Mod 214 – Reservation of firm NTS Exit Capacity at new NTS Exit Points in the transitional period Steve Rose

2 Transitional Period Mod 198 extended the transitional period out to Oct 2012 Third time the sunset clauses have been extended GEMA currently expect to reconsider 116V (and all its variants) along with 195/195A in Nov 08 but: –this date could slip –NG remains concerned over the timelines for implementing any of the mods for Jul 2009 –possibility of further appeals Transitional period could therefore extend beyond Oct 2012 User’s will continue having to book NTS Exit Capacity subject to the UNC and NG’s ExCR Methodology Statement during this time.

3 ExCR & UNC – Shipper User Latest ExCR (currently awaiting Ofgem determination) states that: –where existing exit capacity is available it will be allocated on a first come first served basis. Shipper Users shall request it in accordance with UNC section G2 and B3.2 –where incremental exit capacity is required within investment lead times it will be allocated only if a safe operating system can be maintained and if analysis demonstrates that it is economical to do so –where incremental exit capacity is required beyond investment lead times an ARCA will be offered providing specific reinforcement is required and the incremental request is for greater than 20m therms p.a. –incremental exit capacity (where no reinforcement needed) cannot be booked more than 6 months prior to first gas flowing UNC: –Section B3.2.2.b states Shipper Users are not allowed to apply for NTS Exit Capacity at a NTS CSEP earlier than 6 mos prior to the proposed date of registration, but makes no mention of any linkage to first gas flow –Section G2 applies to new NTS Supply Point Components but makes no mention of a 6 mos restriction. New site can only be registered once on SPR

4 Shipper User Risks Not entirely clear what the basis for Shipper Users booking NTS Exit Capacity is during the transitional period: –NTS CSEP v NTS Supply Point Component –new NTS Exit Point v incremental increase at existing NTS Exit Point –6 mos prior to proposed registration date or first gas flow date –when new site can be recorded on SPR and interaction with NExA and meter Shipper Users are exposed to the risk that exit capacity that exists when they start building their facility (power station/storage site/interconnector) will not be available when they come to commission their facility. If NTS reinforcement is required an ARCA will alleviate the risk of capacity not being available when required. But: –generic ARCA terms make the Shipper User liable for the full cost of reinforcement unless it can successfully appeal it to Ofgem using previous precedents. –ARCA only applies if demand > 20m therms p.a.

5 ExCR & UNC – DNO User DNO Users acquire NTS Offtake Capacity in accordance with the ExCR Methodology Statement and UNC Section B6 DNO Users subject to the same ExCR restrictions as Shipper User except DNO Users can book incremental capacity outside investment lead times if NTS reinforcement is not required. Section B6: –requires NG to issue an OCS for Gas Years throughout the transitional period –allows DNO Users to apply increase Offtake Capacity for any Gas Year shown on the OCS in each July Application Window –allows DNO Users to increase Offtake Capacity for any Gas Year shown on the OCS out with the July Application Window in response to a new or additional capacity request at an LDZ Supply Point

6 Proposal (1) UNC should specify the circumstances whereby NG will be required to enter into an ARCA with a Shipper User or non code party for NTS Exit Capacity at a new NTS Exit Point. This will provide greater clarity as to when capacity can be registered/reserved and remove the risk that existing capacity may not be available at the point of commissioning. Circumstances where an ARCA would be required to be offered under the UNC are: –specific reinforcement is required as is currently the case, except minus the 20m therm p.a. threshold –existing firm exit capacity is available or specific reinforcement is not required but a Shipper User has demonstrated to NG that its relevant consents have been secured, or are securable, and that its relevant construction programme is on target to offtake gas by the capacity request date This will provide greater clarity and flexibility in when capacity can be reserved and should ensure that existing firm capacity is only reserved in advance only where it can be reasonably demonstrated that a facility is going to be built that will use it.

7 Proposal (2) The UNC would also reference the high level terms which might be expected to be included within such an ARCA such as: –duration and registration dates –scheduling and rescheduling of any specific reinforcement –NG’s obligations and liabilities when making capacity available –Shipper User’s obligations and liabilities to pay charges and provide security –assignment, force majeure and other boilerplate conditions –site specific offtake parameters NG would offer an ARCA within 10 business days successful demonstration and a Shipper User’s would have 20 business days to accept it. In the event the terms were deemed unreasonable it could still be appealed to Ofgem. NG would not offer an ARCA to a Shipper User with a credit restriction. Any such ARCAs would be valid only during the transitional period and this mod would not affect the terms of any existing ARCAs. NG might be expected to amend the terms of their ExCR to reflect this mod and may also reconsider the terms of the current generic ARCA to align the user commitment therein with that included in the enduring offtake reform Modification Proposals.