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

2 Exit Capacity Release Methodology Statement. 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 – Overview 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 ExCR – Part A Part A covers “Transitional Exit Period”. Main changes are: ARCA terms (paragraph 21) To ensure consistency with the Enduring Exit Period the User Commitment will be based on four years of exit capacity charges. Forwards and Options (paragraph 28) Mitigating actions that may be explored (to enable release of capacity) include; forwards and options. Lead-times (paragraph 36) Section B applies to requests for capacity beyond investment lead times and for release in the Transitional Exit Period. So the section has limited scope; applying only to offers made before 1 st July 2009.

5 ExCR – Part B Part B covers “Enduring Exit Period”. Concentrates on release of Enduring NTS Exit (Flat) Capacity: Application Processes; Annual Application Window; Non-window (“Ad-hoc”); and ARCA applications. Reduction Process User Commitment also covers release of: Annual, Daily and Non-Obligated NTS Exit (Flat) Capacity: and NTS Exit (Flexibility) Capacity

6 Part B: Major Points a) Capacity Terminology (paragraphs 4 – 8).  Capacity terms used in the Licence and UNC are complex and not totally aligned. – We are currently pursuing possible changes to the Licence.  Until, any changes are implemented the ExCR refers to existing terminology. A revision may be required in Q  Diagrams provide a simplified explanation of the terms used. – But the Licence and UNC definitions prevail. b) Planning Process (paragraphs 10 – 16).  Long term User signals are the driver to investment.  Exit Capacity Substitution obligation is intended to reduce unnecessary investment. – NG expects the obligation to be deferred.

7 Part B: Major Points c) Principles (Chapter 1)  National Grid will release NTS Exit Capacity (including baseline capacity) having regard to: – Overriding obligations in the Gas Act and the Licence; e.g. where safe and efficient to do so. – Reasonable endeavours obligation in the Licence.  National Grid will release Enduring Annual NTS Exit (Flat) Capacity subject to a User Commitment. – Other forms of exit capacity will not require a User Commitment.

8 Part B: Allocation of Enduring Annual NTS Exit (Flat) Capacity (Chapter 2) d) Initialisation (paragraphs 26-30).  The ExCR refers to UNC Transition Document for initialisation rules.  For NTS Supply Points and NTS Connected System Exit Points – the maximum firm capacity utilised is the highest value of capacity booking for any Gas Day in Gas Year 2007/8: and – the maximum interruptible capacity utilised is the highest value of any interruptible gas allocation for any Gas Day in Gas Year 2007/8: – where either of the above two values would be in excess of the baseline the values will be pared back to the baseline - firstly interruptible and then firm on a pro rata basis – where an ARCA has been agreed with a capacity release date within the Transitional Exit Period, the value specified in the ARCA is used: and – For new NTS Exit Points that are not subject to an ARCA the registered allocation at 30th September 2012 is used.  For DN Offtakes – The 2008 OCS is used – New offtakes / ARCA treated same as Supply Points

9 Part B: Allocation of Enduring Annual NTS Exit (Flat) Capacity (Chapter 2) e) Increases  Three processes  Subject to User Commitment (paragraph 33) – But the User Commitment is not applicable to the initialisation quantity, unless increased (see paragraph 34).  Exit Point must be in Licence (paragraph 36),  National Grid will only be obliged to release incremental capacity, where there is a revenue driver in the Licence (paragraph 36) – May need six months notice before application / ARCA.  National Grid may enter into a PWA if an applicant is unable to provide long term signal (see paragraph 38). Annual WindowAd-hocARCA Release dates 1 st Oct Y+4, Y+5, Y+6 1 st Month, M+7 to 1 st Oct Y+4 As for ad-hoc (para 58) Application Dates1 st – 31 st July1 st Oct – 30 th JuneAny time

10 Part B: Allocation of Enduring Annual NTS Exit (Flat) Capacity (Chapter 2) f) Reductions.  Requests can only be made in the annual reduction window (1 st – 15 th July) or in response to an ad-hoc request from National Grid (paragraph 63).  Only permitted if there is no outstanding User Commitment and normally requires 14 months notice (paragraph 61).  Reduction before Oct Y+2 (i.e. less than 14 months) permitted at National Grid discretion where this would mitigate the need to release incremental capacity at the exit point (paragraph 65).  Reductions must be effective on 1 st of month and no earlier than Oct Y+1 (paragraph 64).  Applies to initial allocation as at 1 st Oct 2012 (paragraph 62).

11 Part B: Allocation of Enduring Annual NTS Exit (Flat) Capacity (Chapter 2) g) User Commitment (paragraphs 68-73).  This requires the User to be the registered User of (and hence to pay for) the allocated capacity for four years.  It applies to all tranches/increases in an application and applies to the total allocation (incremental plus existing).  The User Commitment Amount is only relevant if the allocated quantity is reduced early (generally this is not permitted); except  The User Commitment Amount is paid by a Reservation Party if all the reserved capacity is not allocated or is allocated late. h) User Commitment Amount (paragraphs 74-79)  Only determined if needed.  Is based on the indicative price in the offer / ARCA.  Calculated as Price * Quantity * Days (for which capacity not allocated) – Calculated from reduction effective date to 4 th anniversary of release for Users; – Calculated from release date to date of allocation for non-Users.

12 Part B: Allocation of Enduring Annual NTS Exit (Flat) Capacity (Chapter 2) i) Multiple ad-hoc applications & ad-hoc applications overlapping the annual window (paragraphs 50-52).  Applications for capacity made in the annual application window will be considered in aggregate, whereas  Ad-hoc and ARCA applications will be considered individually as they are subject to an offer / acceptance process.  Each ad-hoc / ARCA application can affect the offer to made in respect of other ad-hoc / ARCA applications or those in the annual window.  Hence in respect of interacting / overlapping applications process National Grid will seek to amend offer / acceptance timelines and they will be considered sequentially.  If agreement on timelines cannot be agreed then the offer will be based on all outstanding offers being accepted (i.e. assume worst case). This will also apply in respect of the annual application window process.

13 Part B: Allocation of Enduring Annual NTS Exit (Flat) Capacity (Chapter 2) j) Default Capacity Release Lead-Times.  Where incremental capacity is required to be released this will normally be from 1 st October Y+4.  Permits may shorten or extend the default time-line – Early contact needed

14 Part B: Allocation of Other Capacity Products (Chapters 3, 4, 5) k) Annual NTS Exit (Flat) Capacity.  Refers to UNC processes. l) Daily NTS Exit (Flat) Capacity.  Refers to UNC processes.  National Grid may release non-obligated capacity. This will be in accordance with incentives and obligations in the Licence.  “Off-peak” released in accordance with UNC. m) NTS Exit (Flexibility) Capacity.  Available to DNO Users only.  Shippers obtain flow flexibility via OPNs.  Incremental NTS Exit (Flexibility) Capacity will not be released if this would increase costs, adversely impact safety, trigger reinforcement, or exceed the baseline quantity.  National Grid may release non-obligated capacity. This will be in accordance with incentives and obligations in the Licence.

15 Timeline and Next Steps  Presentation on draft ExCR.  05 th February at Transmission Workstream.  With Ofgem.  Review/Amend draft ExCR to resolve issues raised as appropriate.  23 rd February commence consultation (28 days).  Submit proposed ExCR to Authority (by 31 st March 2009)  01 May 2009 ExCR effective.  Assumes approval within 1 month (Licence allows 2 months).