1. OTEG Adoption group 2 August 2006

2. Agenda 1.Adoption group 2.Importance of issue 3.Issues to be advanced 4.Alternative Solutions 5.Process 6.TO perspectives 7.Timetable

3. Adoption group Constituency Five developer representatives Covering three strategic areas First three consents applications made Two TO representatives, third invited (on a/l) Manufacturer rep One meeting to date Large degree of concensus Paper supported by all at meeting

4. Importance of issue Meeting government targets However, uncertainty introduced: Will offshore transmission be adoptable If so will costs be recovered and what will charges be? If not what will happen? Several projects need to reach investment decision over next 12 months to contribute Continuing uncertainty would lead to: Inability to attract debt Inability to attract equity Reduction in gearing and dilution of equity returns

5. Issues to be advanced to provide clarity Issues: SQSS Ownership boundary Design life Point of Grid Code compliance Overhead v Underground Non-electrical technical requirements Unlikely for all to be complete prior to investment decision Allowance for permanent derogation to enduring standards

6. Alternative solutions Exemption from requirement to have an offshore TL Gives certainty on costs and operability Should be option to ‘opt-in’ May require OFGEM and Secretary of State comfort Adoption process Process for pre-investment approval of asset design and costs Transfer of consents to new TO Clarification of legal position if no third-party TO: Exemption; or Developer receives offshore TO licence Clarification of maximum transmission charges to be levied by TO

7. Process Legal certainty required Two alternatives: 1.Secretary of State and/or OFGEM gives legally binding comfort letter that developers will have option of exemption (and right to ‘opt-in’) 2.OFGEM gives legally binding comfort letter outlining: Process for agreeing design and costs Situation where no third-party TO comes forth Certainty on maximum level of transmission costs These options, with draft comfort letters, to be set out in the October consultation document

8. TO perspective Clear process for adoption in all parties’ interest – TOs therefore fully supportive of need for process to be established and documented asap Main concern: regulatory framework adequately funds whatever is adopted, including additional spend to enable adoption Adoption must be by agreement Other concerns relate to compliance of adopted assets with: Health and safety requirements Industry codes, planning consents, landowner agreements etc. Installation specifications, warranties etc. Scope for assets to be not suitable for adoption, but early clarity on adoption process could minimise this

9. Timescales Oct ‘06: consult on treatment of adoption issue as outlined Dec ’06: comfort letters issued OTEG process should formally recognise the steps being taken to address this issue in its timetable