Fundamental review of entry charging principles UNC Transmission Workstream - 6 th August 2009.
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Transcript of Fundamental review of entry charging principles UNC Transmission Workstream - 6 th August 2009.
Fundamental review of entry charging principles
UNC Transmission Workstream - 6th August 2009
2
Introduction
National Grid is launching a fundamental review of entry charging principles.
This is in response to growing industry concern about the increasing rate of the TO entry commodity charge.
3
Background (1): Summary of Entry Experience
Early Experiences (1998 - 2002) Bidding behaviour for entry capacity auctions resulted in significant
over recovery
This may have been due to; northern constraints and competition for St Fergus capacity, and limited experience of entry auctions
This resulted in charging methodology proposals that looked at resolving over recovery and reducing entry capacity floor/reserve prices.
4
Background (2): Summary of Entry Experience
Recent Experiences (2002 - Present) Over recent years, auctions have resulted in under recovery, other
than when a constraint became material in the Easington area.
This may be due to; Increased experience of auctions and lack of locational competition for
capacity Increased certainty of capacity availability associated with baselines Profiling of capacity across the year The clearing obligation and zero reserve prices
This has resulted in the introduction of the TO Commodity Charge and its increasing rate over the years
5
Background (3): Shipper Concerns with the Prevailing Charging Structure
Shippers have an incentive to ‘wait and see’ due to entry capacity price discounts on day ahead (33%) and within day (100%) auctions.
Shortfall in recovery of revenues by National Grid through entry charges is picked up through the Commodity Charge paid by all shippers.
This means that short term capacity buyers are having their costs paid by shippers who have previously paid the longer term rate for capacity.
It could be argued that this creates: cross subsidies between shippers who buy long term rather than short term cross subsidies between shippers who buy firm rather than interruptible effectively creates firm capacity from interruptible if firm capacity remains unsold. potential undue discrimination for new entry points which have no access to zero
priced capacity as there are no short term auctions.
6
Fundamental review required
All of the above would suggest it is time to make changes and a number of potential solutions have been proposed e.g:
Remove day ahead and on the day discounts
Introduce different commodity rates depending on the price paid for capacity
Reduce the relative price of long term capacity
However as we have seen, with the constraint at Easington, it is possible to quickly move from under to over recovery.
Therefore we need to take a measured but timely approach, otherwise we could simply lurch from under to over recovery
7
Fundamental review – what does this mean?
8
Initial Analysis 2008/09 (FY) – TO Entry Revenue
National Grid has started to analyse the existing and future potential usage / bookings at entry points:
TO Entry Revenue (£250m excluding Pensions and Metering) - Capacity vs. Commodity
74%
26%
Entry Capacity TO Commodity Charge
£184m
£66m
Draft information for discussion purposes only
9
Initial Analysis 2009/10 (FY) – TO Entry Revenue (forecast)
Draft information for discussion purposes only
2009/10 TO Entry Revenue (£293.4m excluding Pensions and Metering) - Capacity vs. Commodity
39%
61%
Forecast TO Auction Revenue (£m) TO Commodity Charge Revenue (£m)
£114.5m£178.9m
10
Initial Analysis 2008/09 (FY) – TO Revenue by ASEP
TO Entry Revenue (£250m excluding Pensions and Metering) - Capacity vs. Commodity
74%
26%
Entry Capacity TO Commodity Charge
£184m
£66m
Entry Capacity Revenue (£184m) by Terminal
10.07%
25.93%
56.53%
2.71%
1.07%
1.90%
1.24%
AVONMOUTH LNG
BACTON
BARROW
BURTON POINT ONSHORE
CHESHIRE STORAGE
DYNEVOR ARMS LNG
EASINGTON
GLENMAVIS LNG
HATFIELD MOORS ONSHORE
HATFIELD MOORS STORAGE
HOLEHOUSE FARM STORAGE
HORNSEA STORAGE
ISLE OF GRAIN LNG
PARTINGTON LNG
ST FERGUS
TEESSIDE
THEDDLETHORPE
St Fergus
Bacton
Easington
Draft information for discussion purposes only
11
Capacity Sold at St Fergus by Method of Sale
77%
10%5%8%
DADSEC
MSEC
QSEC
WDDSEC
Unsold
Obligated Capacity = 609,805 GWh/year
Initial Analysis 2008/09 (FY) – St. Fergus
Entry Capacity Revenue (£184m) by Terminal
St FergusBacton
Easington
St Fergus Entry Capacity Revenue by Method of Sale
91.97%
0.44%0.03%
7.55%0.01%
DADSEC
MSEC
QSEC
RMSEC
RMTTSEC
Total Revenue = £104.1m
Draft information for discussion purposes only
12
Initial Analysis 2008/09 (FY) - Easington
Entry Capacity Revenue (£184m) by Terminal
St Fergus
Bacton
Easington
Capacity Sold at Easington by Method of Sale
1%
56%
1%
3%
7%12%
DADSEC
MSEC
QSEC
RMSEC
RMTTSEC
WDDSEC
Unsold
Obligated Capacity = 387,630 GWh/year
Easington Entry Capacity Revenue by Method of Sale
91.3%
0.5% 1.9%
0.3%5.9%
DADSEC
MSEC
QSEC
RMSEC
RMTTSEC
Total Revenue = £47.7m
Draft information for discussion purposes only
13
Entry Capacity Revenue (£184m) by Terminal
St Fergus
Bacton
Easington
Initial Analysis 2008/09 (FY) - Bacton
Capacity Sold at Bacton by Method of Sale
32%
2%
1%
31%
2%
21%
DADSEC
MSEC
QSEC
RMSEC
RMTTSEC
WDDSEC
Unsold
Obligated Capacity = 650,941 GWh/year
Bacton Entry Capacity Revenue by Method of Sale
25.7%
65.8%
4.5%
2.2%1.8%
DADSEC
MSEC
QSEC
RMSEC
RMTTSEC
Total Revenue = £18.5m
14
First thoughts
Not sure how many issues are generic – may be demand only?
Therefore most analysis will need to be undertaken at an entry point / sub terminal level
Obviously at an entry point level we may quickly reach issues of confidentiality
Views?
Other data worth analysing?
15
Charging Objectives
In addition to the Licence obligations in relation to setting charges, what other factors should be taken into account?
Encourage long term bookings
Maximise use of existing entry points
Recover TO revenue through capacity rather than commodity charges
Other…..
Which is the most important?
16
Process Going Forward
An entry charging review leading to revised NTS Entry Capacity charging arrangements may require
NTS Charging Methodology changes
Licence changes
UNC modifications
Initial discussions have taken place at the Gas Transmission Charging Methodologies Forum (Gas TCMF) which normally meets following the UNC Transmission Workstream
National Grid invites views on the process for taking these issues forward. Options include:
Continue within the Gas TCMF?
Raise a UNC Review Proposal?
Organise separate workshops?
Other?