GAS TCMF SURVEY 2010
Survey Seeking Feedback on the Gas TCMF and
2010 Charging Development Work Plan
NTS TCMF SURVEY 2010
1st March 2010
Table of Contents
1
INTRODUCTION .........................................................................................................................1
2
BACKGROUND ..........................................................................................................................1
3
2010 AREAS FOR DEVELOPMENT ..........................................................................................3
4
GAS TCMF SURVEY 2010 .........................................................................................................8
National Grid
1 Introduction
This document sets out areas of potential future development of the Gas
Transmission Transportation Charging Methodology (the “Charging Methodology”)
and includes a survey seeking feedback on the Gas TCMF process and the Gas
TCMF work plan for 2010/11.
The closing date for submission of your responses is 22nd March 2010.
response should be e-mailed to:
Your
[email protected] or [email protected]
or alternatively sent by post to
Eddie Blackburn / Debra Hawkin, Regulatory Frameworks, National Grid, National
Grid House, Gallows Hill, Warwick, CV34 6DA.
If you wish to discuss any matter relating to this survey then please call Eddie
Blackburn 01926 656022 o Debra Hawkin 01926 656317.
Responses to this survey may be incorporated within future National Grid reports. If
you wish your response to be treated as confidential then please mark it clearly to that
effect.
This document is issued by National Grid in its role as Gas Transporter Licence holder
in respect of the NTS (“National Grid”).
2 Background
National Grid is obliged to keep its Charging Methodology under continual review to
seek to achieve the transportation Charging Methodology “relevant methodology
objectives” as set out in Standard Special Condition A5.5 of National Grid NTS’s Gas
Transporter Licence. These are:
(a) Except where (aa) or (d) applies, use of the Charging Methodology should
result in charges that reflect the costs incurred by the licensee in its
transportation business;
(aa) Where prices are determined via auctions, that either no reserve price
is applied or that the reserve price is set at a level best calculated to
promote efficiency and avoid undue preference in the supply of
transportation services and to promote competition between gas
suppliers and between gas shippers;
(b) So far as is consistent with (a), properly take account of developments in
the transportation business;
(c) So far as is consistent with (a) and (b) facilitate effective competition
between gas shippers and between gas suppliers;
(d) The Charging Methodology reflects any alternative arrangements put in
place in accordance with a determination made by the Secretary of State.
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National Grid
Assessment against EU Gas Regulations
Charging arrangements are also covered by the EU gas regulations. EC Regulation
1775/2005 on conditions for access to the natural gas transmission networks (binding
from 1 July 2006) are summarised below. The principles for network access tariffs or
the methodologies used to calculate them shall:
 Reflect actual costs incurred for an efficient and structurally comparable
network operator
 Be transparent
 Be applied in a non-discriminatory manner
 Take into account the need for system integrity and its improvement
 Facilitate efficient gas trade and competition
 Avoid cross-subsidies between network users
 Provide incentives for investment and maintaining or creating interoperability
for transmission networks
 Not restrict market liquidity
 Not distort trade across borders of different transmission systems
Gas TCMF
National Grid established the industry forum referred to as the Gas Transmission
Charging Methodologies Forum (“Gas TCMF”) in January 2006. In total ten Gas
TCMF meetings were held in 2009 along with four entry charging review group
(ECRG) meetings. All presentations, analysis and papers relating to the Gas TCMF
can be found on the following website:
www.nationalgrid.com/uk/Gas/Charges/TCMF
All presentations, analysis and papers relating to the 2009 Gas TCMF meetings can
be found on the following website:
http://www.nationalgrid.com/uk/Gas/Charges/TCMF/2009+Meetings/
National Grid anticipates that the Gas TCMF will continue to provide the opportunity
for the industry to discuss progress in respect of development of the NTS charging
methodologies and for industry participants to raise relevant issues for discussion. It
is National Grid’s continued intention that the TCMF provides the means for Users to
raise issues they feel worthy of review and provides the opportunity for Users to
provide comment on National Grid proposed modifications to its charging
methodologies. These ongoing discussions with the industry may therefore result in
further proposed amendments to the Charging Methodology.
