since the ARODG • To allow parties to air a number of new developments • To consider developments as a package and identify what else users think needs to be done • To consider what role parties think Ofgem/ NGET/ licensees/ industry should play in this process

3. Agenda • 10.15 – Coffee • 10.30 – Welcome & Introductions • 10.40 – An overview of the ARODG – Mark Copley • 10.50 – Developments since the ARODG – Mark Copley • 11.20 – The Government’s View – Phil Baker • 11.30 - Coffee • 11.40 – Capacity Trading – Adam Brown • 12.15 – Lunch • 12.45 - The GB Queue – Mark Copley • 13.15 – Queue Optimisation – Phil Collins • 13.45 – Discussion • 14.15 – Way forward and Close

4. The Access Reform Options Development Group - Overview Mark Copley

5. Purpose • Convened in early 2006 to: • consider the enduring applicability of transmission access arrangements. • Highlight the potential problems with these arrangements • Develop a range of options for amending those arrangements. • The Group published its report in May along with a covering letter

6. Security Restricted Rights Unrestricted rights Access Building Blocks - (3) Post - Commissioning (1) Pre - commissioning (2) Rights during Rights security “ commissioning ” of TEC • Degree of capacity • Is security required? • Enduring or finite rights? firmness? • How much risk to consumers? “ CEC ” Y TEC Consent Genset Compliant Connection CEC & TEC achieved complete Network Offer Application Generator Local works Consent complete achieved Sole - local User Consent triggered Local works Shared wider achieved works (H1) only complete works complete Shared TO Local & wider X Consent K Non - User achieved Wider triggered works (H2) Constraints SO Exposure Assessment Framework

7. Security • Problems • Parties can apply for connection without incurring significant cost • Can create potentially onerous financial burdens, which can be both large and volatile • Creates an uncertain environment for investment in generation • Not the most effective method of focusing transmission investment where it is most needed • Unclear governance arrangements

8. Restricted Rights • The period between the completion of a connection to the system and the completion of wider works. • Problems • Does the range of products currently available make best use of available system capacity? • Vary compensation, duration, degree of firmness etc • Are there sufficient opportunities for parties that value capacity more highly to obtain it? • How can trading be facilitated?

9. Unrestricted Rights • The rights which are granted once the transmission system is compliant with security standards • Problems • The reservation of capacity inherent in TEC in its current form. Is this pro competitive and does it allow efficient investment? • Are the transmission licensees incentives to connect generation to the system in a timely manner sufficiently strong? • The Group developed options involving different combinations of rights and obligations. Many included more certainty about the delivery date of capacity.

10. Ofgem’s covering letter • Highlighted what we saw as desirable facets of an access regime: • Greater certainty over connection date and level of financial commitment for new generators • Ongoing protection for consumers against stranded assets • Case for changing the level and allocation of security arrangements • Merit in arrangements which enable the strongest projects to identify themselves • Consider developing access products which maximise available capacity and consider how access rights can be reallocated

11. Developments since ARODG Mark Copley

12. Interim Generic User Commitment • Introduced in summer 2006 • Voluntary alternative to Final Sums • Allows users to choose to fix liabilities, or opt for FSL • Securities ramp up to 10 years worth of TNUoS over 4 years.

13. CAP131 – User commitment for new and existing users • Seeks to address several issues raised by ARODG, primarily in the securities building block. • Non-refundable holding fee means holding a connection offer is no longer a costless option • Generic user commitment regime gives certainty over securities. Charges ramp up over a 4 year period to 6 x the TNUoS tariff. • User commitment of 2 years required from existing players, may increase information available to transmission licensees • Greater certainty over delivery. • Clear methodology for determining securities

14. CAP143 – Interim TEC • Raised by the SSE to create a new product giving a restricted access right • A generator can purchase a new product, Interim TEC • ITEC gives the same rights as TEC in most cases • BUT, for a given number of periods in the year, NGET can constrain the generator for a fixed price. • ITEC seeks to make better use of the existing system. The details are currently being developed by a CUSC working group.

15. CAP142 – TEC Trading • Raised by British Energy to allow trading between existing parties • At working group stage • NGET also developing proposals for trading between existing parties and existing and new parties • But more of that later

16. Ofgem’s TPCR • Ofgem provided funding for major transmission enforcements through the TIRG process in 2003. • In our recent TPCR we also provided funding for significant amounts of system reinforcement. • In addition, we developed mechanisms which would automatically adjust revenues if more generation connects. • Transmission companies have strong incentives to connect as much generation as possible during the 2007-2012 period.

17. Mapping developments to problems Mark Copley

18. Problems and Developments - Security

19. Restricted & Unrestricted rights

20. Questions & Discussion points • Have we correctly characterised the problems? • Would recent developments have a positive impact? • Are there any outstanding issues or other issues to address? • If so, how should they be addressed?

21. Promoting choice and value for all gas and electricity customers