1. Enduring NTS Offtake Arrangements Transmission Workstream 5th September 2006

2. Background  15 EOWG’s to discuss NTS Exit Reform  Objective today to walkthrough the details of National Grid NTS Business Rules  Opportunity to provide clarification  Concerns / objections raised via Modification process  Modification to be raised and sent to Panel 21/9/2006  Request to proceed direct to consultation

3. Contents  Introduction Introduction  High Level Definitions High Level Definitions  Part I: NTS Exit (Flat) Capacity Overview Part I: NTS Exit (Flat) Capacity Overview  Part II: NTS Exit (Flexibility) Capacity Product Overview Part II: NTS Exit (Flexibility) Capacity Product Overview  Part III: Initialisation of NTS Exit (Flat) Capacity Regime Part III: Initialisation of NTS Exit (Flat) Capacity Regime  Section 1: Long Term NTS Exit (Flat) Capacity Sales Section 1: Long Term NTS Exit (Flat) Capacity Sales  Section 2: Medium Term NTS Exit (Flat) Capacity Sales Section 2: Medium Term NTS Exit (Flat) Capacity Sales  Section 3: Daily Release Short Term (Firm) NTS Exit (Flat) Capacity Sales Section 3: Daily Release Short Term (Firm) NTS Exit (Flat) Capacity Sales  Section 4: Daily Ahead Interruptible NTS System Exit Capacity Sales Section 4: Daily Ahead Interruptible NTS System Exit Capacity Sales  Section 5: Transfers and Assignment of NTS Exit (Flat) Capacity Section 5: Transfers and Assignment of NTS Exit (Flat) Capacity  Section 6: Long and medium term NTS Exit (Flexibility) Capacity Sales Section 6: Long and medium term NTS Exit (Flexibility) Capacity Sales  Section 7: Daily NTS Exit (Flexibility) Capacity Sales Section 7: Daily NTS Exit (Flexibility) Capacity Sales  Section 8: Transfers and Assignment of NTS Exit (Flexibility) Capacity Section 8: Transfers and Assignment of NTS Exit (Flexibility) Capacity  Section 9: NTS Exit Capacity Constraint Management Section 9: NTS Exit Capacity Constraint Management  Section 10: Exit Capacity Neutrality Arrangements Section 10: Exit Capacity Neutrality Arrangements  Section 11: Charging Arrangements Section 11: Charging Arrangements  Section 12: Credit Checks & Termination Rules Section 12: Credit Checks & Termination Rules  Section 13: Liability Arrangements and User Obligations Section 13: Liability Arrangements and User Obligations  Section 14: Further references in UNC affected by Exit Reform Section 14: Further references in UNC affected by Exit Reform  APPENDIX 1: NTS Exit Zones APPENDIX 1: NTS Exit Zones  APPENDIX 2: Area and NTS Exit Zone Maximas APPENDIX 2: Area and NTS Exit Zone Maximas

4. Introduction  High Level Definitions  2 Separate Products  Defines NTS Exit Points, Zones & Areas

5. Capacity Products Offtake Rate Time 22:0006:00 Average Flow Rate Actual Flow Rate Flexibility Utilisation End of day quantity NTS Exit (Flat) Capacity provides right to offtake daily quantity of gas with implied rights to flow at uniform rate at an NTS Exit Point NTS Exit (Flex) Capacity provides right to flow at a non-even flow rate in an NTS Exit Zone 06:00

6. Products  Types of capacity NTS Exit (Flat) Capacity NTS Exit (Flex) Capacity  Bundles Prevailing rights (3 years+) Annual (1-3 years) Daily (day ahead and on the day) Daily Interruptible (day ahead) Annual (1-5 years) Daily (day ahead and on the day)

