Modification 0043 – Limitation on offering for sale unsold capacity Transmission Workstream 11 Aug 05

Investment Lead Time – Industry Views Desire for certainty pre-auction to understand implications of any bids post-auction arrangements not supported Where significant risk that not possible to deliver capacity within 3 years, some Users consider appropriate not to expose industry to risk of large buy-back costs …but require clarity on circumstances in which Transco NTS would use any pre-auction flexibility should be “exceptional” circumstances

Proposals - Update IECR Methodology Statement revised to include flexibility pre-auction to not release incremental capacity Ofgem approved 13 July 05 Modification 0036 raised to align UNC and IECR FMR with Ofgem for decision Modification 0037 raised to restrict unsold capacity based on similar principles (as explained at 6th July Workstream meeting) withdrawn based on industry representations considered that some concerns could be addressed

Proposal 0043 - Summary Transco NTS not obliged to release Unsold Capacity in QSEC auctions conducted before 31 March 07 for calendar quarters for which: significant risk that unable to physically deliver all or part of the unsold capacity if allocated; expectation that previously allocated capacity would need to be bought back at same entry point; and written permission obtained from Authority. If such criteria are met at any ASEP, unsold capacity set to zero for future annual, monthly or daily capacity auctions at the ASEP for gas days within the relevant calendar quarter(s)

Example – Unsold Capacity QSEC 05 auction Quarter Released Allocated Unsold Apr- Jun 07 100 90 10 July- Sept 07 50 Oct – Dec 07 Jan – Mar 08 Apr – Jun 08 80 20 Jan – Mar 21 Revised Unsold Applicable to future annual, monthly and daily auctions 100 20

Timetable 12th Aug - Close out of representations 15th Aug - Urgent Modification Report issued 17th Aug - Modification Panel recommendation 18th Aug - Ofgem decision expected 19th Aug – Transco NTS publish QSEC 05 tender