The Implementation and Operation of a Postalisation System for Natural Gas Tranmission in NI

27 January 2004

To: Transmission Operators & Suppliers

Draft licence conditions required for the Implementation and Operation of a Postalisation System for Natural Gas Transmission Tariffs in Northern Ireland.

Attached are drafts of new standard licence conditions to be included into licences issued under Article 8(1)(a) (conveyance licences (PDF 662 KB)) and 8(1)(c) (supply licences (PDF 68 KB)) of the Gas (Northern Ireland) Order 1996 respectively, to achieve a system of postalised tariffs. These conditions implement the design of postalisation as explained in Ofreg/DETI Recommendation and Decision Paper issued last Autumn.

We are circulating these conditions now to give licensees and other interested parties a better understanding of the way in which postalisation is expected to be implemented and operated in practice.

We would welcome any comments on the draft conditions which should be sent to Eamon Corrigan (eamon.corrigan@ofregni.gov.uk) before Tuesday 24th February 2004.

These licence conditions for conveyance will:

-Establish the principle that a supplier will only have to pay the postalised tariffs when he exits the postalised system, thereby exempting “transit” suppliers from paying transportation charges for intermediate pipelines.
-Institute the procedures and timetable for the start of the year tariff determination process and the end-of-year reconciliation process (see appendix A).
-Detail the functions and the management structure for the Postalisation System Administrator.
-Establish the procedures for the inter-TO transfers (the transmission operators are still in discussion and this section is likely to be amended in future drafts, we will try to inform suppliers of any changes at the next shipper forum on the 3rd Feb).
-Extend the relevant objective of network code modifications to include consideration for the operation of the arrangements for postalised tariffs.

These licence conditions for supply will:

-Place an obligation on the supplier to pay the postalised tariffs
-Require each supplier to submit its forecast volume for its respective end-customers to the relevant TO(s) from whose network it exits the postalised network.

Special Licence conditions for Postalisation: Transmission Operators’ Allowed Revenue Determination

The current licence conditions setting out the allowed revenue formula for PTL and Phoenix compute a set of transportation charges. For postalisation, each TO’s revenue formula licence condition will need only to contain the determination of annual allowed revenue. We are currently in bilateral discussions with PTL and Phoenix on the necessary individual modifications and also with BGE on the introduction of a detailed ARR formula into the existing conveyance charge licence condition.

Delaying the application of a specific interruptible charge

We have decided that before the completion of the South-North pipeline, as a result of capacity constraints, there will be sufficient incentives for shippers to book firm capacity. Therefore, we have decided not to specify explicitly an interruptible charge until 1st October 2006. In the intervening period where interruptible capacity is available on the network, it will be priced at the postalised commodity charge.

Implementation timetable:

We intend to take forward the process of postalisation implementation in order to achieve the start date of the 1st October 2004 as follows:

26 January: Draft of standard licence conditions required for postalisation circulated to TOs and suppliers

1st-3rd week of February: Invite interested parties for bilateral meetings on
February: postalisation.

24 February: Deadline for preliminary comments on draft licence conditions

March-April: Further bilateral and multilateral discussion

Early April: Final draft standard and individual licence conditions proposed to be made under Energy Order Article 60 to be circulated for consultation under Article 60(4).

Early May: Deadline for comments on postalisation conditions

Mid-May: Confirmation of final standard and individual licence conditions

Summer: Department to issue designation notices/licence modifications to take effect

The shipper-operator forum will continue on a monthly basis, with the next meeting scheduled for the 3rd February. We intend that the focus of these meetings will shift to the review of draft Network Code provisions as issues of principle are agreed and incorporated in drafting.

We welcome any comments on the draft conditions before the 24th February 2004. Furthermore, we are keen to discuss postalisation implementation with all licensees and affected parties and will be in touch to offer meetings over the next four weeks. These meetings and the current consultation on the legal drafting offer all interested parties substantial opportunity to influence the implementation of postalisation.

Notes

Timetable for Postalisation Operation

A: Establishing postalised tariff for the Year starting 1st October

By 10th Business Day in June:

TOs will have the ability to request information from their exiting shippers to help them produce the necessary volume forecasts for the next five years (a licence condition will be included in each supplier’s licence requiring them to provide information within a fixed number of days).

Last Business Day in June:

TOs provide to Ofreg volume forecasts/capacity bookings for Exit Points on their systems, plus their own required revenues (ARR) (“the elements for tariff determination”), for the next five years. This information (especially volume forecasts) may be discussed between the TOs beforehand but there will be no obligation to do so. Volume forecasts and capacity figures to be supplied on an Exit Point basis (not individual user). The elements submitted must also include an explanation and details of assumptions behind the volume and capacity figures.

Each TO will have the flexibility either to accept their shippers’ volume estimates or to submit to Ofreg an alternative estimate. If a shipper fails to provide the TO with the required information, the TO will then supply to Ofreg an estimated figure. When doing so, the TO must indicate that it is supplying its own estimate.

ARR figure will have been determined by this date in accordance with the process in the relevant Special Condition.

July:

Ofreg will compile the submitted elements for tariff determination from all TOs and publish them on its website (and circulate to the TOs and shippers via email) soon after it receives them. The publication will be in the spreadsheet format in appendix B. This will have two purposes: to give shippers an initial indication of next year’s tariff and an opportunity to comment on the proposed volume forecasts.

By 5th Business Day in July:

The outturn 3rd quarter volumes for that postalised year will become available – this will assist verification of the volume forecasts.

By 14th Business Day in July:

TO’s must submit the elements for tariff determination to the PSA.

Ofreg will have 14 business days from receipt of the TOs’ figures within which to consider views and listen to comments from shippers/end users and if it feels necessary to amend the forecast volume figures. By the end of the 14 business day period Ofreg will have informed the PSA and the relevant TO of any amendments that need to be made to its figures.

By 19th Business Day in July:

The PSA uses TO submitted elements and calculates the postalised tariffs using the established formulae. The PSA notifies postalised tariff to TOs and Ofreg.

By 1st Business Day in August:

TOs publish the postalised tariffs, (capacity and commodity charges) for the next year and the indicative tariffs for the following four years. Suppliers have two months notice of new tariffs.

1st October:

Start of the postalisation year.