UNC Modification Proposal Revised Timescales for LDZ Shrinkage Arrangements Simon Trivella – 25 th September 2008 Distribution Workstream

Current Arrangements UNC TPD Section N 3.1 & 3.2 –LDZ Shrinkage Quantity and Notification Procedures UNC TPD Section N 3.3 –Assessment of LDZ Shrinkage UNC TPD Section N 3.4 –LDZ Shrinkage Adjustment (reconciliation)

Current Arrangements LDZ Shrinkage Quantity and Notification Procedures –Initial estimate by 1 July (3 months notice) –User representations by 1 August –DNs to review representations by 15 August –Final estimates by 1 September (1 months notice) –Application to Ofgem for Disapproval by 15 September –LDZ Shrinkage Quantity applicable from 1 October

Current Arrangements Assessment and Adjustment of LDZ Shrinkage –Review and report by 31 March (6 months after Gas Year) –Carry out any necessary reconciliation In accordance with the “LDZ Shrinkage Adjustments Methodology”

Intent of Proposal Retain all current obligations –3 months notice period for Initial Estimates –1 months notice for Final Estimates Timescales relative to Formula Year instead of Gas Year –Effectively ‘shift’ the complete process by 6 months Assessment and Adjustment Period –To take place within 4 months instead of 6 months

Current LDZ Shrinkage Arrangements April, May & early June Analysis carried out to support initial Shrinkage proposals 1 July Submit estimated LDZ Shrinkage / methodology to Users “Initial Proposals” Late June / early July Opportunity to present estimated Shrinkage to Shrinkage Forum 1 September Submit final estimated LDZ Shrinkage / methodology to Users “Final Proposals” 1 July – 1 August Users may submit representations in respect of the estimated Shrinkage 1 – 15 August DNs to consider User representations and may convene meeting if deemed appropriate 1 – 15 September Users may request a disallowance 15 September – 1 October Possible Ofgem Determination Process Late September load new LDZ Shrinkage Quantities into Gemini Gas Year… Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Proposed LDZ Shrinkage Arrangements Oct, Nov & early December Analysis carried out to support initial Shrinkage proposals 1 January Submit estimated LDZ Shrinkage / methodology to Users “Initial Proposals” Late Dec / early Jan Opportunity to present estimated Shrinkage to Shrinkage Forum 1 March Submit final estimated LDZ Shrinkage / methodology to Users “Final Proposals” 1 Jan – 1 February Users may submit representations in respect of the estimated Shrinkage 1 – 15 February DNs to consider User representations and may convene meeting if deemed appropriate 1 – 15 March Users may request a disallowance 15 March – 1 April Possible Ofgem Determination Process Late March load new LDZ Shrinkage Quantities into Gemini Formula Year… Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Current LDZ Shrinkage Arrangements … Gas Year Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 1 October Final Estimate of LDZ Shrinkage Quantities become effective (subject to Representations and Ofgem non-veto) 1 September Submit final estimated LDZ Shrinkage / methodology to Users “Final Proposals” 1 July Submit estimated LDZ Shrinkage / methodology to Users “Initial Proposals” by 31 March DNs to undertake a reconciliation for any differences between Estimated and Assessed Shrinkage Quantities October to March Opportunity for DN to assess LDZ Shrinkage for the previous Gas Year using available historic information

Proposed LDZ Shrinkage Arrangements … Formula Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct 1 April Final Estimate of LDZ Shrinkage Quantities become effective (subject to Representations and Ofgem non-veto) 1 March Submit final estimated LDZ Shrinkage / methodology to Users “Final Proposals” 1 January Submit estimated LDZ Shrinkage / methodology to Users “Initial Proposals” by 31 July DNs to undertake a reconciliation for any differences between Estimated and Assessed Shrinkage Quantities April to July Opportunity for DN to assess LDZ Shrinkage for the previous Formula Year using available historic information

Advantages Transporters –Aligns annual Assessment with Regulatory Reporting requirements –Aligns annual Assessment with licence incentives (Shrinkage / Emissions) –Aligns with LDZ Transportation Charging period (now April instead of Oct) –More timely operational and network information available for estimates Users –Improved accuracy of estimates due to available information –Reduced timeframe for Adjustments / Reconciliations

Disadvantages Transporter –Shorter timeframe for Assessments and Adjustments Users –None identified

Transitional arrangements Oct 07 to Mar 08 period not Assessed in July 09 –Transporters to undertake Assessment / Adjustment in Dec 08 LDZ Shrinkage Adjustments Methodology (N 3.4) –Transporter document requiring UNCC Approval –Changes required to account of Mod 0203V and 0225 –Potential for phased approach / transitional arrangements –Draft version to be published in October 08

Next Steps (proposed) 7 th October 08 – Billing Ops Forum 16 th October 08 – UNC Modification Panel 20 th October 08 – Consultation Phase commences 23 rd October 08 – Distribution Workstream 7 th November 08 – Consultation Phases closes 20 th November 08 – FMR considered by UNC Modification Panel December 08 – Ofgem decision 29 th December 08 – Proposed Implementation Date 31st December 08 – DNs publish Initial Estimates for April 09 LDZ Shrinkage

UNC Modification Proposal Revised Timescales for LDZ Shrinkage Arrangements Simon Trivella – 25 th September 2008 Distribution Workstream