LDZ Shrinkage- a National Grid Overview

Chris Warner

Mod 0194/RG 0208

June 2008

Topic areas

LDZ Shrinkage What is LDZ Shrinkage? Own Use Gas and Theft of Gas Leakage National Leakage Tests UNC Section N Timeline Shrinkage Forum 2007/08 Shrinkage Factors Modification Proposal 0203V Gas Prices 2008-13 Shrinkage Allowances (E8) 2008-13 Environment Emissions Incentive (E9)

LDZ ShrinkageIntroduction

What is LDZ Shrinkage? “For the purposes of the Code shrinkage means gas in a System which is

used by the Transporter in connection with the operation of, or which is unaccounted for as offtaken from, a System”

For the purposes of UNC, LDZ Shrinkage comprises of own use gas: gas used in running compressors, and gas used for

preheating unaccounted for gas: gas lost or unaccounted for by reason of unidentified

theft, error in meter correction and leakage, including gas vented in its operation

2007/08 Procurement Context* 1,904 GWh 0.6% LDZ throughput £26.6m

* National Grid Networks only

Chart for illustration only,

not to scale

What is LDZ Shrinkage?Key Components

Total LDZ Shrinkage

Own Use Gas

2% of 2007/08

Shrinkage

Leakage

95% of 2007/08

Shrinkage

Theft of Gas

3% of 2007/08

Shrinkage

Holder Pre-heat

Pre-heat Gas

Transporter responsible

Theft

Supplier responsible

Theft

Distribution Mains and

Service Leakage

Low Pressure

Medium Pressure

Broken Mains

Above Ground

Installation Leakage

Purging Venting

Holder Stations

NTS / LTS / <7bar PRS

Service Governors

Equipment vented for

maintenance

Equipment that vents in

use

What is LDZ Shrinkage?UNC Definitions

Total LDZ Shrinkage

Own Use Gas

2% of 2007/08

Shrinkage

Leakage

95% of 2007/08

Shrinkage

Theft of Gas

3% of 2007/08

Shrinkage

Holder Pre-heat

Pre-heat Gas

Transporter responsible

Theft

Supplier responsible

Theft

Distribution Mains and

Service Leakage

Low Pressure

Medium Pressure

Broken Mains

Above Ground

Installation Leakage

Purging Venting

Holder Stations

NTS / LTS / <7bar PRS

Service Governors

Equipment vented for

maintenance

Equipment that vents in

use

“unaccounted for gas” “own use gas”

Own Use Gas and Theft of GasContributes to only 5% of LDZ Shrinkage Requirements

Own Use Gas Calculated via model as opposed to being measured

Historically no requirement to meter sites Complex model uses actual telemetered regulator throughput,

temperature & pressure data, where available New updated model first used in 2005/06

Theft of Gas Negotiated proportion of LDZ Throughput

Instances of Theft assumed to be 0.3% of LDZ throughput, of which 10% of the total theft was transporter responsibility (i.e. 0.03% of LDZ throughput)

Transporters however believe that only 3.1% is transporter responsibility (i.e. 0.01% of LDZ throughput) based on confirmed occurrences of theft from xoserve

Theft upstream of ECV proven to be difficult to identify so currently agreed to be 0.02% of LDZ throughput

LeakageContributes to 95% of LDZ Shrinkage Requirements

Majority of leakage relates to Low Pressure (81%) Predefined leakage rates:

11 mains leakage rates and 4 service leakage rates 2002/03 National Leakage Test

64.9%

16.2%

7.6%

10.9% 0.4%

LP Mains Leakage LP Service Leakage MP Mains Leakage

AGI Leakage Interference Damage

Low Pressure Leakage Components:

Mains Asset Statistics

Average System Pressure

Monoethyleneglycol (or MEG!)

