Proposed Transitional Gas Exit Arrangements

1. Proposed Transitional Gas Exit Arrangements Presentation to Transmission Workstream 01 September 2005

2. Contents • Impact of Delay to Enduring Arrangements • Proposed Transitory Arrangements • Impacted areas • Consultation timetable

3. Update on Authority Decisions • Authority decision on Network Sales concluded that NTS Exit arrangements required reform to be introduced in two phases: • “Interim” Arrangements established new commercial framework recognising the new NTS/DN interface • “Enduring” Arrangements (by September 2005) to introduce more market based arrangements effective from gas year 2008/09 • On 24 June, Authority announced delay to implementation of Enduring Arrangements until September 2007 for release of capacity rights from gas year 2010/11

4. Implications of delay • Regime requires to be extended to cover gas years 2008/09 and 2009/10 • Regime requires to address within and beyond typical 3 year investment lead time • Concept of “Transitional Arrangements”

5. Transitory Arrangements - Proposed Principles • Capacity products and contracting/invoicing parties unchanged • Capacity requests/allocations extended to 30 Sept 2010 • Shippers – continuation of current rules • DNOs – extend to one further year ahead • Incremental investments to be backed by firm financial commitment • Additional information from DCs and DNs to support 5 year NTS development plan • Seek to implement Oct 05

6. Impacted Areas • UNC – Capacity registration and information exchange • IExCR – Incremental Exit Capacity Release Methodology Statement • SC4B – Standard Condition 4B (Connection charging methodology) • ARCA – Advanced Reservation of Capacity Agreement requires for DNs

7. Proposed UNC Modifications • Two UNC Modifications have been raised: 1) 0038: Re-introduce formal planning information from DNs (“PS3”) 2) 0046: Extend sunset clauses to allow DNs to request and NTS to confirm capacity beyond September 2008 • Considered required to help demonstrate that Transco NTS and DNs are meeting Safety Case requirements in the absence of any other enduring mechanism • formalise mechanism by which Transco NTS and DNs agree capacity entitlements 3 years ahead • ensure sufficient lead time for required investments

8. Modification 0046- Interim Arrangements • Shipper Users able to request increases in Firm Capacity or redesignation of Interruptible Supply Points as Firm until 30 Sept 2008 • Offtake Capacity Statement for each DNO sets out for each of its NTS/LDZ offtakes for each Gas Year until 30 Sept 2008: • NTS Offtake (Flat and Flexibility) Capacity • Assured Offtake Pressures • DNOs can request increase or decrease to these amounts during June-July each year (“the Application Window”) • Transco NTS responds by 30 Sept each year with updated Offtake Capacity Statements • Incremental capacity requests assessed in accordance with Incremental Exit Capacity Release Methodology Statement (IExCR)

9. Modification 0046- Transitional Arrangements • Delay to implementation of enduring offtake arrangements requires development of transitional arrangements • Gas Years 2008/09 and 2009/10 • Modification 0046 proposes to extend sunset clauses in UNC to Sept 2010 such that • Shipper Users able to register increases in Firm Capacity or redesignation of Interruptible Supply Points as Firm up to Sept 2010 • DNO Users able to register capacity for 2008/09 as soon as possible and 2009/10 next June/July

10. Modification 0046- Proposed Timetable

11. Modification 0046- Transco NTS assessment • NTS Offtake Capacity requests • Incremental capacity requests assessed in accordance with revised IExCR Methodology Statement • Require consideration as to when appropriate for Transco NTS to invest in NTS • Transco NTS to consult on revised IExCR over period of consultation on Mod 0046 • Assured Offtake Pressure requests • Transco NTS will accept requests up to previous Gas Year value • Higher pressure requests assessed in accordance with current criteria in UNC ie. whether Transco NTS would be able to make gas available for offtake in all feasible conditions

12. Transitional IExCRIncremental Capacity requests • Requests in excess of following values deemed to be requests for “incremental capacity” • NTS Exit Capacity • prevailing registered quantities held by Shippers at NTS Exit Points • NTS Offtake (Flat/Flex) Capacity • as stated in the prevailing Offtake Capacity Statement for previous Gas Year I.e request for 2008/09 based on 2007/08 allocation

13. Transitional IExCR Allocation of incremental capacity requests * In accordance with SC4B 'Transco NTS Statement of principles and methods to be used to determine charges for National Transmission System Connection Services'

14. DN ARCA - Principles • Extension of principles applied to NTS direct connects • DN ARCA required in accordance with proposed conditions in SC4B ie. where require Specific Reinforcement for • incremental NTS Offtake (Flat) Capacity > 20 mtpa; and/or • any incremental NTS Offtake (Flexibility) Capacity • Will state level of financial commitment from DN and amount of “reserved” capacity • Each specific agreement based on a generic form of agreement - based on Langage ARCA • Transco NTS and DNO to agree delivery date for reserved capacity, but delivery date can be delayed due to specific events beyond Transco NTS control eg. granting of relevant provisions • Disputes referred to Ofgem

15. DN ARCA - Liabilities • DNO User required to book stated levels of capacity or pay Transco NTS the “Outstanding Amount”: • ARCA Commitment – Booked Incremental NTS Offtake (Flat/Flex) Capacity x prevailing NTS Exit Capacity Charge over first 2 years of capacity availability • where “ARCA commitment” is 1 years NTS Exit Capacity Charge for incremental NTS Offtake (Flat/Flex) Capacity • Transco NTS liabilities covered by existing UNC failure to make available for offtake payments

16. Timetable • Mod 0046 • Consultation 19 Aug – 9 Sept • FMR to be submitted to Ofgem for decision [23 Sept] • Supporting documents • Consultation [25 Aug – 22 Sept] • Submit to Ofgem for decision [28 Sept]