7. Part I: NTS Exit (Flat) Capacity Overview  “Ticket to Ride” principle  End of Day Quantity  By NTS Exit Point  Various types of NTS Exit (Flat) Capacity  Prevailing NTS Exit (Flat) Capacity (Firm)  Annual NTS Exit (Flat) Capacity (Firm)  Daily NTS Exit (Flat) Capacity (Firm)  Daily Interruptible NTS Exit (Flat) Capacity  National Grid NTS can acquire a Users rights if;  User doesn’t maintain appropriate credit  NTS SO utilises NTS Exit (Flat) Capacity management tools  Required to ensure safety of the system

8. Part I: NTS Exit (Flat) Capacity Overview – cont.  Users holding made up of quantities bought & sold both from National Grid NTS & Other Users  Release Mechanism  Long Term release (Y4 onwards)  Medium Term release (Y1 to Y3)  Short Term release (D-1 & D)  Interruptible Short Term (D-1)  Flat Capacity Overrun  By Day  Aggregate flows exceed aggregate holdings at NTS Exit point  Includes –ve overrun  Individual Users overrun applied

9. NTS Exit Capacity - Overrun charge  A User’s NTS Exit Capacity flat/flex overrun charge will be determined as the “User's NTS Exit (Flat/Flex) Capacity Overrun” amount multiplied by the highest of:  8 times the highest price paid by Users at the NTS Exit Point/ Zone for any class of firm NTS Exit (Flat/Flex) Capacity for that day  8 times the highest reserve price at the NTS Exit Point or zone for any capacity auctions (NB. This is to cover scenario where no capacity is booked at an NTS Exit Point/Zone, but Users still flows)  1.1 times the highest price paid by National Grid for NTS Exit (Flat/Flex) Capacity for any NTS Exit Point/Zone for that day for capacity buy back through any constraint management action

10. Part I: NTS Exit (Flat) Capacity Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A  3 Users NTS Exit PointUDQOFlat holdingsUser Individual OverrunUser Overrun User 10000 User 20000 User 30000 Sum of Users0000 Aggregate000

11. Part I: NTS Exit (Flat) Capacity Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A  Add in EOD Flows NTS Exit PointUDQOFlat holdingsUser Individual OverrunUser Overrun User 112000 User 211000 User 326000 Sum of Users49000 Aggregate4900

12. Part I: NTS Exit (Flat) Capacity Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A  Add in Flat Holdings NTS Exit PointUDQOFlat holdingsUser Individual OverrunUser Overrun User 1121000 User 2111500 User 3261800 Sum of Users494300 Aggregate4943 6

13. Part I: NTS Exit (Flat) Capacity Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A NTS Exit PointUDQOFlat holdingsUser Individual OverrunUser Overrun User 1121020 User 2111500 User 3261880 Sum of Users4943100 Aggregate4943 6

14. Part I: NTS Exit (Flat) Capacity Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A NTS Exit PointUDQOFlat holdingsUser Individual OverrunUser Overrun User 1121021.2 User 2111500 User 3261884.8 Sum of Users4943106 Aggregate4943 6

15. Part I: NTS Exit (Flat) Capacity Overview – Reductions  Notice to reduce Prevailing NTS Exit (Flat) Capacity rights from 08.00 1 st July to 17.00 31 st July of Gas Year (Y N )  The reduction cannot be earlier than the later of:  Gas Year Y N +2 (i.e. 15 month notice)  Gas Year Y A +4  Gas Year Y A is the Gas Year with effect from which the User was most recently allocated Prevailing NTS Exit (Flat) Capacity (i.e. if requested and allocated additional prevailing need to be through 4 year commitment before the User can make any reductions).

