1. Mod 0508 Revised Distributed Gas Charging Arrangements  Proposed change to take into account that flows from DN Entry points to DN Supply Points should not be subject to NTS Exit commodity charges as they are at present  Two key issues:  Should NTS Exit commodity charges be payable at DN Supply Points where gas is supplied from DN Entry Points?  If not, what is the best means of modifying the charging arrangements?

2. NTS Exit Commodity Charges  SO Exit Commodity Charge  This and the SO Entry Commodity Charge are applied uniformly on both entry and exit flows at all NTS system points. The target revenue to be raised by the charges is the NTS SO allowed revenue. There is no specific element of the SO allowed revenue targeted by the exit charges.  TO Exit Commodity Charge  The charge is levied where National Grid forecasts that the exit capacity revenue (otherwise recovered by the TO exit capacity charges) will be below the target revenue. There is no specific element of the TO allowed revenue targeted by the exit charges.

3. Current Supply Point Charging Arrangement for NTS Exit Commodity Charges GDN Supply Points NTS DN Entry Point X+Y kWh Y kWh X kWh NTS Exit commodity charges are applied to all X+Y kWh offtaken at GDN Supply Points

4. Possible modification to charging basis: Modify Throughput basis for NTS Commodity Charge GDN Supply Points NTS DN Entry Point X+Y kWh Y kWh X kWh X kWh actually offtaken –Base flow on GDN Supply Point throughput (X+Y) less DN Entry flows (Y) -Charge basis: (X+Y)-Y= X kWh -Adjustment needs to be made on a shipper-specific basis -Requires complex adjustments to achieve -Shipper only entering gas at DN Entry Point to DN Supply Point would not pay NTS Exit commodity charges (since Supply Point flow would be offset by entry flow i.e. Y-Y=0)

5. Alternative 1: Introduce NTS Exit Commodity Charge rebate for DN Entry Points GDN Supply Points NTS DN Entry Point X+Y kWh Y kWh X kWh NTS Exit commodity still charged on all X+Y throughput offtaken at DN Supply Points NTS Exit commodity rates adjusted to take account of level of rebate provided at DN Entry Points to ensure same overall collected revenue Shipper entering gas at DN Entry Point to DN Supply Point would pay NTS Exit charge but get offsetting NTS DN Entry rebate NTS rebate Y kWh

6. Alternative 2: Introduce Additional GDN Rebate equivalent to NTS Exit Commodity Charge for DN Entry Points GDN Supply Points NTS DN Entry Point X+Y kWh Y kWh X kWh NTS Exit commodity still charged on all X+Y throughput offtaken at DN Supply Points Other DN charging rates adjusted to take account of level of rebate provided at DN Entry Points to ensure same overall DN collected revenue Shipper entering gas at DN Entry Point to DN Supply Point would pay NTS Exit charge but get offsetting GDN DN Entry rebate so impact is the same as for Alternative 1 GDN rebate Y kWh

7. Summary  Considered that NTS Exit commodity charges should not be payable for gas supplied from DN Entry Points to DN Supply Points  Therefore appropriate to adjust charges for DN Entry flows in some manner  Consider that Alternative 2 arrangement of additional DN Entry rebate equivalent to NTS Exit Commodity charge levels is the most appropriate (this is the Mod 0508 proposal)  This charging arrangement should involve no additional costs since adjustment can just be made to existing DN Entry commodity rates for which billing arrangement is already in place  DNs already monitor and forecast DN entry flows for Mod 0391 credit purposes so simple to update entry rates  The impacts of GDN and NTS rebate approaches differ only in how DN entry credits (payments) would be balanced out.  No immediate financial impact for either GDNs or NGT with any solution since revenues are price controlled. Rationale is to send the right charging signal for DN Entry.  With NTS credit approach, adjustment to other charges would presumably be made at an overall NTS national level to the NTS exit commodity charge levels  With GDN solution, adjustment would be made within each GDN’s standard DN charges  In practice, given the likely level of credits for the foreseeable future, the differences be minimal for shippers, hence the cheaper and simpler GDN solution is preferable