“Introduction of a New Shipper Obligation in Relation to the Procurement of Gas Below the Gas Safety Monitors” Transmission Workstream 4 th Jan 2007 Chris Logue

Background  Discussed the potential new approach to procurement of Safety Monitor gas at the December 2006 Transmission Workstream  Draft Code Modification Proposal has been produced and circulated  A Code Modification Proposal will be submitted to the UNC Panel on the 18 th January with a request that the Proposal proceeds to consultation

Concept  Safety Monitors ensure that sufficient gas is held in storage to support those gas consumers whose premises cannot be physically and verifiably isolated from the gas network in the event of a 1 in 50 winter.  To achieve this all gas consumers are categorised into one of two groups:  Protected by Monitor – Gas is held in storage to facilitate continuity of supply and safe control to these consumers in a 1 in 50 winter  Protected by Isolation – Safety is ensured by physically isolating these consumers from the networks

End consumer categorisation  Sites which can be safely isolated from the network  NTS Interruptibles  LDZ Interruptibles  NTS Power Firm  NTS Industrial Firm  DM (excluding priority customers)  Sites which require protection under the safety monitor  Priority Firm DM  Ireland Firm  All NDM

Proposed New Approach  Each User to have a new UNC obligation to secure its proportion of the total protected by monitor market  The total volume of gas to be secured by all relevant Users will be equal to the Stored Safety Gas Requirement in each Storage Facility Type  This obligation may be met either through direct arrangements with Storage Operators or through a contract(s) with a third party  This new shipper obligation will replace 071A compensation arrangements – no future requirement for compensation in the event of storage curtailment  Shippers will be required to warrant that they have secured and will hold sufficient gas to meet their individual Stored Safety Gas Requirements  The gas secured must be held until the Safety Monitor declines or is removed or the gas is allowed to flow as directed by the NEC

Annual Process  31 st May – Provide initial view on Stored Safety Gas Requirement  31 st May – Notify each shipper of their indicative Individual Stored Safety Gas Requirement based on their portfolio position on 1 st May  1 st September – Take shipper portfolio snapshot  1 st October – Publish Safety Monitor levels  1 st October – Notify each shipper of individual Stored Safety Gas Requirements for each storage type  31 st October – Shippers warrant that they have secured sufficient gas in storage to meet their obligations

Annual Process  It is not envisaged shipper portfolio changes within the winter will be material enough to merit altering individual Stored Safety Gas Requirements  Maximum portfolio change during winter 05/06 was around 2% of total protected by monitor market  If the Safety Monitor is amended during the winter, individual Stored Safety Gas Requirements will be amended accordingly and notified to shippers  Shippers will be required to warrant they have secured the amended quantity of gas as soon as practicable

To Calculate Stored Safety Gas Requirement  Total Stored Safety Gas Requirement split into 4 bands:  Domestic loads with AQ<73,200 kWh  I&C NDM loads with AQ<58,600,000 kWh  Firm loads supplied by the Irish Interconnector  Priority Firm DM loads  Total AQ* for each band used to give a ‘weighting’: AQ<73,200 kWh63.3% AQ<58,600,000 kWh23.4% Firm Irish13.1% Priority Firm DM0.2%  Weightings applied to Safety Monitor in each storage type and individual shipper Stored Safety Gas Requirements are calculated from this based on individual shipper AQ totals within each load band. *AQ information provided by xoserve. Weightings would be expected to change year on year.

Potential Advantages  Targets the requirement to hold stored gas at those that will be supplying the gas in a severe winter.  Removes requirement for a complex and “imperfect” compensation regime  Takes reserved gas out of the supply chain (unless a 1 in 50 winter occurs) and therefore increases the value of contracted demand response – therefore reducing risk of NGSE  Ensures all shippers comply to minimum security of supply standards that are proportionate to their individual portfolios and market share  Better aligns UNC to the domestic security of supply provisions contained in the gas suppliers licence  Incentivises additional supplies - therefore reducing risk of NGSE  Helps PBM to quantify storage requirements in a timely manner ahead of winter period