Exit reform from an interconnector perspective

1. Review Group 166Review of necessary reform of NTS Offtake ArrangementsExit reform from an interconnector perspectiveAvian Egan20th September 2007

2. Exit reform from an interconnector perspective Coverage Focus: Moffat exit point for RoI and SNIP interconnectors • Existing arrangements • Key impacts of exit reform • Commission for Energy Regulation appointment of BGN as Single Party Designate • Addressing adverse impacts • Timing • Summary

3. Uniform Network Code Code of Operations PTL Agreement SNIP transportation Northern Ireland SNIP Twynholm RoI interconnectors Moffat Republic of Ireland NTS Isle of Man Existing Moffat arrangements Transportation arrangements Moffat Agreements Connected System Agreement Capacity certification/ ticket to ride, ramp rates, notice periods, physical connection Moffat Administration Agreement Nomination matching, end of day Allocations Operating Profile Notice (OPN) Agreement Within day offtake profile notices

4. Existing Moffat arrangements – High Level • Moffat arrangements developed to facilitate the trading of gas at Moffat, with no added risk to Shippers • Current arrangements work well • Serve Shippers both upstream and downstream of the Moffat Connected System Point • Serve as a robust model • The Agents’ roles are clear and well defined at Moffat • Matching nominations • Compiling aggregate matched end of day quantities • Delivering profiles to the upstream Operator

5. Exit reform from an interconnector perspective General points – existing arrangements • Existing Moffat interconnectorarrangements operate well • No key problems and issues facing this stakeholder group under existing exit arrangements • Radical exit reform not sought by the Downstream players however: • As Downstream Operator, BGE fully recognise the Upstream Market process • Downstream players are keen to ensure that the effective trading of gas at Moffat can be maintained. General points – exit reform • Mod 116V gives rise to a number of serious issues to be addressed if exit reform is to be implemented • The objective of any revised exit reform proposal would therefore be to address these shortcomings in an economical and efficient manner

6. Exit reform from an Moffat perspective Key concerns over Mod 116V exit reform User commitment model Security of supply • Downstream markets reliant on Moffat capacity • Will NTS shippers make 4 year commitments 3 years in advance? • If not, existing capacity could be substituted or required incremental capacity not built Market foreclosure • Long term commitments are a barrier for new players in downstream markets Capacity certification • Withdrawal cuts link between downstream players and NTS exit capacity Initial prevailing rights • Using historic rights creates mismatched upstream and downstream counter-parties at Moffat Overrun rules • Overrun user concept does not accommodate a Non Exclusive Single Party

7. Exit reform from an interconnector perspectiveLinepack depletion/ flexibility product Contractual and operational complexity • Tension between pipeline operational requirements and shippers contractual obligations Allocation of flex usage to shipper level • Complex, difficult to establish reasonable rationale for allocation methodology Use of OPN as flex product request • Requires reopening of complex multi-party agreements already in place Uncertain product availability and usage • Shipper booking criteria? • Aggregate Moffat needs met? • Cost and exposure? Price • Difficult to determine flexibility product requirements • Difficult to price • Potential for ‘unreal’ market demand to inflate price Transfer between exit points/ zones • Uncertain availability in both short and long term

8. Exit reform from an interconnector perspectiveMod 116V exit reform: Key concern • Costs incurred downstream • Complexity • Increased risk and exposure downstream • Impact on gas trading at Moffat • Implementation Timing

9. Addressing adverse impactsDevelopment of the single party (SP) concept Commission for Energy Regulation • October 2006 consultation and January 2007 decision documents • Concerns re security of supply and market foreclosure • Decision to pursue establishment of a Single Party (SP) to act as the aggregate booker of NTS exit capacity for shippers downstream of Moffat • Bord Gáis subsequently accorded status of “SP designate” by CER • Pending RoI Legalisation & possible European sin-off Northern Ireland Authority for Utility Regulation (NIAUR) • Position reserved – not committed to joining the SP arrangements Ofgem • Mod 116 decision letter recognises need for SP role Department for Business, Enterprise & Regulatory Reform (BERR) • To consult on exemption for SP