16. “Prevailing Flat Capacity” - Reduction Capacity 10 20 July 2008 Oct 2010 1.5 year reduction notice period Baseline 30 If User wishes to reduce prevailing rights, must provide at least 1.5 years notice Initial Prevailing Level

17. Investments: Unconstrained Period “Prevailing Flat Capacity” - Increase Capacity 10 20 July 2007 Oct 2010 Baseline 30 In July 2007, Users will also be able to request additional prevailing rights for use from Oct 2010 Require commitment to pay 4 years charges, irrespective of baseline Initial Prevailing Capacity Additional Prevailing Capacity Commit to pay [4] years of charges for 30 units Revised Prevailing Level Oct 2014

18. Investments: Unconstrained Period “Prevailing Flat Capacity” - Decrease Capacity 10 20 Oct 2010 Baseline 30 After User has committed to an increase, only able to decrease from when commitment met Prevailing Capacity Oct 2014 July 2013 1.5 year notice period

19. Part II – NTS Exit (Flexibility) Capacity Product Overview A high level review of NTS Exit (Flexibility) Capacity

20. High Level Overview of Proposal Non-Peak Day Example (EOD < Capacity Holding) 22.00 06.00 MDQ/24 Capacity booked = 7200 = 300 per hour End of Day Measurement = 2400 100 110 300 80 Flex utilised = 160

21. High Level Overview of Non-Peak Day Example (EOD < Capacity Holding) 22.00 06.00 MDQ/24 Capacity booked = 7200 = 300 per hour End of Day Measurement = 2400 100 110 300 User wishes to flow at 110 for 12 hours and 90 for 12 hours 90 18.00 Flex Utilised = 80

22. High Level Overview of Peak Day Example (EOD = Capacity Holding) 22.00 06.00 Wish to flow at 305 for 12 hours and then reduce flow to 295 for 12 hours. 300 305 1800 295 Flex Utilised = 40 Actual max EOD Flow = 7200 Booking = 7320 (305 MHQ*24)

23. Part II: NTS Exit (Flexibility) Capacity Product Overview  Entitles Users to offtake at a non-even rate  NTS Exit Zone  2 types of NTS Exit (Flexibility) Capacity  Annual  Daily No Interruptible  NTS SO can acquire a Users rights as per NTS Exit (Flat) Capacity rules  Release mechanisms  Annual Auction (Y1 to Y5)  Short Term (D-1 and D)

24. Part II: NTS Exit (Flexibility) Capacity Product Overview – cont.  Flex Capacity Overrun  By Day  Aggregate Flex utilised exceeds Flex Holdings at an NTS Exit Zone  Flex utilised = 22:00 deemed flow – 22:00 measured flow  Deemed flow = EOD measured flow/(24x16)  1.5% tolerance applied

25. Part II: NTS Exit (Flexibility) Capacity Product Overview – cont.  Individual User overrun applied  Utilises the same principles as above  Agree 22:00 default rules with User or 22:00 value provided by Agent  If the sum of all of the Users individual NTS Exit (Flexibility) Capacity Overruns is greater than the than Aggregate NTS Exit (Flexibility) Overrun then the Individual User’s Overrun is scaled in proportion to their percentage of the sum of all the Individual User Overruns.  In the event that a User has agreed to reduce its intended end of day flow or flexibility utilisation by acceptance of a constraint management action undertaken by National Grid NTS, the User will not incur any resulting increase in its overrun charge.

26. Part II: NTS Exit (Flexibility) Capacity Product Overview – cont.  A User’s NTS Exit (Flexibility) Capacity overrun charge will be determined as the User's NTS Exit (Flexibility) Capacity Overrun amount multiplied by the highest of:  8 times the highest price paid by Users at the relevant NTS Exit Zone to National Grid NTS for any class of firm NTS Exit (Flexibility) Capacity for that day;  8 times the highest reserve price at the relevant NTS Exit Zone for any capacity auctions (NB. This is to cover scenario where no capacity is booked at an NTS Exit Zone, but Users still utilise system flexibility);  1.1 times the highest price paid by National Grid for NTS Exit (Flexibility) Capacity at the relevant NTS Exit Zone for that day for capacity buy back through any constraint management action.

