1. RG0291 – NTS Licence SC27 – Balancing Arrangements Linepack – Commercial Considerations/Options Review Group 291 – 19 th July 2010

2. Contents 1.What is the C27 Linepack Product? 2.Key Measures 3.End-of-Day Linepack Product - assumptions 4.Pricing Mechanism 5.Options 6.Options scored against Key Measures 7.Issues 8.Recommendations

3. What is a C27 Linepack product?  What is the C27 linepack product?  NBP EoD balance transfer  When are Users most likely to need the product?  To benefit from a more favourable D+1 price?  Benefit from a more favourable export price on D+1 (arbitrage between European prices and UK market)?  To balance Users portfolio within day and avoid cashout on D, carryover imbalance to D+1.  Others?  Consider interactions between the development of a Linepack product and the SMP defaults.  National Grid NTS believes;  SMP default, and any proposed revision or replacement, places a value on Linepack.  SMP default is a component used to establish the value for an interday Linepack product

4. Key Measures  Relevant Objectives  Better facilitates competition  Efficient and economic operation of the system  Viable commercial opportunity  No adverse impact on Physical Linepack and other flexibility utilisation  Doesn’t prevent future potential development of additional within day flexibility products  No adverse effect on the Residual Balancing Role  Should not impact Safety Case/obligations

5. EoD Linepack Product Assumptions  Inter-day product  NBP product  Made available within day  Park and Loan  NG NTS is the counter-party to all LP product transactions  NG NTS will have a Linepack account  Linepack released as a discretionary quantity  One or Multiple Linepack releases within day to be discussed  Timing of release (within business hours/ after hours) to be discussed

6. Pricing Mechanism options  Price determined through;  Administered price  Fixed price  SAP differentials  How is the price derived?  differential between:?  D and D+1 Cashout price  OCM cashout price on D and TTF price on D+1  Market based  Auction  Determined by participants  If a release is oversubscribed, how will product be allocated ?

7. Options 1.EOD Linepack product made available within day: a)Single release b)Multiple releases 2.EOD Linepack product made available within day through a single release (out of hours) 3.Hybrid Model (hybrid of SMP default cashout and C27 Linepack product)

8. Option 1a) EOD Linepack made available within day: single release 1.Single product release within business hours 2.Discretionary release of product Considerations; - Appropriate time of release? Pros - Product available to all User within business hours Cons - Less certainty of linepack volumes available within day may mean less product quantity is made available.

9. Option 1b) EOD Linepack made available within day: multiple release 1.Multiple product releases within business hours 2.Discretionary release of product Considerations; -What quantity is made available in each release? Pros - Facilitates opportunities to adjust User imbalance positions through the day. - Additional releases could be available closer to EoD when available quantities are clearer. Cons -Multiple releases may represent less product quantity available in each release. -Possibly more complex to administer

10. Option 2 - EOD Linepack made available late in the day through a single release 1.Single product release at [24:00] 2.Discretionary release of product Consideration; -Time of release Pros -Increased confidence of flexibility available -Mitigates impact on physical operation and flexibility management -After hours release may reduce potential conflicts with Residual Balancing obligations Cons -May exclude Users that do not operate out of hours

11. Flow/demand information and timing of product release upside and down side associated with release time Later ReleaseEarly Release Accuracy of flow/demand information Risk of getting it wrong Incentive to release quantity

12. Option 3 – Hybrid Model 1.Hybrid of SMP default cashout and C27 Linepack product 2.Seeks to value linepack through applying a charge or cashout differential to a User’s EoD imbalance position, which reflects the cost using linepack to absorb the imbalance. 3.Application of the price differential for short, long or balanced positions may be different depending on whether or not the User’s imbalance position was in line with the movement in linepack position for the D. 4.National Grid Transmission would enable linepack to move more between days to accommodate the service, linepack incentive revisions would be required. 5.This is not a Park and Loan service  This hybrid option does not fit with the assumptions of the EoD Linepack Product. National Grid Transmission proposes to discuss this in greater detail at the August review group session.

13. Options initial scoring against Key Measures Options 1(a)1(b)2 Discretionary Release Within day Single release Within day Multiple release Late day single release Key Measures Relevant Objective: Facilitates Competition Relevant Objective: Improves Operation of the Pipeline System to be discussed Does not impact NG NTS Residual Role to be discussed Commercial opportunitiesto be discussed Does not impact on Safetyto be discussed No impact on Physical Linepack and flexibility utilisation to be discussed Minimal impact on development of additional within-day flexibility products to be discussed

14. Interactions  Interaction between Linepack Product with Residual Balancing Role  Impact on, and trade-offs with, future potential development of additional within day flexibility products

15. Recommendations – Way Forward  NG NTS would like to further develop Option 2  NG NTS believes that the development of this option:  May be achieved at potentially minimal system development cost  Dependent on the costs associated with the development of a Bulletin Board on Gemini systems  Compliments the Default SMP developments  Option 3 to be discussed at the next Review Group session in August, in conjunction with SMP default cashout discussions