Review Group 221: 23 January Analysis of the impacts of the proposal on Users

2

Analysis of the impacts of the proposal on Users

New analysis tool

Tool developed to analyse RG221 Proposals Utilises all Auction Bid Values – AMSEC & QSEC

Data is provided by ASEP and User

Apology

Error (double counting) identified with previous Auction Bid Values presented at 10 December RG221 meeting

£1.9bn total QSEC auction bid value figure less at £1.3bn

Figures for other options have also been impacted (but to a lesser degree)

See graph for full details

Split by Baseline and Incremental capacity to be confirmed

3

Analysis of the impacts of the proposal on Users

Total Auction Bid Value by Options

140,483,866

1,334,956,524

597,491,018

284,619,054 298,729,018

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

i ii iii iv v

Options

£

(i) Next full Gas Year– 140,483,866 - 10.52%(ii) All auction bids within a forward looking period - all bids. 1,334,956,524 - 100%(iii) All auction bids within a forward looking period - Next 4 full Gas Years 597,491,018 - 44.76%(iv) Next full Gas Year + Y+4 auction year 284,619,054 - 21.32% (v) Next full Gas Year + peak year in the 8 year NPV test period. 298,729,018 - 22.38%

4

Analysis of the impacts of the proposal on Users

Credit Rating - 50% to be applied to this risk element

Element X (25%) – applied to all Users

Element Y (25% * Credit rating risk (See table))

Standard and Poor’s Moody’s Investors Service Independent Assessment Score

Users Credit Rating Risk

AAA/AA Aaa/Aa 0

A A 60

BBB+ Baa1 10 80

BBB Baa2 9 81

BBB- Baa3 8 82

BB+ Ba1 7 83

BB Ba2 6 84

BB- Ba3 5 85

4 86.5

3 90

2 93.33

1 96.5

No credit rating No credit rating 0 100

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Analysis of the impacts of the proposal on Users

Credit Rating - 50% to be applied to this risk element (25% minimum)

Observations User Credit Rating (IGR) – not available in all cases

Parent Credit Rating is available (where a PCG is currently used as security)

Large number of Users where no credit rating is available/recorded (27 Users)

Credit Rating

obtained

Description Number (IGR) Number (PCG)

Aaa Highest quality – smallest

degree of risk

0 1

Aa1, Aa2. Aa3 High Quality – very low

degree of risk

2 5

A1, A2, A3 Medium Grade – low credit

risk

8 5

Baa1, Baa2,

Baa3

Medium Grade - Moderate

credit risk

2 2

6

Analysis of the impacts of the proposal on Users

Project risk - 25% to be applied to this risk element

Only 3 Users have an entry capacity holding and have projects that are currently under construction

1 User has been allocated the full 25%

1 User has been allocated 20% (feasibility study in place)

1 User has been allocated 20% but the affect is reduced when aggregated to an all ASEPs level (has capacity at more than 1 ASEP)

All (49) Users are unaffected by this risk element

7

Analysis of the impacts of the proposal on Users

Community Impact Risk - 25% to be applied to this risk element

The risk to the community can be measured by the proportion of the revised auction bid value against the existing User holding

Difficulties experienced on how to implement/test Test assumption: last years auction data used to derive a revised auction bid value

Impact

Suggest percentage for this risk element (currently 25%) be reduced to 10% and all figures updated at next years auction

Percentage

applied (range)

0% 0-10% 0-20% 20-25%

Number of

Users

Twenty Fifteen Five Twelve

Percentage 38% 29% 10% 23%

Review Group 221: Assessment of Implementation Risks

9

Assessment of implementation risks

Risk1: Users may decide not to provide the security required and project fails

2 single ASEP Users Barrow

Fleetwood

£190m combined Auction Bid Value

High risk but this risk exists today

No security currently required

10

Assessment of implementation risks

Risk2: Users may decide not to provide the security required and repurchasing some

of the cancelled capacity at a later date.

Risk could apply to 8 Users at St Fergus that have capacity holding at this entrypoint but have little holding at other terminals.

2009 St Fergus auction price higher than historical prices

St Fergus Medium Risk Analysis

2

2

3

1

1

A1

A2

Aa1

Aa2

Baa1

Total Credit Limit £184,230,000All have Investment Rating by Moodys

Credit Rating Shipper A A2 Shipper B A2 Shipper C A1 Shipper D Baa1 Shipper E A1 Shipper F Aa2 Shipper G Aa1 Shipper H Aa1 Shipper I Aa1