1. MOD0164 Bi-Directional Connection Point Overrun Charge Calculation Stuart Waudby (Centrica Storage Ltd.)

2. 2 Capacity Mechanism Principles Provide network investment signals through user commitment. Provide flow pattern information for system operational planning. Provide maximum flow management tools to NGG. Provide NGG with an guaranteed income revenue stream. To enable efficiency by applying costs representative of actual transportation capacity costs.

3. 3 Current Situation at Bi-Directional Connections UNC E2.1.7 (b) The aggregate allocations at a point must equal the aggregate Entry Point Daily Quantity Delivered. UNC E1.4.1 Entry Point Daily Quantity Delivered is defined as the aggregate quantity of gas delivered (measured). UNC E3.2.6 and E1.5.2 Apply the same requirements for off- takes. This means that a meter point must have a UK Link measurement for gas to be allocated.

4. 4 Example at Bi-Directional Site User A Nominates 100 units of exit. User B Nominates 25 units of entry. Connected point meters net difference of 75 units of exit. Meter readings cannot comply with the UNC requirement to represent the gas metered and comply with the allocation requirements of each user. A work around is currently in use to increase both readings to enable an allocation. In this case 25 units is added to the input reading and the output reading to enable allocation. Diagram on next slide.

5. 5 Example of Allocation Work Around NBP BI-directional Connection User A : 100 Nominated User B : 25 Nominated 75 Measured (+25) 0 Measured (+25) Allocation agent adds 25 to each meter reading to enable allocations.

6. 6 Result of Workaround The gas is deemed to have been delivered from the NBP to the exit point and re-delivered through the entry point back to the NBP at the same time. System use charges, capacity and soon commodity, apply to gas which has not caused NGG commodity costs nor needed capacity. Entry and Exit capacity must be double booked to allow Users to avoid exposure to overrun charges. Example on next slide.

7. 7 Hornsea Example Average 36.4 GWh per day

8. 8 Rough Example Average 57.2 GWh per day

9. 9 Effects of Existing Regime Overrun is charged when no gas flows. Overrun incentive is not effective in this situation. User receiving allocation must book additional capacity. Such booking likely to exceed baseline capacity or exit requirement. NGG receive distorted signals from capacity mechanisms. Bi-directional site Users subsidise other users of the capacity mechanisms through smear. Costs potentially so large that they could put Users business viability at risk.

10. 10 Options Considered Re-classification of bi-directional points in the UNC and new code to provide separate treatment to other points. Modification of Gemini to allow single meter points which can have negative flows and balancing to have negative allocations at bi-directional meter points. Classify bi-directional connection points as either entry or exit points depending upon net flow direction. Adjustment of overrun charge calculation.

11. 11 Adjustment Of Overrun Calculation The pragmatic view of CSL is that only the adjustment of the overrun calculation is viable. The other options would require fundamental (expensive) changes to NGG’s systems and take a long time to develop.

12. 12 Modification Proposal 0164 This proposal will reduce the overall overrun volume by the flow allocated in the opposite direction. The reduction is pro-rated across all users overrunning on the day in proportion to their overrun at that point. This will apply to both the entry and exit capacity mechanisms. Commodity charges are not considered in this proposal.