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Action NTS0507: Potential impact of EU Framework Guidelines on GB Charging
NTS Charging Methodology Forum (NTSCMF) 23rd June 2014
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Agenda
Overall aims
Overview and key assumptions
Analysis:
Scenarios
Potential impact of EU Framework Guidelines on GB Charging – December 2013 Scenarios (for reference)
Potential impact of EU Framework Guidelines on GB Charging – New Scenarios Analysis
Summary
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Overall Aim (1)
Give potential impacts the Draft EU Tariff Code on the GB NTS Charging Arrangements
Help industry understand potential impacts of the EU Draft Tariff Code on GB NTS charging that may help inform any responses to the code consultation
To support Ofgem’s Gas Transmission Charging Review (GTCR) and the technical modelling workshops scheduled over the Summer
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Overall Aim (2)
Considered two approaches
Minimal approach – just on Interconnection Points (CAM Points)
Impact on all of domestic entry and exit points (CAM and non-CAM Points)
Analysis provides indicative impacts – does not provide any forecasts
The options presented here are indicative and are not how we propose or suggest the Framework Guidelines be implemented
5
Overview:Summary of data used in Analysis
Analysis used formula year 2012/13 to look at what the potential impacts would have been if we applied the EU Tariff Code at:
Interconnection Points only (CAM Points);
All Entry and Exit points of GB (CAM and non-CAM Points)
Assumed no changes in bookings / behaviour / flows
Uses a number of assumptions due to uncertainties or areas that need consideration
Looks at the revenues that would be need recovered under the scenarios and how they might be recovered
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Overview: Key Assumptions (1)
What we mean by implementing the EU Draft Tariff Code:
Where used, the commodity charge as per the EU Draft Tariff Code is to recover the cost to flow gas
We have used costs for shrinkage as a proxy for fuel costs
Cost Allocation Methodology for the charging regime for the calculation of charges using the LRMC methodology (“Virtual point variant A” in EU Draft Tariff Code) remains
Any targeted charges (linking to “Dedicated Services”) or specific charging arrangements (e.g. current arrangements for storage) assumed to remain in place
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Overview:Key Assumptions (2)
Charges set to aim to recover the target allowed revenue for the year including a mechanism to recover any shortfall
When considering how revenue shortfalls could to be recovered in the different scenarios this could be:
Through a mix of capacity and commodity; and
Potentially recovered in either a uniform method across all GB points or via a dual methodology for CAM and non-CAM points
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Analysis
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Analysis:Reminder of Current Methodology
TO allowed revenue recovered from capacity charges and commodity chargesEffective 50:50 split between Entry and Exit charges
DN Pensions Deficit & NTS Metering
Entry Capacity
(All)
Entry Commodity
(All)
Exit Commodity
(All)
Exit Flat Capacity
(All)
TO Charges
TO Allowed Revenue
SO Charges
St Fergus Compression + Shorthaul +Legacy Incremental Entry/Exit* +
Neutrality
Entry Commodity
(All)
Exit Commodity
(All)
SO Allowed Revenue
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Analysis:Scenarios to be covered
Description of Scenario PreparedAssumptions based on FG or EU Draft Tariff Code
Potential Revenue Recovery method for shortfall*
Revenue Recovery of shortfall* from CAM / Non CAM Points
1New Commodity Charge at All Points with no other commodity at CAM points
Dec-13EU Tariff Framework Guidelines
CommodityCapacity
Non CAM
2
New Commodity Charge at All PointsAdjustment to Exit Capacity charges
Dec-13EU Tariff Framework Guidelines
CommodityCapacity
Non CAM
3New Commodity at all pointsAdjusted Capacity for Entry and Exit
Jun-14 Draft EU Tariff Code Capacity All Points
4
New Commodity at all pointsAdjusted Capacity for Entry and ExitCapacity charges grouped into CAM and Non CAM points
Jun-14 Draft EU Tariff Code Capacity All Points
5New Commodity at all pointsAdjusted Capacity for Entry and Exit
Jun-14 Draft EU Tariff CodeCapacityCommodity
Potential Mix
*Shortfall in Revenue is the amount not recovered using current methodology
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Action NTS0507: Potential impact of EU Framework Guidelines on GB Charging – December 2013 Scenarios (for reference)
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Scenario 1 (Dec 2013 analysis)Overview: Apply EU FGs at CAM Points only
