Place your chosen image here. The four corners must just cover the arrow tips. For covers, the three pictures should be the same size and in a straight line. Substitution 27th June 2012

2 Substitution Principles  Any solution needs to take into account substitution prior to submitting a Development Consent Order  Prior to any such reservation parties at the Donor point should have the opportunity to retain the capacity.  If capacity is reserved the party will have to pay a fee for this  If a formal capacity signal is not received within a defined time the reservation is cancelled and the party is charged.

3 Capacity/Connection Processes Options and Issues for substitution OptionAdvantagesChallengesComments 1. Do nothing- Retainer on entry and substitute post capacity signal. Simple. No systems impact. No change to UNC or methodologies Requires application at Y-7; or NG take risk that substitutable capacity remains available; or Proceed with build knowing substitution likely. Does not address issues. Does not take into account substitution prior to the development consent order Inefficient and presents unacceptable risks to all parties. 2a: Reserve for entry/exit as part of PCA. Retainer on entry only Simple No change to UNC or methodologies Entry and exit treated different. Fixed price with no market testing Retainers placed in absence of knowledge of likelihood of capacity being substituted. Refunds as now. 2b: As 2a but also a retainer for exit Simple to implement. Only minor change. Entry and exit capacity treated alike. Fixed price with no market testing Retainers placed in absence of knowledge of likelihood of capacity being substituted. Needs UNC mod for Exit Retainer Charges. Exit Capacity Substitution MS needs amendment. Refunds as for entry. Equal price for exit and entry retainers. When a retainer is taken out it covers all applications for 12 months, and needs to be repeated annually (except option 5)

4 Capacity/Connection Processes Options and Issues for substitution OptionAdvantagesChallengesComments 3: Competitive retainer and reservation. Value based decision to retain or reserve. Pay as bid. Ill-informed application. Reservation Parties must become Users. More complexity. Bids tend to PCA costs New “reservation” charge needed. Can be blind or open auction. 4: Informed retainer post closest auction/application No need for retainers if no substitution identified. Can link retainer to specific project. Fixed price Insufficient time to apply to annual process. Not practical due to time constraints. Scope to simplify refunds. 5: Informed competitive post closest auction/application. Value based decision. Pay as bid. No need for retainers if no substitution identified. Can link retainer to specific project. Insufficient time to apply to annual process. Reservation Parties must become Users. More complexity. Not practical due to time constraints. Refunds could be used to encourage early surrender of retainer or reservation if circumstances change. For option 5: because the retainer was taken out in response to a specific recipient project, the retainer would last until the “recipient” project reaches build decision date. Reservations last until surrendered or substitution confirmed. All options subject to system analysis