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National Grid
3 2010 Areas for Development
There are a number of potential areas for amendments to National Grid’s NTS
Transportation Charging Methodology and associated processes to support the
evolving market. The following areas have been highlighted in previous surveys and
the numbering represents the priority ranking (1 being the highest priority) from the
2009 survey.
1. Information Provision
From May 2008 National Grid has published an NTS Quarterly Charge Setting Report
explaining NTS SO and TO commodity charges. The reports can be found on the
National Grid website:
http://www.nationalgrid.com/uk/Gas/Charges/Tools/
Two further reports have been developed regarding five years of forward looking
information (to be consistent with the DN charging information published as a result of
UNC Mod 186), and Day-Ahead Daily System Entry Capacity (DADSEC).
Information presentations have been made to the Gas TCMF covering changes to
capacity prices and the entry capacity investment incentive mechanism during 2009.
Outside of the Gas TCMF, workshops have been held, aimed at industry participants
new to the charging area, at a number of locations.
National Grid believes that publication of such information promotes competition
between gas shippers and gas suppliers by ensuring that information is more
transparent and understandable.
2. Enduring Exit Arrangements
National Grid would anticipate undertaking further consultations on proposed changes
to the NTS Charging Methodology to support implementation of enduring NTS offtake
arrangements as required.
3. Supply & Demand Balancing in the Transportation Model
The Charging Methodology states that a supply and demand match is achieved within
the Transportation Model by reducing supplies in a merit order to match the forecast
demand.
Following on from analysis undertaken to support NTS GCM 05: “NTS Exit Flat
Capacity Prices” and in response to industry concerns, National Grid issued pricing
discussion paper NTS GCD 06: “Supply and Demand Balancing Rules in the
Transportation Model” in February 2008. This was followed by NTS GCM 16: “Supply
and Demand Balancing Rules and Supply Source Data” in April 2008. These
consultations sought to address two main issues. Firstly there was some exit price
volatility, in areas close to supply, as a result of the supply/demand balancing rules,
and secondly, entry and exit capacity prices were affected by fluctuations in the supply
data as obtained from the Ten Year Statement (TYS).
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The proposed GCM16 methodology divides supplies into six groups, fully utilises
these in turn, and then scales the last required group to achieve a supply and demand
match. The methodology uses physical capability for all storage and importation points
and TYS data for the remaining points. For non storage and non importation points the
TYS data represents the best available estimate of the combined capability of the
offshore infrastructure and connected fields.
National Grid will keep this area of the methodology under review.
4. NTS Exit Capacity Price Volatility
National Grid raised Charging Proposal NTS GCM 13 “April NTS Exit Capacity Price
Changes” on 31 October 2008 to address the volatility of future exit prices caused by
the misalignment of gas year (October – September) and financial year (April March). NTS GCM 13 proposed a change to the Charging Methodology to allow
recalculation of exit prices in any April where necessary, without updating supply data
from that used to set exit prices in the previous October. Recalculating prices in this
way (without updating all data inputs) would result in a constant adjustment to all
prices (except where such an adjustment would reduce the price below 0.0001p/kWh).
Industry responses indicated that the need for an April price change would not be
supported provided that sufficient information was provided regarding likely capacity
price changes. A final proposal report for NTS GCM 13 was not progressed for this
reason; however, this area will be kept under review.
5. User Commitment/Credit Arrangements
National Grid has undertaken a formal consultation on proposed changes to the NTS
Charging Methodology to support potential future implementation of revised User
Commitment arrangements for entry (UNC Modification Proposal 0246 and its
alternatives). The UNC process is continuing and the charging conclusions report will
follow the same timeline to ensure consistency in the processes. Consultations for any
Exit Capacity related changes will be undertaken as required.
6. Negative LRMCs
E.ON brought forward a draft proposal, via the Gas TCMF, entitled “Rebates for Entry
Points with Negative LRMCs”. The purpose of the proposal was to reward locationally
beneficial entry points on the NTS where a genuine, measurable benefit is being
provided by incremental flows.
