Exit Capacity Release Methodology Statement - ExCR Transmission Workstream – 5 th March 2009

2 ExCR Methodology Statement – Recap (1) Requirement of the Gas Transporter Licence.  Special Condition C18: – The licensee shall, before 1 April, prepare and submit for approval by the Authority an NTS exit capacity release methodology statement setting out the methodology by which it will determine how it will release NTS exit capacity to gas shippers or DN operators. – National Grid is required to consult (28 days) on it proposals and provide a conclusions report to Ofgem. – Proposed statement is effective upon approval or, if not vetoed, after 2 months. This means that the ExCR:-  Informs on how and when National Grid will make capacity available for Users to obtain.  Links obligations under both the Licence and UNC and provides extra information where there is lack of detail.  Is particularly important in respect of the release of “obligated incremental” capacity as this often has lead-time and funding implications.

3 ExCR – Recap (2) Part A covers “Transitional Exit Period” Essentially the same as last years ExCR, but with some updating. Part B covers “Enduring Exit Period” Concentrates on release of Enduring Annual NTS Exit (Flat) Capacity: Application Processes; annual, ad-hoc and ARCA. Reduction Process. User Commitment. General Introduction. Covers common sections applicable to both the Transitional and Enduring Exit Periods: e.g. contact for connection services, Licence obligations.

4 Informal Consultation  National Grid NTS conducted an informal consultation on the ExCR during February  5 responses were received and in our view 4 substantive points were raised:  Treatment of transitional increases before implementation of enduring regime  ARCA Commitment in the Transitional Exit Period  Early satisfaction of User commitment  NTS Exit Point and Revenue Driver in Licence

5 Treatment of Transitional Increases Issue: initialised rights get pared back to baseline level even if National Grid NTS has allocated capacity above this level in the transitional period  Not an isolated issue, relevant to both DNs and DCs  Has arisen in part due to delay in implementing exit reform and baselines in effect being determined in 2006  The issue is being specifically consulted upon as part of the ExCR consultation, with an outline proposal

6 Treatment of Transitional Increases - a solution? “Capacity signalled in July 2009, as part of the annual application window, that:  does not require a revenue driver, and  is below or equivalent to the transitional firm capacity at that exit point allocated before 1 October 2008 and applicable in the remaining transitional period would not be subject to a User Commitment.”

7 ARCA Commitment in the Transitional Exit Period Issue: application of a 4 year User Commitment to ARCAs signed within the transitional period  Clarification provided on when the introduction of the 4 year User Commitment takes effect:  For any ARCA signed after 1 May that was not under discussion before 23 February 2009  Justification provided:  Avoid undue discrimination  Consistent with previous ARCA determinations that reference enduring arrangements  Ensure no undue incentives exist to register capacity earlier than actually required

8 Early satisfaction of User commitment Issue: with a User Commitment only based on a time period i.e. 4 years, the financial exposure of requesting a capacity increase is uncertain  ExCR changed to provide means for early satisfaction of User Commitment based on actual charges paid or forecast to be paid (within 14 months)  The principle provides relative certainty of the financial liability of shippers registering an increase in capacity

9 NTS Exit Point and Revenue Driver in Licence Issue: number of respondents thought that the lead time required to obtain a revenue driver and/or get a new point into the Licence should not apply  No change to the ExCR has been made. As National Grid NTS believes that the principle is valid as:  indicative prices need to be generated  use of permits need to be determined  National Grid NTS needs to understand its remuneration to determine investment  systems need to be able to accept applications  consistent with entry  Additional comfort provided in terms of confidentiality and we will continue to work with Ofgem to reduce the time required

10 Timeline and Next Steps  23 rd February consultation commenced (28 days) – close out 17:00 23 March 2009  Please feel free to call Andrew Fox / Martin Watson / Lesley Ramsey to discuss the document  Early responses would be appreciated, to help drafting final version and to provide opportunity for us to seek clarifications  National Grid NTS will submit the final version of the ExCR to Ofgem by 1 April 2009