27. Part II: NTS Exit (Flex) Capacity Product Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A  (UDQO – EOD Flows), (22:00 2/3) and (Flex Holding) figures for 3 Users inserted Aggregate1611.7000.60 User 1107000.200 User 232.5000.200 User 332.2000.200 Sum of Users1611.7 00.600 NTS Exit PointUDQOQ2200 AVG (Q2200) UDFU Flex Holding User Individual Overrun User Overrun

28. Part II: NTS Exit (Flex) Capacity Product Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A  Aggregate 22:00 figures calculated Aggregate1611.710.6700.60 User 11076.6700.200 User 232.52.0000.200 User 332.22.0000.200 Sum of Users16 11.7 00.600 NTS Exit PointUDQOQ2200 AVG (Q2200) UDFU Flex Holding User Individual Overrun User Overrun

29. Part II: NTS Exit (Flex) Capacity Product Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A  User Daily Flexibility Utilisation figures calculated (includes adjustment for 1.5% tolerance) Aggregate1611.710.670.860.60 User 11076.670.230.200 User 232.52.000.460.200 User 332.22.000.170.200 Sum of Users 16 11.7 0.860.600 NTS Exit PointUDQOQ2200 AVG (Q2200) UDFU Flex Holding User Individual Overrun User Overrun

30. Part II: NTS Exit (Flex) Capacity Product Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A  User Individual Overruns calculated Aggregate1611.710.670.860.60.26 User 11076.670.230.20.030 User 232.52.000.460.20.260 User 332.22.000.170.20.000 Sum of Users 16 11.7 0.860.60.290 NTS Exit PointUDQOQ2200 AVG (Q2200) UDFU Flex Holding User Individual Overrun User Overrun

31. Part II: NTS Exit (Flex) Capacity Product Overview – cont. (OVERRUN EXAMPLE)  NTS Exit Point A  User Overruns calculated from User Individual Overrun Aggregate Aggregate1611.710.670.860.60.26 User 11076.670.230.20.03 User 232.52.000.460.20.260.23 User 332.22.000.170.20.00 Sum of Users 16 11.7 0.860.60.290.26 NTS Exit PointUDQOQ2200 AVG (Q2200) UDFU Flex Holding User Individual Overrun User Overrun

32. Part II: NTS Exit (Flexibility) Capacity Product Overview – cont.  Bi-Directional Site  Current IUK certification rules removed  Establish direction of flow to determine whether NTS Exit (Flexibility) capacity required Net Entry to NTS from 06.00 to 22.00 Net Entry to NTS by end of dayTreatment YYEntry Point i.e. no NTS Exit (Flexibility) Capacity deemed to have been used YN NYExit Point NN

33. Part III: Initialisation of NTS Exit (Flat) Capacity Regime  DC’s can book up to Maximum Exit Capacity Booking for Winter 2005/06  Interruptible  DN’s book up to OCS booking for 2009/10 (specified in 2006 statement)

34. Part III: Initialisation of NTS Exit (Flat) Capacity Regime – Transitional Timetable Date HeldProduct (Flat/Flex)Auction/ Application Annual / Long / Medium / Short Term Period July 2007 (Confirmations by 15 th July 2007) FlatApplicationLong Term (Increase and confirmation of Initial Prevailing rights) Oct-2010 Onwards July 2007FlexibilityAuctionAnnualOct-2010 to Sep-2012 July 2008 (reductions by 15 th July 2008) FlatApplicationLong Term (increase and reductions) Oct-2011 Onwards July 2008FlexibilityAuctionAnnualOct-2010 to Sep-2013 August 2008FlatAuctionMedium termOct-2010 to Sep-2011 July 2009 (reductions by 15 th July 2009) FlatApplicationLong Term (increase and reductions) Oct-2012 Onwards July 2009FlexibilityAuctionAnnualOct-2010 to Sep-2014 August 2009FlatAuctionMedium termOct-2010 to Sep-2012 August 2009Flat and FlexibilityTrading and TransfersOct-2010 onwards October 2009Flat and FlexibilityHoldings considered in Security and IndebtednessOct-2010 July 2010 (reductions by 15 th July 2010) FlatApplicationLong Term (increase and reductions) Oct-2013 Onwards July 2010FlexibilityAuctionAnnualOct-2010 to Sep-2015 August 2010FlatAuctionMedium termOct-2010 to Sep-2013 24 th September 2010Flat and FlexibilityBiddingShort Term01-Oct-2010 30 th September 2010Flat and Flexibility (Firm and Flat Interruptible day ahead) AuctionShort Term01-Oct-2010 01 st October 2010Flat and Flexibility (within day) AuctionShort Term01-Oct-2010 Nov-2010Flat and FlexibilityInvoices IssuedFor Oct-2010

