1. Update on Exit Capacity Substitution and Revision
Distribution Workstream 28 October 2010

2. Background Licence Obligation 4 industry workshops held, then
to “substitute unsold NTS baseline exit flat capacity between NTS exit points.…..such that the level of NTS obligated incremental exit flat capacity is minimised”; and
to “revise the level of NTS baseline exit flat capacity …… in the event that the release of incremental obligated entry capacity changes the availability of NTS exit capacity”
4 industry workshops held, then
Informal consultation from 30th June to 6th August
Workshop 5 held in September
All workshop and consultation material can be found on our website at:
Preference for a simple, transparent methodology.
General agreement on approach, but a few issues remain.

3. Issues – Substitution prior to Investment Lead-time.
Capacity may be released via ad-hoc and ARCA applications as early as M+7.
If these applications require release of incremental capacity they are likely to be rejected unless they can be satisfied through substitution.
National Grid NTS is considering whether substitution should apply to all enduring capacity applications or whether it should apply only to those with a release date of 1st October Y+4.
Advantage of Y+4 rule
Reduces risk to Users at donor exit points by limiting the time of reduced capacity at an exit point between substitution and recovery of baseline.
Disadvantage of Y+4 rule
May lead to some short-term capacity applications being rejected. Applicant will be reliant on off-peak capacity or project may be delayed.
This specific issue will be raised and put to the industry within the formal consultation on the proposed methodology.

4. Issues Interconnectors Partial Substitution Exchange Rate Collars
Some support for excluding interconnectors from substitution - impact of developing EU regulations and concerns over security of supply
Alternative view is that all offtakes should be treated equally, no discrimination and special arrangements should be avoided unless to comply with specific known legislation
Methodology to propose no special treatment for Interconnectors
Partial Substitution
Partial substitution leads to partial investment requiring a partial revenue driver
Consultation on generic revenue drivers to be issued by Ofgem shortly
Methodology to propose partial substitutions with a caveat to exclude partial substitution if generic revenue driver is not agreed
Exchange Rate Collars
Industry opposed to collar - concerns a collar would reduce efficiency and transparency by increasing “spare” capacity
National Grid’s concern is whether there is sufficient time to undertake the necessary analysis work for substitution - applying a collar simplifies the process significantly.
Methodology to propose no collar

5. Submit ExCS for Approval Ofgem processes; including impact assessment
Indicative Timeline.
04/04/11
Submit ExCS for Approval
14 days after consultation
and
no later than 4th Jan 2011
7th Sept Workshop 5
7th Apr Workshop 3
25th May Workshop 4
Consultation results
30th June to 6th Aug
Informal consultation
Approval or veto of proposed ExCS
5th Nov to 3rd Dec Formal consultation
Ofgem processes; including impact assessment
Apr 10
May 10
Jun 10
Jul 10
Aug 10
Sep 10
Oct 10
Nov 10
Dec 10
Jan 11
Feb 11
Mar 11
Apr 11