1. 1 CODE MODIFICATION PROPOSAL No 0243 Amendments to the process for initialisation of Enduring NTS Exit (Flat) Capacity at the Moffat NTS Exit Point Presentation to Transmission Workstream 5 th March 2009 Mark Sutton (TPA Solutions) representing the Proposer Conor Purcell (Electricity Supply Board)

2. 2 CODE MODIFICATION PROPOSAL No 0243 Amendments to the process for initialisation of Enduring NTS Exit (Flat) Capacity at the Moffat NTS Exit Point Coverage  Context and proposal overview  Existing Moffat arrangements  Impact of Mod 0195AV at Moffat  Key effects of Mod 0243  Potential benefits  Longer term arrangements  Proposed process  Proposed business rules

3. 3 Context and proposal overview Context – Modification 0195AV  Initial Enduring NTS Exit (Flat) Capacity for 2012/13 onwards  Registered with individual users by 1 May 2009  Amounts based on 2007/8 capacity holdings  Capacity certification process for Moffat discontinued Modification Proposal 0243 Overview  Defer Moffat initialisation to May 2011 latest  Initial quantities then registered with individual Moffat users under process similar to existing capacity certification arrangements

4. 4 Mod 0195AV Initialisation April 2009 2008/92010/112009/102011/122012/13 2007/8 capacity holdings Enduring period Application Window July 2009 Application Window July 2011 Application Window July 2012 Application Window July 2010 Mod 0243 Moffat Initialisation Mar-May 2011 latest Context and proposal overview Mod 0243 Moffat Initialisation Mar-May 2010 if achievable

5. 5 Existing Moffat arrangements Distinction between NTS exit points  Moffat more complex than a Direct Connect – regulated transportation upstream and downstream  Linkages required to facilitate efficient commercial and physical operations  Some analogies with NTS/GDN interface Existing Moffat arrangements  Moffat Administration Agreement – harmonises nominations and allocations  Capacity certification – links traded volumes and downstream and NTS exit capacity bookings NTS/GDN interface  Capacities linked to supply points  NTS exit capacities driven by downstream supply point portfolio  Direct Connect approach to capacity booking does not apply (even under enduring regime) Facilitates retail competition Facilitates wholesale competition Users not required to independently book NTS exit capacity

6. 6 Impact of Initialisation under Modification 0195AV Modification 0195AV initialisation  Uses 2007/8 capacity holdings rather than capacity certification  Immediately breaks the link with traded volumes and creates upstream/ downstream capacity mismatches Key Moffat implications  Moffat gas trading more complex and risky due to de-linkage  Inbuilt competitive advantage to players with initial enduring rights due to lesser user commitment level  Moffat potentially less attractive as a source for downstream markets – reduced NTS throughputs  Unreliable signals of aggregate Moffat requirements due to de- linkage – impact on downstream security of supply

7. 7 Key effects of Modification Proposal 0243 Key effects  Avoids the immediate creation of capacity and traded volume mismatches – aggregate level of initial enduring rights preserved until the certification process is established  Subsequent initialisation via certification process ensures that Moffat trades for 2012/13 retain the capacity linkages  Avoids added trading complexity/distortion  More reliable signals of capacity requirements  Completed May 2010 if achievable, May 2011 latest Modification Proposal 0243  Defer Moffat initialisation to May 2011 latest  Initial quantities then registered with individual Moffat users under process similar to existing capacity certification arrangements

8. 8 Potential benefits (1) (1)Enhanced competition/liquidity in Moffat wholesale market Less complex due to retained capacity linkages, more players (2)Improved efficiency in Moffat wholesale market Level playing field, no advantages conferred by initialisation (3)Improved signals of NTS exit capacity requirements at Moffat Aggregate initial enduring rights retained during deferral and then linked to traded volumes following initialisation, providing more reliable signals (4)Improved utilisation of Moffat capacity Due to closer match of booked NTS exit capacity with traded volumes (5)Lower overall costs of Moffat capacity Due to closer match of booked NTS exit capacity with traded volumes Modification Proposal 0243

