Initial thoughts on methods to optimise capacity availability between ASEPs

Transmission Workstream, 2nd March 06

Content

AMSEC auction results Options to optimisation capacity availability Key development areas

AMSEC auction results (Winter 2007)

Capacity Sold/Unsold and Rejected Q4 2007 - Q1 2008

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

BA EA HS SF TE TH WF

Location

Pe

rce

nta

ge

% Sold % Unsold % Of Offered Capacity Rejected

BA = Bacton, EA = Easington, HS = Hornsea, SF = St Fergus, TE = Teesside, WF = Wytch Farm

Optimisation of Capacity between ASEPs

AMSEC auction results show Several ASEPs sold out for some periods, often with bids

far in excess of available capacity Limited ability to complete investments to seek to satisfy user

requirements within constrained period

Other ASEPs with unsold capacity

Are there methods by which unsold capacity at an ASEP could be “transferred” to other ASEPs to allow optimisation of available capacity?

Optimisation methods

Assuming baselines remain fixed, two potential ways in which capacity may be optimised:

Option 1 - Transfer of Unsold Capacity between interacting ASEPs

Option 2 - Transfer of Sold Capacity between interacting ASEPs – “Market Maker”

Option 1. Transfer of unsold capacity - Principles Provide shippers at an ASEP with ability to obtain unsold

capacity at other interacting ASEPs Amount of transfer dependant on “exchange rate” between

ASEPs results in areas of possible transfer e.g. Easington, Hornsea,

Aldborough, Theddlethorpe, Bacton, Teesside

Unsold capacity for year ahead after AMSEC auction aggregated into one “pot”

Allocate aggregate unsold capacity to interacting ASEPs based on

unsatisfied bids in AMSEC auction; or bids placed in new auction held after AMSEC and before RMSEC

Option 1. Transfer of unsold capacity - Principles

A

B

C

D

E

FUnsold

Capacity

Aggregate

Unsold

Capacity

Allocated based on price

and volume of bids subject to

exchange rates

Option 2. Transfer of sold capacity - Principles After AMSEC auction, issue buy back tender to all

ASEPs include [2] months period for acceptance by National

Grid If any offers, then undertake additional AMSEC

type auction Release non-obligated capacity (within [2] months

of receipt of offers) where value of bids exceed cost of required buy back offers, subject to exchange rates

Option 2. Transfer of sold capacity - Principles

A

B

C

D

E

F

Sold Capacity – Buy back offer

Aggregate

Sold

Capacity

Allocated based on price

and volume of bids subject to

exchange rates

Possible Annual Timetable

Feb

AMSEC Auction

April

Rerun AMSEC Auction for next gas year only

Oct Sept

Issue buy back tenders for next gas year

Mar May

Publish allocations

•Alternative timetables possible under option 1 : •allocate unsatisfied bids in AMSEC auction for following capacity year using aggregate pot of unsold capacity

•If methods implemented this year, timetable would be on transitional basis

Based on principles of option 1 and/or option 2

Capacity transfers effective

Key Development Areas

Exchange rate methodology If capacity transfers do not result in required changes in gas

supplies, then additional buy back costs could be incurred Deal with through buy-back incentive or factor into exchange rate?

Allocation methodology Dependant on exchange rate methodology

Treatment of costs and revenues Recovery of TO revenue Any resulting buy-back costs

Licence obligations Obligation to offer capacity in at least one clearing allocation auction

……discuss at next Transmission Workstream