Planning and Advanced Reservation of Capacity Agreement – TX workgroup Update

1. Planning and Advanced Reservation of Capacity Agreement – TX workgroup Update 7th February 2013

2. Purpose • Provide regular updates to Transmission workgroup on progress of cap/conn • Including high level overview of key discussion points • Detail on next steps and plan to progress

3. Refresher 1 NG NTS cap/con objectives include: • Develop an industry wide consensus of approach to modify the regime considering the impacts of the Planning Act (2008) • Work together with our customers to ensure we meet their requirements • Flexible lead times to adapt to specific projects • Some projects may require a DCO for both NG and the customer • Some projects may require a DCO for just the customer • Some projects may not require a DCO at all etc. • Define a transparent capacity and connection process that provides greater certainty and flexibility to our customers

4. Refresher 2 Key aspects of the PARCA contract include: • Developers and/or Users are able to reserve Quarterly NTS Entry and/or Enduring NTS Exit (Flat) Capacity through a PARCA • Underpins work required to investigate build / no build options to provide the required capacity • Phased User Commitment up to point of capacity allocation • PARCA stages provide natural break points • Reserved unsold returns to market where PARCA terminated • PARCA signatory funds revenue allowance to cover spend / committed spend where PARCA terminated • Capacity financially committed to upon allocation to the User associated to the PARCA • Allocation subject to terms and conditions of the PARCA (e.g. relevant demo info provided)

5. Refresher 3 Potential changes to existing Entry Capacity release mechanisms include: • March QSEC • Incremental release not guaranteed • Demand for incremental may be met through substitution, existing capability or through non-obligated release • Ad-hoc QSEC • No longer for new ASEPs • National Grid NTS invite Users to book unsold capacity that may otherwise be reserved through a PARCA • The need for such a process is currently under discussion • workgroup sentiment is that this may not be needed

6. Refresher 4 Potential changes to existing Exit Capacity release mechanisms include: • Enduring applications • Incremental release not guaranteed • Demand for incremental may be met through substitution, existing capability or through non-obligated release • Additional ad-hoc process • National Grid NTS invite Users to book unsold capacity that may otherwise be reserved through a PARCA • The need for such a process is under discussion • Workgroup sentiment that this is not needed

7. What did we cover in the last cap/conn workgroup? • Updated on outstanding workgroup NG actions • PARCA Funding arrangements • Options we have considered and proposed way forward including: • Financial commitment • Revenue driver approach • PARCA scenarios • Focussed on interactive projects and “what if” scenarios around this • Outstanding PARCA issues update and clarification – focus on this today • Material is available on our dedicated webpage: http://www.nationalgrid.com/uk/Gas/Connections/CapacityandConnections

8. Update on outstanding issues • We proposed a potential way forward at the workgroup on the current outstanding issues • Aim to develop business rules and the UNC modification based on the workgroup feedback • Our ambition is to formally raise the PARCA UNC modification (for subsequent workgroup development) by April 2013 • We need to consider system impacts (if any) e.g. is existing functionality fit for purpose. • The following slide details a potential forward on the outstanding issues

9. Outstanding Issues: Fine tuning of Capacity within the PARCA • Fine tuning of capacity should be permitted • The fine tuning range is provided by the PARCA signatory • Demo info will be required to detail the customers project design margins/uncertainty and provide rationale for them • Through stage 1a of the PARCA, NGG inform the PARCA signatory of whether the requested range can be accommodated. • In the unlikely event it can not be accommodated, NG provide a revised range at the earliest opportunity within stage 1a. • The PARCA signatory can review and adjust their initial capacity requirement within the permitted range • subject to demonstration information being provided

10. Outstanding Issues: Fine tuning of Capacity within the PARCA (2) • National Grid NTS have opportunity, through the PARCA lifecycle, to revise the permitted range and communicate why the revision is required. • e.g supply/demand assumptions could change etc • may provide additional or reduced scope for further refinement • Workgroup sentiment was that fine tuning should be permitted throughout the PARCA lifecycle • if further unsold capacity needs to be reserved this can occur up to the point of Capacity allocation as long as the need is sufficiently demonstrated

11. Outstanding issues: PARCA Window and Ad-hoc PARCA processes • A PARCA window would allow Users considering a PARCA to approach NG to allow multiple PARCAs to be considered together • e.g. interactive • Workgroup sentiment is that the PARCA window is not required. • National Grid NTS should be aware of imminent projects that could be interactive and hence can manage this accordingly • National Grid NTS will publish pertinent information to industry to inform views • This encourages potential projects to engage with National Grid NTS at the earliest opportunity. • PARCA triggered Ad-hoc Exit process - not required. • Existing ad-hoc provisions combined with clearly defined NG publishing obligations can be utilised by Users • PARCA Ad-hoc Entry process • Workgroup sentiment that this may not be needed. Users could factor the risk into their auction strategy

12. Outstanding Issues: Does the solution need to comply with EU Capacity codes? Agreed way forward: • Incremental EU rules in their infancy • Cap/Conn – seeking implementation by April 2014 • ahead of currently anticipated CAM, CMP and incremental implementation timeframes • PARCA solution should be progressed to include EU IPs • EU IP arrangements may need to change upon EU code implementation

13. Outstanding Issues: What scope should there be to amend the capacity delivery date? Agreed way forward: • Applies to both National Grid NTS and the PARCA signatory • National Grid NTS commit to an indicative capacity delivery date post stage 1a • subject to the terms and conditions of the PARCA e.g. planning consent may not be granted, demo info not provided etc. • As the project progresses, there may be scope to bring the date forward e.g. acceleration of planning activities or finessing of options • Only where valued & requested • must consider the impact on other Users

14. Outstanding Issues: What scope should there be to amend the capacity delivery date? (2) • NG NTS cannot, by default, extend indicative delivery timescales unless agreed with the PARCA signatory • subject to the PARCA terms and conditions e.g. has planning consent been granted • Constraint management principles apply where National Grid NTS do not deliver to the agreed delivery date (subject to the PARCA Terms and conditions) • We believe this commitment is necessary to provide increased certainty and value to our customers • PARCA signatory agrees to the capacity delivery date and formal capacity allocation date post stage 1a of the PARCA • The impact of the failure to provide demonstration information needs further consideration • Should the capacity delivery date move where demo info is not provided on time? • Should the capacity delivery date remain static regardless?

15. Next steps • Further workgroup scheduled for 27th of Feb • Potentially cover: • Initial thoughts on potential licence changes e.g. • lead times and incentives • revenue driver requirements etc. • PARCA contract – aim is for an initial draft of the PARCA contract to be available for discussion and review • Business rules and mod developed over the coming months