1. Network Flexibility Mike Wassell Transmission workstream, January 2012 1

2. Background  Network Flexibility has been discussed throughout the Talking Networks process  ‘Network flexibility’ does not relate to the ‘Flexibility’ products available under the exit regime  it is about system integrity / resilience  and the way the network will be used  The investments included in our July business plan under the network flexibility banner represent a small proportion of our overall plan (~4%)  These investments, or alternative solutions, will be vital in allowing the network to operate more dynamically 2

3. Current position  Following stakeholder feedback, we have removed the majority of the funding from our ex ante plan  We propose that flexibility-related funding is triggered by our uncertainty mechanism  Following stakeholder engagement and  Full exploration of commercial, operational and physical investment solutions  Following feedback received through our Talking Networks engagement, we wrote out to stakeholders on the 22 nd of December 2011  We asked for opinions on whether current processes meet everyone’s needs and whether new products are required 3

4. Progressing things forward  There are a number of elements of this debate to be taken forward: 1.Requirement for new products or services  We propose this is taken forward and developed via the transmission workgroup 2.How the uncertainty mechanism will work, including the process for liaising with stakeholders and what the trigger will be for funding  We propose that this is presented to transmission workgroup before our final RIIO submission (2 nd March) 3.How the 1 in 20 planning obligation should be developed to take account of future requirements of the network  We are currently assessing internally how best to take this forward in order to ensure the interactions with other obligations are appropriately considered 4

5. Proposal summary  We propose a new review group is set up and the first meeting is held on the afternoon of 23 rd January  This forum will develop any requirements for new products or services  We will present our uncertainty mechanism process to this forum  We will update the transmission workgroup on the work associated with the 1 in 20 planning obligation development at a future meeting  We are asking for the transmission workgroup’s approval for this approach 5