“Gas Reserve” Review

1. “Gas Reserve” Review Transmission Workstream 7th Dec 2006 Chris Logue

2. Gas Reserve Working Group Where did we get to? • Above the Line • Status quo was maintained following 086 non-implementation • Below the line • “Imperfect” 071a Compensation arrangements retained • Procurement of “Below the Line” gas by NG NTS received little support. • Status quo retained for this winter • Review of arrangements still necessary for future winters

3. Background • Safety Monitors introduced in 2004 • Replaced the so-called ‘Top-up’ monitors • Safety monitors define levels of storage that must be maintained throughout the winter period • Focus of safety monitors is public safety rather than just security of supply • They provide a trigger mechanism for taking direct action to avoid a gas supply emergency

4. Concept • Safety Monitors ensure that sufficient gas is held in storage to support those gas consumers whose premises cannot be physically and verifiably isolated from the gas network in the event of a 1 in 50 winter. • To achieve this all gas consumers are categorised into one of two groups: • Protected by Monitor – Gas is held in storage to facilitate continuity of supply and safe control to these consumers in a 1 in 50 winter • Protected by Isolation – Safe control of operations is ensured by physically isolating these customers from the networks

5. End consumer categorisation • Sites which can be safely isolated from the network • NTS Interruptibles • LDZ Interruptibles • NTS Power Firm • NTS Industrial Firm • DM (excluding priority customers) • Sites which require protection under the safety monitor • Priority Firm DM • Ireland Firm • All NDM

6. Potential New Approach • Safety Monitor Gas is there for PBM customers • Therefore should be held by PBM shippers • Assessment made of the total Protected by Monitor load • Assessment made of each shipper’s portion of that PBM load • Shippers required to secure and hold gas in storage below monitor line equivalent to its portion of PBM load. • E.g. Shipper A has 20% share of PBM market and would therefore be required to hold stored gas equivalent to 20% of Safety Monitor quantity in each storage type.

7. Potential New Approach • This new shipper obligation will replace 071A compensation arrangements – no future requirement for compensation in the event of storage curtailment • Shippers would be notified of the quantity of gas that they must hold • Shippers required to warrant to NG that they have secured rights over this gas and will maintain this position until monitors are lifted • This position can be achieved as deemed appropriate by each shipper • Many (most?) shippers will already have significant storage holdings well in excess of the obliged quantity

8. Potential Advantages • Targets the requirement to hold stored gas at those that will be supplying the gas in a severe winter. • Removes requirement for a complex and “imperfect” compensation regime • Takes reserved gas out of the supply chain (unless a 1 in 50 winter occurs) and therefore increases the value of contracted demand response – therefore reducing risk of NGSE • Incentivises additional supplies - therefore reducing risk of NGSE • Helps PBM to quantify storage requirements in a timely manner ahead of winter period