1. Place your chosen image here. The four corners must just cover the arrow tips. For covers, the three pictures should be the same size and in a straight line. Operating Margins Lorraine Weir, Project Manager, Strategy and Support, Gas Operations, National Grid Darren Lond, Senior Commercial Analyst, Transmission Network Service, National Grid

2. 2 Operating Margins  Is required to fulfil the requirements of the Primary Gas Transporter’s Safety Case and is facilitated by Section K of the Uniform Network Code  It is gas which can be supplied to the system, or demand which can be reduced, in times of distress  It will primarily be used in the immediate period following operational stresses before other balancing measures become effective.  Currently booked annually

3. 3 Operating Margins  What is it for?  Emergency prevention.  Unforeseen events cause NTS to be out of balance  Market Balancing Actions insufficient (eg not timely)  Short term response  Emergency management.  During emergency, to safely manage the run-down of the NTS.

4. 4 Operating Margins  What are the categories of OM (as defined in the Safety Case?  Group 1: Supply failure or forecast demand change  Calculated from failure of infrastructure at terminals (could be whole terminal or largest sub-terminal)  Network analysis used to determine the OM required to maintain system integrity for up to 24 hours

5. 5 Operating Margins  Group 2: Pipe or compressor failures  Network analysis used to determine the OM required to maintain system integrity for 24 hours  This can be a local requirement (locational) or general (non- locational)

6. 6 Operating Margins  Group 3: Orderly Rundown – isolation of consumers due to reduction of supply over forecast demand  To manage the unpredictability of curtailing demand

7. 7 Operating Margins – Providers Who provides OM?

8. 8 Future of OM  What is the future for OM?  Still required  Volumes may increase due to demand volatility (rapid changes over a short time period when the market may not react) due to;  Wind intermittency  CCGT ramping  Reduction in Distribution Network storage leading to diurnal swing being transferred onto the NTS

9. 9 Future for OM  Need to review contract types:  Longer term for locational?  Shorter term for supply shock?  Other types?  Interaction between Mod 435 and OM?  Dependant on:  response timescales  period covered for  anything else?

10. 10 OM Deliverability Contracts  Option Price for OM deliverability contract  Annual Service Fee  Exercise price for utilising the contract  Current calculation principles are shown in the 2012/13 OM Statement http://www.gasgovernance.co.uk/sites/default/files/Operati ng%20Margins%20Statement%202012-13.pdf http://www.gasgovernance.co.uk/sites/default/files/Operati ng%20Margins%20Statement%202012-13.pdf  New calculation principles can be developed in advance of OM tender periods

11. 11 Example OM Deliverability Contract 2012-1  The exercise price in respect of Deliverability Contract 2012-1 is as follows (in p/kWh):  Exercise Price = SMPB * 1.40 Where  SMPB represents the System Marginal Buy Price (in p/kWh) for gas for the Gas Day in which the service has been delivered

12. 12 Example OM Deliverability Contract 2012-2  The exercise price in respect of Deliverability Contract 2012-2 is as follows (in p/kWh):  Exercise Price = Max (SMPB + 0.1706, 2.559) Where:  SMPB represents the System Marginal Buy Price (in p/kWh) for gas for the Gas Day in which the service has been delivered