Arrangements under current price control Baseline levels of capacity which we are obliged to release set by Ofgem for existing entry points, baselines set at start of price control for each of the 5 years of the price control TO Baseline based on “theoretical max physical” level SO Baseline set at 90% of TO Baseline 20% of SO Baseline held back to short/medium term for new entry points, baselines set to zero We are obliged to produce a methodology statement governing release of capacity above baselines
Ofgem Issues Fixed baselines do not allow changes in supply/demand to be reflected in amounts of capacity made available Risk of sterilisation of capacity Potential barrier to entry
Ofgem proposal for next price control Decouple “baselines” for revenue and capacity release Trigger levels for incremental revenue based on “practical maximum physical” basis No explicitly defined obligated level of capacity release, and instead, we are obliged to develop a methodology statement to determine amount of capacity to be released Ofgem requested that we publish our initial thoughts and timetable Although we have not accepted such proposals, here are some initial thoughts……
Entry Capacity Release Methodology Statement - Licence Obligations Produce and keep under review a methodology statement to ensure all available capacity released to: promote efficient and economic system operation avoid undue preference in the supply of transportation services facilitate competition between gas shippers Similar governance arrangements as for transportation charging methodology statement we are obliged to consult shippers on proposed changes Authority right to veto our proposed changes
Entry Capacity Release Methodology Statement - Scope For new and existing entry points: Setting of obligated level of capacity release for unconstrained and constrained period Allocation of incremental capacity (i.e. above obligated level) in unconstrained period …but not Allocation of obligated capacity (dealt with via UNC) Setting of capacity prices
Entry Capacity Release Methodology Statement - Objectives Set obligated capacity levels representing “physical maximum capacity” that can reasonably be accommodated under the most up-to-date and likely supply demand scenarios Indicate the way in which we will interpret results of long term entry capacity auctions in terms of whether or not to allocate incremental capacity
Key Questions How should obligated levels be calculated? Should any capacity be held back? How often should obligated levels be recalculated during next price control? What are the impacts of movements in obligated levels, both between price controls and during next price control? Should there be different processes for unconstrained and constrained release periods? Should be statement be applied to entry and exit? What information should be published or forums held to aid transparency? Would the release of the Network Model be of use?
Way Forward May-July 06Discuss principles at Transmission Workstreams Aug-Sept 06Prepare proposed methodology statement October 06Undertake consultation November 06Submit proposal to Authority December 06Methodology statement approved Jan-Feb 07Determine obligated capacity levels Mar 07Published obligated capacity levels 1 Apr 07New obligated levels effective