35. Section 1: Long Term NTS Exit (Flat) Capacity Sales  Application for Additional Prevailing NTS Exit (Flat) Capacity  Held once a year 1 st July to 31 st July  Open between 08.00 to 17.00 every day  Users can modify and withdraw throughout bid window  Minimum Eligible Quantity 100,000 kWh  Applications not accepted (also rejected at acceptance) if Credit Sanction in place  Users will need to book a continuous [4] years of capacity to satisfy the requirements test

36. Section 1: Long Term NTS Exit (Flat) Capacity Sales  National Grid NTS will have up to 2 months after the last application window has closed, to complete the allocation process, including any credit checks  If the potential results identify that Prevailing NTS Exit (Flat) Capacity at an NTS Exit Point is greater than the Baseline Quantity for that NTS Exit Point, National Grid NTS will apply to the Authority and request release of additional incremental.  this may involve National Grid NTS requesting baseline reductions at other NTS Exit Points (to be detailed in IExCR)

37. Section 1: Long Term NTS Exit (Flat) Capacity Sales  Post Application Information Provision  Not later than 24 hours after each User has been notified of their allocation, National Grid NTS will publish the following information by NTS Exit Point by Gas Year:  Aggregate quantity of Prevailing NTS Exit (Flat) Capacity allocated  Aggregate quantity of reductions accepted and from when such reductions apply  (Revised) Baseline Quantity (i.e. including any reductions accepted by the Authority)  Incremental Quantity (where applicable)  Number of Users applying for additional prevailing rights

38. Investments: Unconstrained Period “Prevailing Flat Capacity” - Increase Capacity 10 20 July 2007 Oct 2010 Baseline 30 In July 2007, Users will also be able to request additional prevailing rights for use from Oct 2010 Require commitment to pay 4 years charges, irrespective of baseline Initial Prevailing Capacity Additional Prevailing Capacity Commit to pay [4] years of charges for 30 units Revised Prevailing Level Oct 2014

39. Investment Process - Incremental “Prevailing Flat Capacity” Users able to apply in July to signal additional “prevailing” requirements for 3 years ahead Each User commits to pay for [4] years of charges, irrespective of baseline (but may only reduce thereafter subsequent to [1.5] years notice period) National Grid NTS considers whether transfer of unsold capacity from other nodes would avoid investment and request permanent baseline reductions via application to release incremental capacity If aggregate of user requirements at a node above baseline then National Grid NTS consider need for investment Allocations and transfers published by October

40. ARCAs  Allows non-UNC parties to reserve Prevailing NTS Exit (Flat) Capacity  Counter party commits to pay [4] years of exit capacity charges on any amount of reserved capacity not booked by Users under UNC  National Grid NTS commitment to allow users to book reserved capacity

41. Section 2: Medium Term NTS Exit (Flat) Capacity Sales  Held once a year August for Y1, Y2 and Y3  Over 2 business days, 3 business days apart  Open between 08.00 and 17.00  Bids can be modifies/withdrawn between these times  Bids must be greater than or equal reserve price  Bids must be greater than or equal to Minimum Eligible Quantity 100,000kWh  10 bids per User, per NTS Exit Point, per round  If Credit Sanction in place User will be unable to bid (bids also rejected at Allocation)

