Shrinkage Forum

Tuesday 8 March 2011, 31 Homer Road

2

Agenda

1.0 Introduction

2.0 Review of Minutes and Actions from previous meeting (08 March 2007)

3.0 Incentive Regimes – DN Presentation

4.0 Leakage Model – DN Presentation

5.0 Shrinkage Proposal Process – DN Presentation

6.0 Theft of Gas – Open Discussion

7.0 Any Other Business

8.0 Diary Planning

Agree agenda items and actions for next meeting

Incentive Regimes

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Incentive Regimes - Shrinkage

Shrinkage Incentive - Special Condition E8

Target volume baselines by LDZ

Incentive – reduce shrinkage volumes

Performance ‘valued’ at day-ahead gas price

Incentive – procure gas cheaper than day-ahead price

No cap or collar

Performance has a direct impact on DN costs and leads

to a better distribution of costs under RbD

5

Incentive Regimes - Environment

Environmental Emissions Incentive – Special Condition

E9

Target volume baselines by LDZ

Incentive – reduce leakage volumes

Performance ‘valued’ at social cost of carbon

10% cap and collar regime

Performance has a direct impact on DN revenue

Leakage Model

7

Leakage Model

Methodology developed in the early 1990s

Currently a spreadsheet model

‘Controlled’ by Special Condition E9 in Gas Transporter Licences

Five main elements

LP Leakage

MP Leakage

AGI Leakage

AGI Venting

Interference Damage

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Leakage Model E9 Obligations

The Leakage Model shall facilitate the achievement of the following objectives –

The accurate calculation and reporting of gas leakage

Being consistent with, and where reasonably practicable, identical to Leakage Models used by other DN Operators.

Report the actual leakage volume (LVt,i) together with any new information obtained by the licensee regarding leakage rates, including data derived from leakage tests.

Annually review the Leakage Model to ensure that it continues to achieve the objectives and

Consult with shippers and other interested parties to seek their views

Propose such modifications (if any) as are necessary for the purpose of better achieving the objectives.

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Leakage Model E9 Modification Process

Propose revised baselines

Consult with the industry

Appoint an ‘Independent Expert’ to review and report on the proposal

Submit report on the consultation to Ofgem

Implement the modification if approved by Ofgem

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Leakage Model Elements & Main Input Parameters

Leakage Proportions(National Grid only)

Interference 0%

AGI Venting

5%

AGI Leakage

7%MP Leakage

8%

LP Leakage

80%

LP Leakage

Pipe Asset

No. Services & Replacement

Average System Pressure

MEG Saturation

MP Leakage

Pipe Asset

AGI Leakage

Asset Numbers

AGI Venting

‘Fixed’

Interference

Number of incidents

Reportable incidents

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Low Pressure Leakage Model

Approximately 80% of all leakage

Leakage rates for 11 diameter/material bands, based on a national survey

carried out in 2002/03

> 2000 low pressure networks nationally

Average System Pressure - determined via recorded source pressure

data and network analysis

MEG Saturation (where used) – determined from recorded data and

network analysis

Pipe asset lengths (replacement of metallic mains has greatest impact)

No. of services

12

Medium Pressure Leakage Model

Approximately 8% of all leakage

Calculated at LDZ level

Pipe asset lengths

13

AGI Leakage Model

Approximately 7% of all leakage

Calculated at LDZ level

5 leakage rates for AGI asset types, based on a national survey

carried out in 2002/03:

Holders

NTS Offtakes

LTS Offtakes

District Governors

Service Governors

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AGI Venting Model

Approximately 5% of all leakage

Fixed values based on a national value from the

2002/03 AGI leakage test report apportioned by relative

number of ‘venting’ AGI asset at time of Network Sales

15

Interference Damage Model

Approximately <0.5% of all leakage

Based on:

>500kg release incidents

Actual release value where recorded/estimated

Number other recorded incidents

Split by LP/MP (95/5)

Split by Puncture/Fracture (50/50)

Assumed leakage rates and response/fix times

Shrinkage Proposal Process

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Shrinkage Proposal Process

1 Jan, 20112011/12 Initial

Proposal1 Mar, 2011

2011/12 FinalProposal

31 Jul, 20122011/12 Shrinkage

Assessment(Financial

Adjustmentto RbD)

1 Apr, 2011 - 31 Mar, 20122011/12 Shrinkage Period

(Estimated shrinkage procured on a flat daily basis)

1 Jan, 2011 -15 Feb, 2011

ReviewPeriod

1 Mar, 2011 -15 Mar, 2011

Users may seekOfgem Disallowance

1 Jan, 2011 -1 Apr, 2011

Proposal Period

31 Mar, 2012 -31 Jul, 2012

2011/12 LeakageAssessment

Leakage based on anticipated mainsreplacement, average system pressureand MEG performance

OUG & ToG based on forecast demand

Leakage based on actual mainsasset, average system pressureand MEG performance

OUG & ToG based on actualdemand

Theft of Gas

Open Discussion