LTSEC summer auction

Transmission Workstream

6th April 2006

Dave Adlam, National Grid NTS

LTSEC Auction timetable

Currently runs in September (UNC obligation) An earlier timetable may be beneficial because:

Greater notice of requirements for incremental capacity Potential to reduce the requirement for the request for extension

to lead times under the IECR Align with TBE process

Greater information to formulate supply and demand position

Annual auction would potentially be better in May Can’t achieve it this year Uncertainty for 2007 onwards

Requirements to enable an early 2006 LTSEC auction

Amendments required to allow an early 2006 LTSEC auction

Approval of UNC Mod Proposal IECR review and consultation Extension to investment lead times consultation

UNC Modification Proposal

UNC Modification Proposal To include transitional legal text to enable an early

auction this summer [July] Workstream comments on draft proposal?

Support for a 10 day consultation

Requirements to enable an early 2006 LTSEC auction

IECR Commence IECR review in early April (draft issued to

workstream) Introduction of a methodology describing how the incremental

costs will be generated each year.

Submit to the Authority by beginning of May The proposed changes for the IECR are

Introduction of a methodology to determine the future cost of investment

Amendment from Transco to National Grid

IECR Proposals

Introduce a Methodology to determine the future cost of investment

Currently the IECR contains a table which indicates the cost (in £m per km) of future investments

National Grid undertakes work to establish these values each year and are affected by:-

Steel PricesConstruction costsInflation

The proposal is to replace the existing formula with a methodology that demonstrates how these values are derived.

Investment Cost Methodology

National Grid would utilise projects that have been undertaken in the last 4 years and are planned and projected to complete in the next four years as a basis for deriving the cost of the release of any incremental capacity

Produces an average cost for each project per metre, dependent on pipeline diameter

This data is normalised, by use of the Structural Steelworks Labour Price costs index according to the construction year to take account of changes in

Steel Prices Construction Costs Inflation

Investment Cost Methodology

Once the costs have been normalised the values are plotted onto a scatter graph and a trend line is drawn between the data to establish the values that will populate the pipeline cost formula.

Investment Cost Methodology

Cost per metre £

Pipeline Diameter (mm)

£/m range of existing schemes

Linear regression

Values for Trancost formula

Pipeline Cost Formula

Pipeline cost £m per km = 0.0012507 * diameter (mm) – 0.01507 / km

Revised Formula

Pipeline cost £m per km = 0.000407 * diameter (mm) + 0.38561 / km

Current Formula

Requirements to enable an early 2006 LTSEC auction

Request to adjust investment lead times consultation

Requirement to amend lead time to ensure efficient delivery of incremental capacity

Finalising our requirements

Next Steps

UNC Mod Proposal Submitted to April Mod Panel

IECR annual review & Consultation to extend investment lead times

Released for consultation shortly 28 day consultation