Review Group 0166 Review of Necessary Reform of NTS Offtake Arrangements 20 th September 2007 Beverley Grubb SGN

2 Review Group 0166 High Level Principles DNs primary objective is to develop and maintain an efficient and economic pipeline system whilst ensuring safety at all times. Arrangements must provide clear long term signals to allow DNs to make economic and efficient trade-offs and economic and efficient investment decisions. NTS capability must be transparent to all users. New regime must be proportional and not unduly complex. New regime must satisfy requirements of all users – this shouldn’t rule out different arrangements for different classes of user where appropriate. Benefits must outweigh costs

3 Review Group 0166 DNs Requirements DNs require firm physical commitment for flat and flexibility capacity (this doesn’t rule out Interruptible products for other users). DNs require long term booking arrangements and commitment. Short term booking arrangements can be used to fine tune positions. Arrangements need to take into account the 3 year planning horizon. Some form of user commitment is reasonable where investment is required by NTS but less clear where capacity already exists. The extent of user commitment needs to strike a balance with an element of risk sharing on both sides.

4 Review Group 0166 DNs Requirements User commitment must be determined and known upfront so that users can assess risk and make efficient trade-offs. Arrangements must incentivise NTS to deliver investment on time and honour physical capacity commitments. Capacity and pressure booking arrangements must run in parallel as the two are inextricably linked. Capacity booking timescales must be compatible with DN interruption tender timescales to maximise efficiency. DNs need a stable environment to make efficient long term investment decisions.

5 Review Group 0166 The Flexibility Capacity Product DN flexibility capacity requirements are driven by demand. DN demand varies over a Gas Day and can be unpredictable e.g. where driven by changes in weather. The DN network has been designed and developed in such a way that it is reliant on NTS flexibility as this was determined to be the most economic and efficient way of providing capacity. Flexibility has been provided as a by-product of investment and flat capacity. Where flexibility capacity becomes constrained a fair, transparent and efficient allocation mechanism is required.

6 Review Group 0166 The Flexibility Capacity Product To assist users in determining requirements and assessing options information is required on an ongoing basis to help users understand NTS capability over the 5 year planning horizon. Information on availability and potential constraints must be made available at a national, zonal and nodal level. Interactions between entry and exit must be explored and clarified. Once users better understand the issues facing NTS we should be better placed to consider product definition, release mechanisms, allocation timeframes and user commitment.

7 Review Group 0166 The Flexibility Capacity Product DN flexibility capacity requirements are driven by demand. DN demand varies over a Gas Day and can be unpredictable e.g. where driven by changes in weather. The DN network has been designed and developed in such a way that it is reliant on NTS flexibility as this was determined to be the most economic and efficient way of providing capacity. Flexibility has been provided as a by-product of investment and flat capacity. Where flexibility capacity becomes constrained a fair, transparent and efficient allocation mechanism is required.