42. Section 2: Medium Term NTS Exit (Flat) Capacity Sales  Unsold baseline made available  50% of quantity to be offered in each round 1 and 2 & the unsold quantity from the first round is made available in the second round  Bids will be ranked in order of price  National Grid will allocate within [48]hrs for round 1&2

43. Section 2: Medium Term NTS Exit (Flat) Capacity Sales – cont.  Standard pay-as-bid allocation rules  Not later than 24 hours after each User has been notified of their allocation in the final round National Grid NTS will publish the following information per NTS Exit Point per Year:  Weighted Average Price of all successful bids  Aggregate Volume Allocated  Any remaining unsold baseline NTS Exit (Flat) Capacity (including any NTS Exit Capacity that the National Grid NTS is obligated to release).  Number of Users who submitted bids  Number of successful Users  The highest price accepted  The volume accepted associated to the highest price  The lowest price accepted  The volume accepted associated to the lowest price

44. Section 3: Daily Release Short Term (Firm) NTS Exit (Flat) Capacity Sales  Held D-1and D  15.00 D-1  With a minimum of 60 minutes notice, by National Grid NTS, after the D-1 auction.  Bid window open D-7 06.00 – D0 00.00  Users can place evergreen or reducing bids  Can modify/withdraw evergreen at any time unless in period between gate closure and allocation.  Reducing bids can be withdrawn subject to the above but cannot be modified once reduced.

45. Section 3: Daily Release Short Term (Firm) NTS Exit (Flat) Capacity Sales  Bids must be greater than or equal to reserve price  10 bids per Exit Point, per User, per day (excludes withdrawn and allocated bids)  Bids must be greater than or equal the Minimum eligible quantity (100,000 kWh).  If a credit sanction is in place Users will be unable to place bids (would also be rejected at allocation)

46. Section 3: Daily Release Short Term (Firm) NTS Exit (Flat) Capacity Sales  Bids ranked in price order (Pay-as-bid)  NTS SO will allocate 1 hour after closure  Quantity made available on D-1, based on unsold baseline plus NTS SO discretion.  Quantity made available on D, based on National Grid NTS discretion and/or Unsold baseline (subject to National Grid NTS Licence conditions)

47. Section 3: Daily Release Short Term (Firm) NTS Exit (Flat) Capacity Sales  Not later than 1 hour after each User has been notified of their allocation the National Grid NTS will publish the following information per NTS Exit Point per day:  Weighted Average Price of all successful bids  Aggregate Volume Allocated  Number of Users who submitted bids  Number of successful Users  The highest price accepted  The volume accepted associated to the highest price  The lowest price accepted  The volume accepted associated to the lowest price

48. Section 4: Day Ahead Interruptible NTS Exit Capacity Sales  No ‘Firm’ right to offtake gas  Auction held D-1 15:00  Bid window open D-7 06.00 – D-1 14.00  Must be greater than or equal to reserve price  No more than 10 bids per NTS Exit Point, per User, per Day (not including withdrawn bids)  Quantity must be greater than Minimum Eligible amount 100,000 kWh  Bids rejected if Credit Sanction in place at time of bid being placed or allocation  Amount made available based on UIOLI principles plus discretionary release  UIOLI based on Firm holdings minus average quantity offtaken.  Difference calculated for each day over 30 days, excluding last 7 days.  Average difference gives UIOLI quantity

49. Section 4: Day Ahead Interruptible NTS Exit Capacity Sales  Bids ranked in price order (Pay-as-bid auction)  National Grid NTS will allocate 1 hour after closure  NTS SO ability to scale back if constraint  Not later than 1 hour after each User has been notified of their allocation the National Grid NTS will publish the following information per NTS Exit Point per day:  Weighted Average Price of all successful bids  Aggregate Volume Allocated  Number of Users who submitted bids  Number of successful Users  The highest price accepted  The volume accepted associated to the highest price  The lowest price accepted  The volume accepted associated to the lowest price

50. Section 5: Transfers and Assignment of NTS Exit (Flat) Capacity  A trade registration system to facilitate trading  Users can trade ahead of the day (unlimited days in advance) and within day (upto 04.00)  Trading may not take place between NTS Exit Points  National Grid NTS may reject a trade within 60 minutes of the trade being confirmed if it causes a negative holding.

