Entry Capacity Overrun price calculation
Transmission Workstream
5th October 2006
Entry Capacity overrun price calculation

Issue identified during the constraint actions taken
in July and discussed at September Transmission
Workstream;
 Under
certain circumstances the overrun price
calculation could allow a User to sell their capacity back
to National Grid and continue to flow the associated gas.

The overrun price is the average price of the top 25% of offers
accepted on the day, multiplied by 1.1

This can be less than the price a User receives for their capacity
Potentially extends the constrained period
 Potential for increasing constraint costs

Overrun Price Calculation
Entry Capacity Buyback Price increasing with volumes
bought back (9th July 2006)
Buyback Offer Price
(p/kWh)
12
10
Entitlement
Price (p/kWh)
8
6
4
2
0
0
100
200
300
400
500
600
Cumulative Buyback Volume (GWh)
Overrun Price 4.71
p/kWh
Entry Capacity overrun price calculation

Under certain circumstances it is possible for an
overrun price to be zero.
 If
there is no constraint on a day then the overrun price
calculation that is most likely to be applied is;

8 * A where A is the highest bid price in relation a capacity bid
accepted in any capacity auction for the relevant day
If no bids were received for the ASEP concerned; or
 The ASEP has a zero reserve price and the bids are all allocated at
zero; then


The overrun price will be zero.
Entry Capacity overrun price calculation

Proposed changes;

Change the overrun price calculation to the following



(8 * A) where A is the highest bid price paid by National Grid
NTS in relation to any capacity bid accepted in respect of the
Day or the Gas Year in which the Day falls.
(1.1 * B) where B is the highest allocated offer price, forward
price or option exercise price paid by National Grid NTS in
respect of any Entry Capacity Management action taken in
respect of the Day.
(8 * C), where C is the highest reserve price under any
invitation for the Day or Gas Year in which the day falls.
Entry Capacity overrun price calculation

National Grid believes this proposal better
facilitates the relevant objectives by;
reflecting the intention that Users are incentivised to purchase a
right to flow gas onto the System;
 Thereby providing signals to National Grid of the intended use of
the system;
 Removes perverse incentives on Users during constraint actions
and provides National Grid with the opportunity to more
efficiently manage any potential constraint

Entry Capacity overrun price calculation

Way forward
 Submit

Modification Proposal to October Mod Panel
Request that the proposal proceeds direct to consultation