1. DNPC06 LDZ NEC Charges Denis Aitchison 25 th January 2010

2. Reason for Change Currently DN shippers pay Commodity and Capacity Charges for Exit from the NTS direct to NG NTS As part of Exit Reform, with effect from 1 October 2012 the DNs will pay the Exit Capacity Charges for their DNs and their Allowed Revenues will be adjusted to allow them to recover the cost from the DN shippers This will require the introduction of new LDZ Capacity Charges. It is proposed to call these new charges LDZ NEC Charges.

3. NTS Exit Reform Arrangements Nodal, Offtake specific Exit (Flat) Capacity Charges will be applied to the DNs. The NTS will no longer charge by Exit Zone. The charge would be a flat pence per peak day kilowatt hour per day at each NTS/LDZ Offtake. No Flex Capacity Charges

4. DN Proposals The DN Proposals cover : The type of Charge to be applied How the Charge would be applied Separate management of the element of K relating to this charge

5. Type of Charge The LDZ NEC Charge unit rate would be a flat pence per peak day kWh rate as per current NTS Exit Capacity charges The Charge would be applied to the SOQ of every DN supply point All the respondents to DNPD04 supported this proposal, citing various reasons for support:- -Simple -Cost Reflective -No good reason to change Therefore no other type of charge is being proposed

6. Application of New Charge Options: By Exit Zone By Network In DNPD04 there was the additional option of applying the new charge by Offtake, but: It received relatively little support It would be difficult to implement therefore it is no longer being consulted on.

7. By Exit Zone Consistent with current NTS practice No practical billing or mapping problems May be most cost-reflective practical option Maintains current locational signals within Networks but these may be of little practical value or even misleading. Would introduce additional complexity and volatility into the DN Charging Methodology

8. By Network Significantly less volatility in the level of charges The major part of the NTS locational signals, those between Networks, would be retained Benefits of interruption contracts spread across Network More easily compatible with future developments (biogas) Consistent with the DNs having flexibility in booking NTS Exit Capacity Maintains principle of same charges across whole Network and would be simplest to administer and probably cheapest for DNs and shippers to implement

9. Effect of Interruption Rights After 1 October 2011 all DN Supply Points will be firm DNs will purchase interruption rights from Supply Points This might reduce the amount of NTS Exit capacity required by the DN The charges to shippers will be based on the total the DN has to pay to NG NTS

10. Misalignment of Price Change Dates NG NTS changes its Exit Capacity Charges on 1 October DNs change their charges on 1 April Misalignment could cause the DNs to under- or over- recover because they will not be able to respond to an NTS October price change until April the following year.

11. Separate Management of K Separate management of the element of K relating to the LDZ NEC Charges This K would reflect shipper proportions of LDZ NEC Charges only Would be used purely for setting the levels of the LDZ NEC Charges

12. Questions for Consultation Should LDZ NEC Charges be based on a flat rate pence per peak day kWh rate Should this new charge be applied by Exit Zone or by Network Should the DNs seek to address the misalignment of the NTS and DN dates for changing charges Should separate management of the element of K relating to the LDZ NEC Charges be introduced for the purpose of setting the level of these charges

13. Next Steps Responses should be sent to the Joint Office by Friday 19 th February 2010 Changes to UNC will be required to implement a new charge