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Review Group 166Review of necessary reform of NTS Offtake

Arrangements

Exit reform from an interconnector perspective

Avian Egan

20th September 2007

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Exit reform from an interconnector perspective

Focus: Moffat exit point for RoI and SNIP interconnectors

Existing arrangements Key impacts of exit reform Commission for Energy Regulation appointment of BGN

as Single Party Designate Addressing adverse impacts Timing Summary

Coverage

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Transportation arrangements

PTL Agreement

SNIP transportation

Uniform Network Code

Code of Operations

Existing Moffat arrangements

MoffatTwynholm

Northern Ireland

Republic of Ireland

Isle of Man

SNIP

RoI interconnectors

NTS

Moffat AgreementsConnected System AgreementCapacity certification/ ticket to ride, ramp rates, notice periods, physical connectionMoffat Administration AgreementNomination matching, end of day Allocations

Operating Profile Notice (OPN) AgreementWithin day offtake profile notices

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Existing Moffat arrangements – High Level

Moffat arrangements developed to facilitate the trading of gas at Moffat, with no added risk to Shippers

Current arrangements work well

Serve Shippers both upstream and downstream of the Moffat Connected System Point

Serve as a robust model

The Agents’ roles are clear and well defined at Moffat

Matching nominations

Compiling aggregate matched end of day quantities

Delivering profiles to the upstream Operator

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Exit reform from an interconnector perspective

General points – existing arrangements Existing Moffat interconnector arrangements operate well No key problems and issues facing this stakeholder group under existing exit

arrangements Radical exit reform not sought by the Downstream players however:

As Downstream Operator, BGE fully recognise the Upstream Market process Downstream players are keen to ensure that the effective trading of gas at Moffat can

be maintained.

General points – exit reform Mod 116V gives rise to a number of serious issues to be addressed if exit reform is to be

implemented The objective of any revised exit reform proposal would therefore be to address these

shortcomings in an economical and efficient manner

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Exit reform from an Moffat perspective

Key concerns over Mod 116V exit reform

User commitment model

Security of supply Downstream markets reliant

on Moffat capacity Will NTS shippers make 4 year

commitments 3 years in advance? If not, existing capacity could be substituted

or required incremental capacity not built Market foreclosure Long term commitments are a barrier

for new players in downstream markets

Capacity certification Withdrawal cuts link between

downstream players and NTS exit capacity

Initial prevailing rights Using historic rights creates mismatched

upstream and downstream counter-parties at Moffat

Overrun rules Overrun user concept does not

accommodate a Non Exclusive Single Party

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Contractual and operational complexity Tension between pipeline operational requirements and shippers contractual obligationsAllocation of flex usage to shipper level Complex, difficult to establish reasonable rationale for allocation methodologyUse of OPN as flex product request Requires reopening of complex multi-party agreements already in placeUncertain product availability and usage Shipper booking criteria? Aggregate Moffat needs met? Cost and exposure?Price Difficult to determine flexibility product requirements Difficult to price Potential for ‘unreal’ market demand to inflate priceTransfer between exit points/ zones Uncertain availability in both short and long term

Exit reform from an interconnector perspectiveLinepack depletion/ flexibility product

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Costs incurred downstream

Complexity

Increased risk and exposure downstream

Impact on gas trading at Moffat

Implementation Timing

Exit reform from an interconnector perspective

Mod 116V exit reform: Key concern

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Commission for Energy Regulation October 2006 consultation and January 2007 decision documents Concerns re security of supply and market foreclosure Decision to pursue establishment of a Single Party (SP) to act as the aggregate booker of NTS

exit capacity for shippers downstream of Moffat Bord Gáis subsequently accorded status of “SP designate” by CER

Pending RoI Legalisation & possible European sin-off

Northern Ireland Authority for Utility Regulation (NIAUR) Position reserved – not committed to joining the SP arrangements

Ofgem Mod 116 decision letter recognises need for SP role

Department for Business, Enterprise & Regulatory Reform (BERR) To consult on exemption for SP

Addressing adverse impacts Development of the single party (SP) concept

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SP books flat NTS Exit Capacity at Moffat on behalf of RoI shippers (& Isle of Man) in accordance with rules approved by the CER

Rights to use SP booked exit capacity accorded to RoI shippers and their NTS counter-parties

No restrictions on NTS shippers directly booking Moffat exit capacity – continue to book directly for gas delivered at Twynholm

NTS Exit Capacity bookings

RoI shippers

NI shipperNorthern Ireland

Republic of Ireland

Isle of Man

SNIP

RoI interconnectors

NTS

NTS shippers

By SP

By NTS shippers

Addressing adverse impacts The non-exclusive “Single party” (SP) Overview

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Addresses concerns overSecurity of supplyMarket foreclosureCapacity certification withdrawal

RequiresInitial prevailing rights allocation to be subject to capacity certification Overrun arrangements suitable for a non-exclusive SPUNC to accommodate the Single PartyExemption for the Single Part under GB legislation

Addressing adverse impacts The non-exclusive “Single party” (SP) concept

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Potentially the SP could be overrun user at Moffat, liable for all overruns

This does not work where the SP is a “non-exclusive” booker at Moffat

Shippers not party to the SP arrangements could overrun their independently booked capacity, leaving the SP liable for the overrun charge

Option under consideration: Separate logical metersInvolves assigning capacity and gas flow allocations to separate SP and

“independent” meters

Addressing adverse impacts Overrun Rules

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Mod 116V apportions initial prevailing rights to NTS shippers based on historic capacity holdings

NTS Shippers at Moffat have such holdings based on certificates provided by Downstream Shippers.

This condition is part of current Moffat NG arrangements approved by Ofgem

SP require initial rights or would need to apply for incremental capacity, making the 4 year commitment to its full capacity holding

Can be addressed by making initial rights apportionment subject to the capacity certification process so that appropriate initial rights can be apportioned to the SP

Addressing adverse impacts Initial prevailing rights

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Exemption RequirementSP will not have GB shipper licence Requires exemption from the prohibition on unlicensed shipping activities BERR currently drafting a consultation document SP Exemption

UNC Modification RequirementUNC will require changes to accommodate the SP

Initial Prevailing RightsOverrun Rules

BGN are not party to the Uniform Network Code and hence cannot raise the SP required Modification Proposal

Addressing adverse impacts Accommodating the SP

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Flexibility product No current evidence of scarcity Monitoring of linepack depletion should be sufficient

SP Implications Extremely complex downstream of Moffat May necessitate development of an exclusive SP Uncertain that an exemption would be granted for an

exclusive SP

Exit reform from an interconnector perspective

Linepack depletion/ flexibility product

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Review group to deliver draft mod. proposal December 2007 Ofgem impact assessment and consultation Q1 2008 Decision subsequently (earliest late Q1 2008??)

Insufficient lead time for April 2008 implementation

Exit reform from an interconnector perspective

Timing

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Exit reform from an interconnector perspective

Summary

Mod 116V concernsUser commitment model Security of supply Market foreclosure Capacity certification Initial prevailing rights Overrun rules

Linepack depletion/ flexibility product Contractual and operational complexity Allocation of flex usage to shipper level Uncertain product availability, usage

and price Transfer between exit points/ zones Application at bi-directional points

(not a Moffat Issue)

Addressing adverse impacts

The non-exclusive “Single party” (SP) Revised overrun treatment UNC to accommodate the SP as an

exempt party Initial prevailing rights allocation to be

subject to capacity certification

Linepack monitoring sufficient, but for development of similar products

Extremely complex downstream of Moffat

May necessitate development of an exclusive SP

Uncertain that an exemption would be granted for an exclusive SP