Number of Services

National Leakage Tests2002/03 Advantica test programme

In 1992, British Gas commissioned a programme of leakage tests to quantify the leakage from its distribution system

Leakage rate data used to facilitate Shrinkage Factor Negotiations Shippers requested disallowance of proposed LDZ Shrinkage Factors in

2001/02 due to out-of-date leakage rate data Transco commissioned Advantica to carry out a new programme of

tests as a result of the disallowance 2002/03 National Leakage Test (NLT) programme A total of 862 tests were carried out in the period from February 2002 to

May 2003, providing 849 usable results The results of the NLT programme were presented to the Shrinkage

Forum in June 2003 Leakage Rates were lower than those determined in the previous 1992 test

programme Concluded to be as a result of Transco’s mains replacement programme,

which tended to target poor condition mains For the Low Pressure system, this resulted in an overall reduction of

approximately 31%. For the Medium Pressure system, the overall reduction came out at less than 1%

UNC Section N TimelineEstablishment of Gas Year LDZ Shrinkage Volume

April, May & early June

Analysis carried out to support

initial Shrinkage proposals

1 JulySubmit estimated LDZ Shrinkage / methodology to

Users“Initial Proposals”

Late June / early JulyOpportunity to present estimated Shrinkage to

Shrinkage Forum1 September

Submit final estimated LDZ Shrinkage /

methodology to Users“Final Proposals”

1 July – 1 AugustUsers may submit representations in

respect of the estimated Shrinkage

1 – 15 AugustDNs to consider User representations and

may convene meeting if deemed

appropriate

1 – 15 SeptemberUsers may request a

disallowance

OctJun Jul SepApr May Aug Nov Dec Jan

15 September – 1 OctoberPossible Ofgem

Determination Process

Late SeptemberIssue instructions to load new shrinkage requirements into

Gemini

Gas Year….

Shrinkage ForumIndustry Discussion Forum

Provides an opportunity for Transporters to meet interested parties in order to discuss LDZ Shrinkage issues such as:

Shrinkage Factor Proposals Assessment & Adjustment Report

Joint Office provides administrative support Chair: Tim Davis chairs the meeting Secretary: Lorna Dupont is the Secretary

2007/08 Shrinkage FactorsApril 2007 to March 2008

LDZ UNC Factors Licence Factors EA 0.593% / 0.620% 0.593% EM 0.519% / 0.510% 0.519% NT 0.622% / 0.550% 0.622% NW 0.656% / 0.630% 0.656% WM 0.729% / 0.730% 0.729%

N.B. UNC Factors – Gas Year Licence Factors – Formula Year

Modification Proposal 0203VAreas being addressed

For the 2008-13 Gas Distribution Networks Price Control, Ofgem fixed a volumetric allowance for Shrinkage for each LDZ, as opposed to ex ante target shrinkage factors (percentages of throughput).

Ofgem concluded that on the basis of evidence available, there is little correlation between shrinkage and throughput for the existing networks

As a result, changes to Section N have been progressed: to update references to LDZ Shrinkage Factors to reflect LDZ Shrinkage

Quantities make appropriate amendments to the content of industry notification

processes, namely current Initial and Final Proposals effect minor change to the classification of LDZ vented gas, consistent with

the operation of the approved Leakage model calculations (vented gas is not burnt and therefore should be classed as unaccounted for gas, not own use gas)

update the sources of information used in the assessment process to include all inputs to the leakage model

System amendments (Gemini / UK Link) being considered and progressed in parallel

Modification currently with Ofgem for determination Preferred implementation date 1 July 2008

Gas PricesDay-Ahead Price Trend

Day-Ahead Price Analysis (p/therm)

020406080

100120140160180200

Day-Ahead Price Summer Average Winter Average

?

2008-13 Shrinkage Allowances (E8)Revised Regulatory Regime Introduced

Shrinkage is gas lost from the system through leakage, theft and own use gas

Concluded there was no measurable correlation between shrinkage (leakage) and throughput

2007/08 allowances (volume & price) ‘rolled over’ for first six months to allow UNC modification proposals to be progressed

Revised regime reduces both (weather related) volume risk and price risk

2007/08 Shrinkage Allowance

Shrinkage Factors(predefined within licence)

multiplied by

actual throughput

multiplied by

Gas Reference Price(3 month ahead price * 3.5% uplift)

2008-13 Shrinkage Allowance

Shrinkage Quantities(predefined ‘reducing’ volumes within

licence, broadly reflective of BPQ submission)

multiplied by

Gas Reference Price(Day Ahead Price)

2008-13 Shrinkage Allowances (E8)Allowed Shrinkage Quantities

2008-13 Environment Emissions Incentive (E9)Dx mains leakage significant source of greenhouse gas emissions

Additional incentive, over and above mains replacement programme, to reduce leakage based on social cost of carbon

Average of £29.7 per MWh over the period Cap / Collar at 10% of baseline leakage volumes