TO Revenues / charges
Allowed revenues unchanged
Same charging methodology for capacity as now
No changes to Capacity charges / revenues
EU FG Commodity charge (shrinkage) for all
Commodity charges recover shortfall
Apply to domestic only (Non-CAM Points) as exclude IPs (CAM Points) under EU FGs
Therefore use a smaller charging base to recover commodity
Targeted charges / pass through items remain as is
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Entry Capacity
(All)
Scenario 1 – Implementing EU FGs at IPs(CAM Points) only
DN Pensions Deficit & NTS Metering
TO Charges
Exit Commodity
(Non-CAM only)
Exit Flat Capacity
(All)
Entry Commodity(Non-CAM
only)
SO Charges
St Fergus Compression + Shorthaul + Legacy Incremental Entry/Exit* +
Neutrality
Entry Commodity (Non-CAM)
Exit Commodity (Non-CAM)
Commodity (All)
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Scenario 1: TO Analysis(Entry and Exit Commodity) - 2012/13
TO Entry Commodity Revenue
£-
£50
£100
£150
£200
£250
Domestic Current Domestic FG InterconnectorCurrent
Interconnector FG
Millio
ns 16% Increase
TO Exit Commodity Revenue
£0£5
£10£15£20£25£30£35£40£45£50
Domestic Current Domestic FG InterconnectorCurrent
Interconnector FG
Millio
ns 5% Increase
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Scenario 1: SO Commodity Analysis – Entry and Exit 2012/13
Collected SO Commodity Revenue
£-
£50
£100
£150
£200
£250
£300
£350
£400
Current FG
Mill
ion
s
Domestic
Interconnector
10% Increase
70% Decrease
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Scenario 2 (Dec 2013 analysis) Assumptions: Apply EU FGs across all GB
Total allowed revenues unchanged (combined TO+SO)
SO Commodity charge only recovers shrinkage
Apply to all points with any under recovery on what we have as remaining SO Commodity would move onto TO Capacity charges
Same charging methodology for capacity as now
Capacity charges (Entry and Exit) would need to be adjusted on top of those calculated using the Transportation Model to collect allowed revenue (TO+SO)
There are a number of options that could be applied to achieve this
Targeted charges / pass through items remain as is
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Scenario 2 – Implementing EU FGsCharges (FG) – Step 1
DN Pensions Deficit & NTS Metering
Entry Capacity
(All)
Entry Commodity
(All)
Exit Commodity
(All)
Exit Flat Capacity
(All)
Entry SO Shortfall (All)
Exit SO Shortfall (All)
Charges (FG) – Step 2
DN Pensions Deficit & NTS Metering
Entry Capacity
(All)
Exit Flat Capacity
(All)
Entry Shortfall (All)
Exit Shortfall (All)
Recalculation of Exit Capacity Charges
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Scenario 2 – Potential Impacton Entry and Exit Revenues – 2012/13
Analysis of Entry Collected Revenue
£-
£100
£200
£300
£400
£500
£600
Current Adjusted
Mil
lio
ns
SO Entry Shortfall
TO Entry Shortfall
TO Entry Commodity
Entry Capacity
Revenue contribution from Domestic & Interconnector points, and Revenue Shortfall for formula year 2012/13
£400m
£281m
£-
£50
£100
£150
£200
£250
£300
£350
£400
£450
Original Revenue Adjusted Revenue
£m
illio
n
Exit Revenue Shortfall
Interconnector Exit Cap Rev
Domestic Exit Cap Rev
Exit Target Rev
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Action NTS0507: Potential impact of EU Draft Tariff Code (DTC) on GB Charging – New Scenarios
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Overview – New Scenarios
The following scenarios follow on from the analysis done in December 2013
Analysis used formula year 2012/13 to look at what the potential impacts would have been if we applied the EU Draft Tariff Code
Assumed no changes in bookings / behaviour / flows
Uses a number of assumptions due to uncertainties or areas that need consideration
All key assumptions within the December 2013 analysis are applicable to this analysis
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Scenario 3 – Apply EU DTC at all points with TO and SO split
Total allowed revenues unchanged (combined TO+SO)
SO Commodity charge only recovers shrinkage
Apply to all points with any under recovery on what we have as remaining SO Commodity would move onto TO charges
Capacity Floating and Floating Regime (split by TO and SO)
Targeted charges / pass through items remain as is
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Scenario 3 – Apply EU DTC at all points with TO and SO split
SO Charges
St Fergus Compression + Shorthaul + Legacy Incremental Entry/Exit* +
Neutrality
Entry Commodity (All)
Exit Commodity (All)
Entry Capacity
(All)
DN Pensions Deficit & NTS Metering
Exit TO and SO Shortfall
Exit Flat Capacity
(All)
Entry TO and SO Shortfall
TO Charges
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Revenue against charging options - Exit
£-
£100,000,000
£200,000,000
£300,000,000
£400,000,000
