Entry Capacity Trading

1. Entry Capacity Trading Transmission Work Stream, 5 April 2007

2. Background • Our aim is to have a means of transferring sold NTS Entry Capacity between ASEPs prior to 1 October 2007 • National Grid NTS has previously proposed: • Ongoing trading process • Trades to be time stamped and placed in queue • Application of ex ante trade rates based on: • individual request for a donor-recipient pair • other trades are not considered concurrently • Suitable for small numbers of trades • Could manage for the same shipper the same donor-recipient pair for 6 months of trades in 5 days • We are looking to develop an offline trading process supported by a means of amending Users holdings within Gemini. Other are also looking to do the same

3. Ideal Process Licence Obligation Methodology Statement UNC Modification Systems Development Implementation All elements need to be in place to successfully undertake the trading process

4. Mod 138 • Eon have raised Mod 138 which: • Is similar to the AMTSEC process outlined in Mod 133 • Invites applicants to transfer sold capacity to sold out ASEPs • Has a window to submit trades (bids under Mod 133) • Utilises the donor/recipient concept • Requires ex-ante trade rates for every donor/recipient combination • Use of pro-ration where aggregate trades/bids breach the nodal maxima

5. Mod 138 • National Grid NTS is supportive of a number of elements within the Eon proposal: • Use of a trade window • Trades being limited to those ASEPs and for those months where capacity is sold out • Use of pro-ration where aggregate trade requests breach an ASEPs nodal maximum • National Grid NTS does have concerns about some elements • Providing exchange rates ex-ante • Timing of the trade window • Two day allocation process

6. For discussion • As an alternative to the current proposed National Grid NTS Mod, we could facilitate the transfer of sold NTS entry capacity via a Trade Registration Window (timing of which to be discussed) • Trades to be accepted for those ASEPs where capacity has been sold out (similar to AMTSEC) • ASEPS progressed in order of highest bid paid at AMSEC • Shippers would need to provide National Grid NTS with: • Recipient ASEP • Quantity (cannot breach nodal maximum) • Potential donor ASEP(s) • Month (one trade will be for one month)

7. For discussion • National Grid NTS would look to provide the User with a guidance range of potential exchange rates. • User would need to confirm which donors they want to be considered, the minimum quantity at the recipient ASEP and their minimum acceptable exchange rate • National Grid NTS will then process each donor in a merit order – to be determined / views sought • All trades at the donor will be pro-rated where nodal maximum breached • Donors processed until nodal maximum reached • Allocations undertaken offline and results fed back to Users

8. Issues (1) • Irrespective of the final implemented proposal there are a number of issues that will have to be overcome • Provision of ex-ante exchange rates – exchange rates can be calculated for a fixed moment in time, once one trade takes place all rates will need to be recalculated. This creating an iterative loop where exchange rates are recalculated after each trade is confirmed or rejected. • Timing of window – Mod 138 requires the trade window to be prior to the AMTSEC process. The impact of trading upon transfers needs to be explored: • Trades would have a higher exchange rate if transfers done first at the same donor • Time taken to process the trades may delay AMTSEC • To complete both systems in time may be a challenge for IS implementation

9. Issues (2) • National Grid NTS has explored two potential solutions for reflecting Users updated holdings within Gemini: • Option 1 - Xoserve Datafix Users holdings • This option whilst technically feasible is not ideal as there are a number of issues associated with it: • The breakdown of Users entitlements will not match their aggregate entitlements as the trade values are not captured • There will be no audit trail on Gemini • Each datafix will need to be scripted & tested prior to implementation • Each will have to be approved via the associated Global Change Activity Request Process (GCAR) which only meets on a Wednesday, requiring each datafix to be scripted, tested and signed off by the preceding Friday • The use of datafixing is for fix on fail instances not as a solution option for business process, to use this would be contrary to Xoserve policy.

10. Issues (3) • This option proposes significant risks to the integrity of the Gemini system and its data. • There are a number of timescales associated with this option: • 4-6 weeks for governance processes (Change Order etc) • 6-8 weeks to cover both analysis and acceptance testing periods. • If the analysis determines that functional change is required in order to meet this solution then additional timescales would apply.

11. Issues (4) • Option 2 Creation of a National Grid Trading Account – This is also feasible and again has a number of issues associated with it: • The account will be liable for negative overrun charges • These charges will feed the NTS Entry Capacity Neutrality calculation • The account will have an end of day entitlement which will attract a neutrality smear • There will be issues with resource and environments due to the Oracle upgrade • Ongoing manual operational costs would be incurred to ensure that any charge/credits/invoices for this account are suppressed • The timescales are the same as for Option 1.

12. Our proposed way forward • Evaluate the two enhanced models based on your feedback: • Model 1: • Sold out ASEPs only • Prioritisation via AMSEC price • Window for applications for each ASEP • FCFS within window • 5 days + 2 days per request for a donor-recipient pair • Model 2: • Application window for all sold out ASEPs • Shippers put forward donors • NG NTS provides exchange rate guidance • Shippers commit to minimum quantities and minimum exchange rates • NG NTS works through each ASEP, based on AMSEC price, with donors placed in a to be agreed merit order • All requests are dealt with in an overall window (initial estimates suggest one day per recipient-donor combination) • Views??