Following the E.ON proposal, it was concluded that, at this time, the only avoided
costs associated with entry points with negative LRMCs relate to Constrained LNG
(CLNG) sites. Since the prevailing CLNG credit methodology had not been revised
since 2000 and discussions at the Gas TCMF raised issues regarding the incentives
on National Grid, the GCM14 consultation was raised. The resulting proposal led to
revisions in the way the credit is calculated, namely basing the credit on the LRMC
(rather than the exit charge), on the Node (rather than the exit Zones) supported, and
on the 1-in-20 peak day flow rather than the average. These revisions better reflect
the costs of the alternative infrastructure investment that would be necessary to
support the 1 in 20 peak day requirement.
National Grid would bring forward charging proposals in response to any UNC
proposals raised in this area, as required.
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National Grid
7. European Regimes
National Grid intends to issue a European Charging Survey via Gas Transmission
Europe (GTE) to identify any examples of best practice, which could be applied in the
UK. This will be considered as part of the on going entry charging review.
8. Entry & Exit Capacity Substitution
National Grid will undertake formal consultation on any consequential changes to the
NTS Charging Methodology to support implementation of Exit Capacity Substitution.
9. Industry Code Governance Review
Ofgem proposed the Industry Code Governance Review in November 2007. The
Review covers six Workstream areas, of which Charging Methodologies is one. Three
potential options have been consulted on:
1. No change
2. Transfer the methodologies into the industry codes
3. Retain within licence framework but enable broader market participants to
raise changes
Option 2 would require a UNC proposal to be developed, whereas option 3 would
require arrangements to be put in place, to enable market participants to raise
charging methodology changes. Final proposals are anticipated later in 2010, and it is
anticipated that an implementation approach would be developed via the Gas TCMF.
10. Entry Capacity Charging Review
In August 2009, National Grid launched a fundamental review of entry charging
principles through the formation of the entry charging review group (ECRG). This was
in response to growing industry concern about the increasing rate of the TO entry
commodity charge. TO Entry Commodity Charges have increased, year-on-year, due
to growing under-recovery of Entry Capacity Revenue.
Three key sources of entry capacity under recovery have been identified;
 The Price Paid

Prior to the 2007 QSEC auction, entry capacity reserve prices were set
based on the UCA and were lower than prices set under the prevailing
charging methodology. If capacity were procured, throughout the
formula year, at the prevailing prices, and up to the forecast supply
level identified as being required through the Transporting Britain’s
Energy (TBE) process (as published in the Ten Year Statement (TYS))
then capacity revenue would be close to target.

Day ahead daily entry capacity prices are discounted by 33% and
within-day daily entry capacity prices are discounted by 100% under
the prevailing methodology. A proposal (GCM19) is being raised to
address these issues.
 The Peak Quantity of Entry Capacity Procured

The level of firm capacity procured ahead of the gas day is treated as
TO revenue. Shippers are not booking up to the forecast supply level in
the ten year statement ahead of the gas day.
 The Annual Profile of Entry Capacity Procured
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National Grid

The level of capacity procured throughout the formula year relative to
the peak level of capacity i.e. the extent of capacity profiling to meet
gas flows. The Shipper’s ability to buy capacity in daily and monthly
quantities means that they can incur lower costs than buying quarterly
capacity.

The capacity is essentially available 365 days per year and the
availability of sub annual products may have the effect of
commoditising capacity. If a shipper procures only a handful of days of
capacity then the capacity charges will not reflect the annual costs
incurred.
11. Incremental Entry Capacity Release
The GCM 17 proposal was raised and implemented to ensure consistency with
regards to the pricing of entry capacity at new and existing entry points. Whilst the
economic test has to be passed in order for capacity to be released at new entry
points, it was possible to obtain capacity in some quarters at the P0 zero price despite
the obligated (P0) capacity level being zero for new entry points. The methodology
change has removed this anomaly by setting the P0 price at the same level as the P0
price for existing entry points. The P0 price is now calculated within the transportation
model and is the annuitised LRMC for the relevant entry point with that point flowing at
the obligated level (i.e. zero for new entry points). This revision to the methodology
has removed a potential cross subsidy and hence avoids undue preference in the
supply of transportation services.