£500,000,000
£600,000,000
Current Tariff FG
Alternative ChargingMethodology
Commodity (Shrinkage)
TO Exit Commodity
SO Exit Commodity
TO Exit Capacity
Revenue against charging options - Entry
£-
£100,000,000
£200,000,000
£300,000,000
£400,000,000
£500,000,000
£600,000,000
Current Tariff FG
Alternative Charging Methodlogy
Commodity (Shrinkage)
TO Entry Commodity
SO Entry Commodity
TO Entry Capacity
Scenario 3 – Apply EU DTC at all points with TO and SO split
£190m
£50m
£50m
£340m
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Scenario 4 - Apply EU DTC at all points with CAM and Non-CAM split
Revenue Amount - Values based on model and what is allocated to IPs (CAM Points) and non IPs (Non CAM Points)
New Capacity Rates at both IP’s (CAM Points) and Non IPs (Non-CAM Points)
Total Revenue split by CAM and Non-CAM points
Commodity charge only recovers shrinkage
Revenue not collected would need to be collected from Capacity
Floating Regime (CAM and Non-CAM split)
Targeted charges / pass through items remain as is
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Scenario 4 - Apply EU DTC at all points with CAM and Non-CAM split
CAM Commodity
Non-CAM Commodity
CAM Capacity
(All)
DN Pensions Deficit & NTS Metering
Non-CAM Shortfall
Non-CAM Capacity
(All)
CAM Shortfall
St Fergus Compression + Shorthaul + Legacy Incremental Entry/Exit* +
Neutrality
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Exit revenue split by CAM and Non-CAM
£-
£50,000,000
£100,000,000
£150,000,000
£200,000,000
£250,000,000
£300,000,000
£350,000,000
£400,000,000
£450,000,000
CAM Non-CAM
Exit Shrinkage
Exit Alternative ChargingMethodology
Exit Capacity Revenue
Entry Revenue split by CAM and Non-CAM
£0
£50,000,000
£100,000,000
£150,000,000
£200,000,000
£250,000,000
£300,000,000
£350,000,000
£400,000,000
£450,000,000
CAM Non-CAM
Entry Shrinkage
Entry Alternative ChargingMethodology
Entry Capacity Revenue
Scenario 4 - Apply EU DTC at all points with CAM and Non-CAM split
£195m
£44m
£6m
£30m
£44m
£145m
£6m£17m
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Scenario 5 – Apply EU DTC at all points (mix of Capacity/Commodity)
Fixed regime is today for IP’s (CAM Points) and Non-IP’s (Non-CAM Points)
Remove Shrinkage Revenue from the SO Commodity Revenue
The shortfall in SO Commodity Revenue needs to be collected by an alternative Commodity Charge
The TO Commodity Revenue needs to be collected by an alternative Commodity Charge
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Scenario 5 – Apply EU DTC at all points (mix of Capacity/Commodity)
SO Charges
St Fergus Compression + Shorthaul + Legacy Incremental Entry/Exit* +
Neutrality
SO Entry
Alternative Commodity
SO Exit Alternative Commodity
Commodity (All)
Entry Capacity
(All)
DN Pensions Deficit & NTS Metering
TO Exit Alternative Commodity
Exit Flat Capacity
(All)
TO Entry Alternative Commodity
TO Charges
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Revenue against charging options - Exit
£-
£100,000,000
£200,000,000
£300,000,000
£400,000,000
£500,000,000
£600,000,000
Current Tariff FG
Alternative Charging MethodologyExit (TO)Alternative Charging MethodologyExit (SO)Commodity (Shrinkage)
TO Exit Commodity
SO Exit Commodity
TO Exit Capacity
Revenue against charging options - Entry
£-
£100,000,000
£200,000,000
£300,000,000
£400,000,000
£500,000,000
£600,000,000
Current Tariff FG
Alternative Charging MethodologyEntry (TO)
Alternative Charging MethodologyEntry (SO)
Commodity (Shrinkage)
TO Entry Commodity
SO Entry Commodity
TO Entry Capacity
Scenario 5 – Apply EU DTC at all points (mix of Capacity/Commodity)
£220m
£120m
£45m
£145m
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Summary (1)
Where considering floating charges, capacity charges could be subject to an additional adjustment to aim to recover target allowed revenues for the year (e.g. on top of any existing adjustments)
Could include revenue uplift (like Exit), inflation adjustments or other
Options include taking revenue shortfall recovering based upon:
Adjusting using baselines or obligated levels
Adjusting using forecast bookings
Issues to consider would be:
Application of any uplift considering (amongst other items):
The methodology to be applied in the Transportation Model
The application of discounts for short term capacity
How to apportion any uplift or adjustment
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Summary (2)
EU Draft Tariff Code gives some flexibility in the adoption of fixed or floating tariffs
Becomes a GB discussion about optimal balance between charges and points to recover revenue
Ofgem’s GTCR and modelling workshops will be looking at this in some detail and there will be assumptions within this work on the EU Draft Tariff Code
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Questions
Any Questions?