1. Flow Flexibility Capacity Joint Office 7 th December 2006

2. Effect of Within Day Demand Change ShipperDNNTS  Actual demand is below expectation  Shippers are long and system is in imbalance  Actual demand is below expectation  National Balance depends upon DNs hitting end of day stock  Hence need to reduce offtake from NTS  Actual demand is below expectation  DNs pass imbalance onto NTS  National Balance is achieved by selling gas off the system/shippers informed of imbalance Consider situation where demand is falling: Therefore imbalance should be resolved by flow change not by use of NTS storage

3. Effect of Within Day Demand Change Offtake Rate Time 22:0006:00 Planned Flow Rate at start of day Flexibility utilisation = cumulative offtake to 22:00 – (2/3) of daily flow

4. Effect of Within Day Demand Change Offtake Rate Time 22:0006:00 Planned Flow Rate at start of day Actual Flow Rate Change of flow to meet change of demand forecast increases flow flex utilisation The following example demonstrates the effect of a demand change at 22:00; 22:00 was chosen for the sake of clarity

5. Effect of Within Day Demand Change Offtake Rate Time 22:0006:00 Planned Flow Rate at start of day Actual Flow Rate Change of flow to meet change of demand forecast increases flow flex utilisation The following example demonstrates the effect of a demand change at 22:00; 22:00 was chosen for the sake of clarity Average Flow Rate

6. Effect of Within Day Demand Change Offtake Rate Time 22:0006:00 Planned Flow Rate at start of day Actual Flow Rate Change of flow to meet change of demand forecast increases flow flex utilisation The following example demonstrates the effect of a demand change at 22:00; 22:00 was chosen for the sake of clarity Average Flow Rate Flexibility utilisation

7. Impacts  DNs must ensure that their bookings of flow flex allow for this effect.  This artificially inflates the volume of storage required by a DN  Whilst the flow flex apparently taken has no impact on NTS storage  the NTS cannot simply oversell flow flex as they would then be unable to deliver if the DNs chose to use their allocation of flow flex to meet true diurnal demand  DN investment will be required to provide additional storage that is unnecessary  If a DN runs out of flow flex, they will have an incentive to keep within their flow flex limit by increasing their end of day stock  This hides the imbalance from the NTS, undermining both the “national” and “daily” elements of the balance  When demand has been under-forecast the opposite effect occurs with the apparent consumption of flow flex being understated  Thus NTS storage could be over-stretched without the connected parties having broken their flow flex limits

8. Flow Flex Utilisation Correction  Presently: flow flex = flow (06:00 to 22:00) – 16/24 (end of day flow) But can correct for within day demand change: Real flow flex utilisation = metered flow flex – correction Where correction = demand change * correction factor Overruns triggered if real flow flex utilisation > booked flow flex

9. Flow Flex Utilisation Correction Factors Time of Forecast Change Coversion of Forecast Change to Flow Flex Hours Action Pre 2200 Hours Action Post 2200Total Hours Action 06000.00%16824 0700-1.45%15823 0800-3.03%14822 0900-4.76%13821 1000-6.67%12820 1100-8.77%11819 1200-11.11%10818 1300-13.73%9817 1400-16.67%8816 1500-20.00%7815 1600-23.81%6814 1700-28.21%5813 1800-33.33%4812 1900-39.39%3811 2000-46.67%2810 2100-55.56%189 2200-66.67%088 2300-66.67%077 0000-66.67%066 0100-66.67%055 0200-66.67%044 0300-66.67%033 0400-66.67%022 0500-66.67%011

10. Example TimeDemand Change (mcm) Correction factor Flow flex correction (mcm) 10:0037.5-35.9 = 1.60.06670.11 13:0035.9 – 35.9 = 00.1370 16:0035.9 – 36.1 = -0.20.238-0.0476 21:0036.1 – 35.7 = 0.40.5550.222 Total0.281 The following example shows how a falling demand throughout the day would result in a flow flex correction of 0.281 mcm representing 8% of the LDZ flow flex requirements

11. Advantages of Correcting for Within Day Demand Change Reveal real NTS diurnal support required by DNs Avoids undermining NTS balance No incentive for DNs to hide imbalance Provide certainty to DNs when booking flow flexibility Reduce costs of DNs investing to provide storage