National Grid has also moved the charge setting information from the IECR
Methodology Statement to the Gas Transmission Transportation Charging
Methodology Statement.
12. Optional Commodity Charge Methodology Update
The optional commodity (shorthaul) charge was designed to reflect more accurately
the costs of gas transportation from a terminal to a nearby large supply point. The
rationale for the shorthaul charge is that for large loads that are located close to an
entry point, the standard commodity charges may give a perverse economic incentive
for the construction of an independent pipeline. The shorthaul charge is an area of the
Charging Methodology that has not been reviewed for some time and there may be
some changes that could be introduced that might mitigate some of the concerns
raised by E.ON UK in regard to negative LRMCs. GCD07 was issued in November
2009 to collect views on two alternative methodology approaches.
13. Exit Under- / Over-Recovery
The Annual Quantities (AQ) Review Process is an annual event, which culminates in
the calculation of annual quantities for all NDM and DM meter points. The NDM
System Offtake Quantities (SOQs) are the quantities on which capacity is charged.
The outcome of the AQ Review is not known in time to feed into the exit capacity price
setting process for prices effective from 01 October each year. Following this year’s
significant fall in SOQs National Grid is intending to consider potential Charging
Methodology changes to mitigate the risks of future under- or over-recovery arising
out of the AQ review process and the associated SOQs. This issue is also linked to
the outcome of Modification Proposal 0209 – Rolling AQ. Under the proposal the
annual AQ Review would be replaced by a continuous process; AQs and SOQs would
NTS TCMF SURVEY 2010
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National Grid
only be updated after meter readings had been received rather than all at once from
01 October as under the prevailing process.
14. Entry/Exit Target Revenue Split
In its NTS GCM 12 decision letter Ofgem has commented that Exit users (and
ultimately customers) appear to currently bear more of the downside risk associated
with increasing the amount of entry capacity. Entry users only need to bid in the long
term auctions sufficient volume to cover 50% of the net present value of the forecast
costs of any capacity enhancements. This leaves risk with exit users once the
capacity is constructed – particularly if outturn costs are much higher than forecast.
15. Short Run Marginal Costs
In its decision letter Ofgem has commented that consultation paper NTS GCM 12
might result in charges at entry that are below the NTS’ short-run forward looking
avoidable NTS operating costs (such as the costs of operating compressors). This
could create perverse pricing signals and incentives as charges might not send
appropriate signals about the costs of transporting additional volumes of gas at certain
locations. This will be considered as part of the ongoing entry charging review.
16. Storage Capacity Charges
National Grid is considering a review of the Charging Methodology in respect of NTS
entry/exit capacity charges at storage sites. The implications of Exit Reform are likely
to have an impact on this review.
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National Grid
4 Gas TCMF Survey 2010
Please take a few moments to provide some feedback on the NTS Charging Development and
Gas TCMF processes
Please fill out your contact details.
Name
Company
Telephone
Email
GAS TCMF MEETINGS
…provide the required information
relating to charging methodology
proposals
… provide a route for accessing
charging and revenue related
information
…improve understanding of the
NTS charging processes
…provide an opportunity to
influence the development of the
NTS Charging Methodology
Comments:
NTS TCMF SURVEY 2010
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Not
Applicable
Strongly
Disagree
Disagree
Neither
Agree nor
Disagree
Agree
The Gas TCMF meetings…
Strongly
Agree
Please indicate your level of agreement/disagreement with each statement.
National Grid
Following responses to the 2008 & 2009 Gas TCMF Surveys:
 TCMF meetings are now organised to follow the Transmission Workstream
meetings each month (subject to Workstream business);
 TCMF meetings are scheduled to last two hours
…the TCMF meetings should
follow the Transmission
Workstream meetings?