10. NTS shippers NI shipper Northern Ireland SNIP RoI interconnectors RoI shippers Republic of Ireland By NTS shippers NTS NTS Exit Capacity bookings Isle of Man By SP Addressing adverse impactsThe non-exclusive “Single party” (SP) Overview • SP books flat NTS Exit Capacity at Moffat on behalf of RoI shippers (& Isle of Man) in accordance with rules approved by the CER • Rights to use SP booked exit capacity accorded to RoI shippers and their NTS counter-parties • No restrictions on NTS shippers directly booking Moffat exit capacity – continue to book directly for gas delivered at Twynholm

11. Addressing adverse impactsThe non-exclusive “Single party” (SP) concept Addresses concerns over • Security of supply • Market foreclosure • Capacity certification withdrawal Requires • Initial prevailing rights allocation to be subject to capacity certification • Overrun arrangements suitable for a non-exclusive SP • UNC to accommodate the Single Party • Exemption for the Single Part under GB legislation

12. Addressing adverse impactsOverrun Rules • Potentially the SP could be overrun user at Moffat, liable for all overruns • This does not work where the SP is a “non-exclusive” booker at Moffat • Shippers not party to the SP arrangements could overrun their independently booked capacity, leaving the SP liable for the overrun charge Option under consideration: Separate logical meters Involves assigning capacity and gas flow allocations to separate SP and “independent” meters

13. Addressing adverse impactsInitial prevailing rights • Mod 116V apportions initial prevailing rights to NTS shippers based on historic capacity holdings • NTS Shippers at Moffat have such holdings based on certificates provided by Downstream Shippers. • This condition is part of current Moffat NG arrangements approved by Ofgem • SP require initial rights or would need to apply for incremental capacity, making the 4 year commitment to its full capacity holding • Can be addressed by making initial rights apportionment subject to the capacity certification process so that appropriate initial rights can be apportioned to the SP

14. Addressing adverse impactsAccommodating the SP • Exemption Requirement • SP will not have GB shipper licence • Requires exemption from the prohibition on unlicensed shipping activities • BERR currently drafting a consultation document SP Exemption • UNC Modification Requirement • UNC will require changes to accommodate the SP • Initial Prevailing Rights • Overrun Rules • BGN are not party to the Uniform Network Code and hence cannot raise the SP required Modification Proposal

15. Exit reform from an interconnector perspectiveLinepack depletion/ flexibility product Flexibility product • No current evidence of scarcity • Monitoring of linepack depletion should be sufficient SP Implications • Extremely complex downstream of Moffat • May necessitate development of an exclusive SP • Uncertain that an exemption would be granted for an exclusive SP

16. Exit reform from an interconnector perspectiveTiming • Review group to deliver draft mod. proposal December 2007 • Ofgem impact assessment and consultation Q1 2008 • Decision subsequently (earliest late Q1 2008??) Insufficient lead time for April 2008 implementation

17. Exit reform from an interconnector perspectiveSummary Mod 116V concerns User commitment model • Security of supply • Market foreclosure • Capacity certification • Initial prevailing rights • Overrun rules Linepack depletion/ flexibility product • Contractual and operational complexity • Allocation of flex usage to shipper level • Uncertain product availability, usage and price • Transfer between exit points/ zones • Application at bi-directional points (not a Moffat Issue) Addressing adverse impacts The non-exclusive “Single party” (SP) • Revised overrun treatment • UNC to accommodate the SP as an exempt party • Initial prevailing rights allocation to be subject to capacity certification Linepack monitoring sufficient, but for development of similar products • Extremely complex downstream of Moffat • May necessitate development of an exclusive SP • Uncertain that an exemption would be granted for an exclusive SP