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

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

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

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”

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

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

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

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)

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

Modification 0046 - Proposed Timetable Application Window Requests for Amended Cap. – Relevant Gas Years Requests for Initial Capacity – Relevant Gas Year Transco NTS Response to Capacity Request Two weeks after implementation of Proposal 2008/09 Six weeks after implementation of Proposal June/July 2006 2006/07 2007/08 2009/10 30 September 2006 June/July 2007 30 September 2007 June/July 2008 30 September 2008 June/July 2009 30 September 2009

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

Transitional IExCR Incremental 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

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'

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

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

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]