…the TCMF meetings should be
scheduled on a monthly basis to
last two hours?
…the TCMF meetings should be
scheduled less frequently than
monthly (e.g. bi-monthly or
quarterly)?
…Consultation and Discussion
papers should be organised
around the TCMF meetings?
Comments:
NTS TCMF SURVEY 2010
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Not
Applicable
Strongly
Disagree
Disagree
Neither
Agree nor
Disagree
Agree
Do you agree that…
Strongly
Agree
 Consultation and Discussion papers are organised around the TCMF meetings.
National Grid
Not
Applicable
Very
Dissatisfied
Dissatisfied
Neither
Satisfied
nor
Dissatisfied
Satisfied
Meeting
Presentations
Very
Satisfied
Please rate your satisfaction with the quality of the information provided at the
Gas TCMF meetings.
Level of detail /
content
Layout
Ease of
understanding
Comments:
Meeting Reports / Minutes
Level of detail /
content
Layout
Ease of
understanding
Comments:
NTS TCMF SURVEY 2010
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National Grid
Not
Applicable
Very
Dissatisfied
Dissatisfied
Neither
Satisfied
nor
Dissatisfied
Satisfied
Very
Satisfied
Please rate your satisfaction with the quality of the NTS Pricing Consultation &
Discussion Papers & Reports
Level of detail /
content
Layout
Ease of understanding
Comments:
Not
Applicable
Very
Dissatisfied
Dissatisfied
Neither
Satisfied
not
Dissatisfied
Satisfied
Very
Satisfied
Please rate your satisfaction with the quality of the TCMF & Consultation areas
of our Website1
Level of detail /
content
Layout
Ease of Use
Comments:
Relevant areas of the website are… http://www.nationalgrid.com/uk/Gas/Charges/TCMF/ ,
http://www.nationalgrid.com/uk/Gas/Charges/consultations/ and http://www.nationalgrid.com/uk/Gas/Charges/statements/
1
NTS TCMF SURVEY 2010
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National Grid
What is your overall level of
satisfaction with the Gas TCMF?
Comments:
Please explain what you would like to see us do to improve the Gas TCMF.
NTS TCMF SURVEY 2010
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Not
Applicable
Very
Dissatisfied
Dissatisfied
Neither
Satisfied
nor
Dissatisfied
Satisfied
Very
Satisfied
Please rate your overall level of satisfaction with the Gas TCMF.
National Grid
Please indicate your views on the priority of the areas of the NTS Charging
Methodology identified for development.
Please indicate what priority you think we should place
on each item.
Low
Medium
High
1. Information Provision
2. Enduring Exit Arrangements
3. Supply and Demand Balancing in the
Transportation Model
4. NTS Exit Capacity Price Volatility
5. User Commitment/Credit Arrangements
6. Negative LRMCs
7. European Regimes
8. Entry Capacity Substitution
9. Industry Code Governance Review
10. Entry Capacity Reserve Prices and Discounts
11. Incremental Entry Capacity Release
12. Optional Commodity Charge Methodology Update
13. Exit Under- / Over-Recovery
14. Entry/Exit Target Revenue Split
15. Short Run Marginal Costs
16. Storage Capacity Charges
Other… please specify
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National Grid
Other… please specify
Comments:
The closing date for submission of your responses is 22nd March 2010.
response should be e-mailed to:
Your
[email protected] or [email protected]
or alternatively sent by post to
Eddie Blackburn / Debra Hawkin, Regulatory Frameworks, National Grid, National
Grid House, Gallows Hill, Warwick, CV34 6DA.
If you wish to discuss any matter relating to this survey then please call Eddie
Blackburn 01926 656022 or Debra Hawkin 01926 656317.
Responses to this survey may be incorporated within future National Grid reports. If
you wish your response to be treated as confidential then please mark it clearly to that
effect.
This document is issued by National Grid in its role as Gas Transporter Licence holder
in respect of the NTS (“National Grid”).
NTS TCMF SURVEY 2010
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