1. Capacity Methodology Statements: Impact of Mod 452
Tx Workgroup Meeting
1st August 2013

2. Background
The NTS Gas Transporter Licence sets obligations on National Grid to produce seven statements setting out various capacity methodologies. We have amalgamated some obligations, such that we have five statements:
ExCR: Exit Capacity Release
ECR: Entry Capacity Release
ExCS: Exit Capacity Substitution and Exit Baseline Revision
ECS: Entry Capacity Substitution
T&T: Entry Capacity Transfer and Entry Capacity Trade
We are seeking to keep the Mod 0452 Methodology Statement changes minimal.

3. Entry and Exit Capacity Substitution
We are not proposing to change any of the fundamental rules of the substitution processes.
The process for substitution analysis (i.e. network analysis) is not affected by the changes proposed in Mod 452.
But there are four key areas of change to the substitution processes being considered.

4. Entry and Exit Capacity Substitution: Specific Changes
Substitutable Capacity will be redefined to exclude capacity reserved (at the time of the analysis) pursuant to a PARCA.
References to ARCAs will be retained on a Transitional basis.
Capacity can be reserved from a donor point for substitution to a recipient.
Substitution proposals are subject to non-veto by the Authority
Proposals currently submitted to the Authority at allocation.
To provide certainty to planning processes, substitution proposals for PARCA’s need to be submitted to the Authority earlier, i.e. prior to reservation.

5. Exit and Entry Capacity Release
Principles
No new PCA and ARCA contracts will be agreed and will be replaced with PARCAs.
Introducing the concept of capacity “reservation”.
Incremental capacity will not normally be released through existing processes (QSEC / July Window).
Substitution will be possible.
Changes will align to the proposed PARCA process e.g.
Application of the NPV test for incremental entry release at the reservation and allocation stages.

6. Exit Capacity Release: Summary of Changes
The ExCR identifies three ways to obtain Enduring Annual NTS Exit (Flat) Capacity
PARCA Process
Annual Window
Ad-Hoc Process
Removal of most references to PCAs and ARCAs.
Existing agreements continue in effect.
Annual Window and Ad-hoc Application largely unaltered
Revenue Drivers only needed for PARCA applications must be agreed and published before progressing to Phase 2.
Inclusion of new NTS Exit Points in the Licence
Currently considering whether this could be changed to an external document so as to take this step out of the critical path.

7. Exit Capacity Release: PARCA Process
Inclusion of references to PARCAs.
Definition, consistent with Mod proposal
Clarification that only with a PARCA will there be certainty of incremental capacity release.
High level description of what a PARCA is, how it is funded, and the rights and obligations created under one, e.g.
National Grid will reserve and allocate capacity
National Grid will identify capacity substitution opportunities
National Grid will publish information on agreed PARCA in advance of (and after) reserving capacity.
Capacity may be reserved from a donor Exit Point pending substitution, (subject to non-veto by the Authority).

8. Exit Capacity Release: Summary of Changes
Annual and Ad-hoc applications
Will be accepted where the application can be satisfied through (or in combination):
Unsold Capacity (including Substitution)
Non-obligated capacity.
Therefore can only be used where a Revenue Driver is not required.

9. Exit Capacity Release: Summary of Changes
User Commitment associated to formal capacity booking
Does not apply to reserved capacity
Does not apply to Reservation Parties,
Is based on the indicative price at the time of allocation (not reservation).
Default lead time
24 months from the next 1st October after allocation.
Applies to all enduring annual allocation processes although in practice only PARCAs lead to incremental release.
Removal of references to the Permit scheme.
Other potential change:
New chapter on Long Term Non Firm Capacity.

10. Entry Capacity Release: Summary of Changes
The ECR identifies the PARCA as the only way to guarantee the release of Firm Entry Capacity in excess of the prevailing Obligated Entry Capacity level.
Entry and Exit PARCAs follow the same principles.
Capacity is reserved for later allocation (including from donor ASEPs)
March QSEC Auction process is largely unchanged
Bids will be accepted where they can be satisfied through (or in combination):
Unsold capacity (including substitution)
Non-obligated capacity.
Removal of references to the ad-hoc QSEC auction
Other entry capacity auctions: no change.

11. Entry Capacity Release: Specific Changes
Removal of most references to PCAs and ARCAs.
Existing agreements continue in effect.
Inclusion of references to PARCAs.
As described for ExCR
Inclusion of ASEP in Licence
As for ExCR, we are currently considering whether this could be changed to an external document.
Revenue Drivers only needed for PARCA applications and must be agreed and published before progressing to Phase 2.
Other potential change:
New chapter on Long Term Non Firm Capacity.

12. Entry Capacity Release: Specific Changes
User Commitment / NPV Test
The NPV test will be carried out at the time of capacity reservation based on the User’s / Reservation Party’s capacity profile and current prices (these prices are indicative).
For National Grid to proceed to the Phase 2 PARCA Works; either
The test must be passed if capacity above available unsold is required
If NPV test is not required then capacity must be requested for at least 16 of 32 quarters.
The NPV test will be repeated using the latest (actual) price at the time of allocation.
The [Nominated] User may be able to revise their bid profile (but not the incremental quantity) to ensure the test is passed.
Default lead time
24 months from the next 1st October after allocation.
Removal of references to the Permit scheme.

13. Timetable
Consultation on the various methodology statements is expected to broadly follow the timetable outlined below.
Timeline for “RIIO” ECR & ECS. Applicable from Feb 2014 AMSEC.
Review
and
update
Proposal with the
Authority for approval
Consultation
Timeline for ECR / ECS & ExCR / ExCS updates for PARCA. Applicable from May 2014.
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
Potential informal consultation
Proposal with the
Authority for approval
Consultation
Review
and
update