9. 9 Potential benefits (2) (6)Moffat more competitive as a source of gas for the Irish markets Moffat wholesale market benefits – Moffat better able to compete with new sources – increased Moffat throughput (already 7% of NTS) – reduced NTS charges (7)Downstream security of supply issues addressed Concerns over NTS users independently signalling Moffat requirements addressed – significant point for downstream parties due to high dependency of security of supply in downstream gas and electricity markets on Moffat capacity Modification Proposal 0243

10. 10  Modification Proposal 0243 only deals with initialisation – completed by May 2011 latest  Further measures needed if traded volume/ capacity linkages and associated benefits are to be retained in the longer term  Initialisation deferral provides opportunity for development  Dovetails with CAG programme in Ireland  Moffat parties to address Longer term arrangements

11. 11  Modification 0195AV effective from 1 April 2009 and initialisation completed by 1 May 2009  Therefore recommend that this Modification Proposal is implemented at the same time as, or immediately following, Modification 0195AV i.e. 1 April 2009. Proposed process and timescales Event or activity Assumed time requirement (Business Days) Date complete Submit Proposal–Tues 3 Mar Present Proposal at Transmission Workstream –Thurs 5 March Panel consideration2Thurs 5 March Issue Proposal inviting representations 1Fri 6 Mar Final day for representations4Thurs 12 Mar Draft Final Modification Report Issued 1Fri 13 Mar Panel consideration3Thurs 19 Mar Ofgem decision8Tues 31 Mar

12. 12 Business rules overview Initialisation Notice From Connected System Operator to NG NTS Specifies Downstream Capacity Holders (DCHs) …and Downstream Capacity Entitlements (DCEs) for 2012/13 Initiates Initialisation Period Issued any day in March Applications Users make applications and submit certificates Application quantities must sum to certified amounts Must be made during initialisation period Certification A user must hold one or more certificates to have initial enduring capacity registered Certificates signed by Downstream Capacity Holder authorising application for specified quantities Registered quantities As per certificates…. Unless prorated due to excess authorisations by DCH(s) Default to Mod.0195AV rules if no Initialisation Notice Completed by end May MarchAprilMay Initialisation PeriodRegistration Period 2010 or 2011

13. 13 Business rules RuleDescription 1Applicability Limits applicability to the Moffat NTS exit point and registered Moffat users 2Registration Deferral Defers initialisation and registration that would occur by 1 May 2009 under Modification 0195AV rules Facilitates use of alternative initialisation process and timetable 3 Consequences of registration deferral Precludes acceptance of applications for incremental enduring capacity until initialisation completed Ensures amount of annual (not enduring) capacity made available in 2010 window is baseline less Aggregate Moffat Capacity (for which registration is deferred) 4 Definition and publication of Aggregate Moffat Capacity Defined as the aggregate that would have been registered in absence of deferral. Made public in 2009 window

14. 14 Business rules RuleDescription 5Initialisation Notification Provided by Connected System Operator to National Grid NTS Specifies Downstream Capacity Holders and their Downstream Capacity Entitlements for 2012/13 Must be given in March 2010 or March 2011 6Initialisation Period Period in which users apply for initial enduring capacity using capacity certification process Runs from 2 days following Initialisation Notification to 30 April Users notified of start by National Grid NTS 7Certification A user must hold one or more certificates to have initial enduring capacity registered Certificates are signed by Downstream Capacity Holder and authorise application for specified quantities

15. 15 Business rules RuleDescription 8Application To be made by user in Initialisation Period Certificates submitted at same time Quantities applied for must sum to quantities in certificates 9Quantities to be registered Each user registered with aggregate amount specified in certificates submitted (unless deemed reduced – see below) Pro-rating if a Downstream Capacity Holder authorises more than its Downstream Capacity Entitlement Further pro-rating if all certified quantities exceed Aggregate Moffat Capacity If Initialisation Notification Notice not given, registered quantities are those that would have obtained in absence of initialisation deferral 10 Notification of Registered Quantities By 31 May in 2010 or 2011