51. Section 5: Transfers and Assignment of NTS Exit (Flat) Capacity  User unable to buy via trading if Credit Sanction in place  Holdings adjusted for trade buys and/or sells  Original holder of capacity remains liable for NTS Exit Capacity charges.  National Grid NTS will facilitate primary transfer (assignment) of a User’s total amount of capacity holding to another User at an NTS Exit Point with 5 days notice  User able to assign its total amount of capacity holdings at an NTS Exit Point to another User at the same NTS Exit Point, subject to credit checks, including the liability to pay for capacity charges

52. Section 6: Long and medium term NTS Exit (Flexibility) Capacity Sales  No incremental investment  Annual NTS Exit Flexibility Auction  By NTS Exit Zone  Y1 – Y5 (annual strips)  Held over 2 business days with 3 business days in between  Open 08.00 to 17.00 on each day  Release 50% in each round and unsold from 1 in round 2  10 bids per NTS Exit Zone, per User, per round  Bids must be greater than or equal to reserve price  Bids must be greater than Minimum Eligible Quantity (50,000 kWh)  Pay-as-bid auction  Information provided pre and post auction

53. Section 6: Long and medium term NTS Exit (Flexibility) Capacity Sales  National Grid NTS shall allocate within 48 hours of closure of the window.  Between each round. Not later than 48 hours following the closure of each auction round, the National Grid NTS will notify Users of the following information by NTS Exit Zone and Gas Year:  Aggregate Volume Requested  Aggregate Volume Allocated  Highest Price Bid Allocated  Volume Allocated at highest price  Lowest Price Bid Allocated  Volume Allocated at lowest price  Number of Users who placed bids  Number of successful Users  Maximum Available NTS Exit (Flexibility) Capacity for future auctions.

54. Section 6: Long and medium term NTS Exit (Flexibility) Capacity Sales  After Final Allocation. Not later than 24 hours after each User is notified of their allocation, National Grid NTS will publish the following information by NTS Exit Zone and by Gas Year:  Aggregate Volume Requested  Aggregate Volume Allocated  Maximum Available NTS Exit (Flexibility) Capacity  Highest Price Bid Allocated  Volume Allocated at highest price  Lowest Price Bid Allocated  Volume Allocated at lowest price  Number of Users who submitted bids  Number of successful Users  Allocation Process is Key  22 MCM national release  Subject to area & zonal maxima  Complexity in Allocation Process

55. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) National Release22 Area X limit13 Area Y limit17 Zone A limit10 Zone B limit12 Zone C limit14 Zone D limit6

56. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) NTS Exit Point QuantityPriceZoneAllocate to? National Allocatio n Area X Allocation Area Y Allocation Zone A Allocation Zone B Allocation Zone C Allocatio n Zone D Allocation User 175.0A User 154.5D User 264.5A User 124.0B User 463.5B User 343.0C User 282.5A User 322.5B User 452.5C User 192.0A User 242.0D User 3122.0C

57. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) NTS Exit Point QuantityPriceZoneAllocate to? National Allocatio n Area X Allocation Area Y Allocation Zone A Allocation Zone B Allocation Zone C Allocatio n Zone D Allocation User 175.0AAllocate in Full7707000 User 154.5D User 264.5A User 124.0B User 463.5B User 343.0C User 282.5A User 322.5B User 452.5C User 192.0A User 242.0D User 3122.0C

58. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) NTS Exit Point QuantityPriceZoneAllocate to? National Allocatio n Area X Allocation Area Y Allocation Zone A Allocation Zone B Allocation Zone C Allocatio n Zone D Allocation User 175.0AAllocate in Full7707000 User 154.5DAllocate in Full12757005 User 264.5A User 124.0B User 463.5B User 343.0C User 282.5A User 322.5B User 452.5C User 192.0A User 242.0D User 3122.0C

59. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) NTS Exit Point QuantityPriceZoneAllocate to? National Allocatio n Area X Allocation Area Y Allocation Zone A Allocation Zone B Allocation Zone C Allocatio n Zone D Allocation User 175.0AAllocate in Full7707000 User 154.5DAllocate in Full12757005 User 264.5A Allocate partially, 3, Zone A max hit 15105 005 User 124.0B User 463.5B User 343.0C User 282.5A User 322.5B User 452.5C User 192.0A User 242.0D User 3122.0C

60. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) NTS Exit Point QuantityPriceZoneAllocate to? National Allocatio n Area X Allocation Area Y Allocation Zone A Allocation Zone B Allocation Zone C Allocatio n Zone D Allocation User 175.0AAllocate in Full7707000 User 154.5DAllocate in Full12757005 User 264.5A Allocate partially, 3, Zone A max hit 15105 005 User 124.0BAllocate in Full17125 205 User 463.5B User 343.0C User 282.5A User 322.5B User 452.5C User 192.0A User 242.0D User 3122.0C

61. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) NTS Exit Point QuantityPriceZoneAllocate to? National Allocatio n Area X Allocation Area Y Allocation Zone A Allocation Zone B Allocation Zone C Allocatio n Zone D Allocation User 175.0AAllocate in Full7707000 User 154.5DAllocate in Full12757005 User 264.5A Allocate partially, 3, Zone A max hit 15105 005 User 124.0BAllocate in Full17125 205 User 463.5B Allocate partially, 1, Area X max hit 18135 305 User 343.0C User 282.5A User 322.5B User 452.5C User 192.0A User 242.0D User 3122.0C

62. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) NTS Exit Point QuantityPriceZoneAllocate to? National Allocatio n Area X Allocation Area Y Allocation Zone A Allocation Zone B Allocation Zone C Allocatio n Zone D Allocation User 175.0AAllocate in Full7707000 User 154.5DAllocate in Full12757005 User 264.5A Allocate partially, 3, Zone A max hit 15105 005 User 124.0BAllocate in Full17125 205 User 463.5B Allocate partially, 1, Area X max hit 18135 305 User 343.0CAllocate in Full22 9 345 User 282.5A User 322.5B User 452.5C User 192.0A User 242.0D User 3122.0C

63. Section 6: Long and Medium term NTS Exit (Flex) Capacity Sales – cont. (EXAMPLE) NTS Exit Point QuantityPriceZoneAllocate to? National Allocatio n Area X Allocation Area Y Allocation Zone A Allocation Zone B Allocation Zone C Allocatio n Zone D Allocation User 175.0AAllocate in Full7707000 User 154.5DAllocate in Full12757005 User 264.5A Allocate partially, 3, Zone A max hit 15105 005 User 124.0BAllocate in Full1712510205 User 463.5B Allocate partially, 1, Area X max hit 1813510305 User 343.0CAllocate in Full2213910345 User 282.5A Reject as National Allocation Max Sold 2213910345 User 322.5B Reject as National Allocation Max Sold 2213910345 User 452.5C Reject as National Allocation Max Sold 2213910345 User 192.0A Reject as National Allocation Max Sold 2213910345 User 242.0D Reject as National Allocation Max Sold 2213910345 User 3122.0C Reject as National Allocation Max Sold 2213910345

64. Flex Capacity – Increase (annual) Capacity 5 July 2007 Oct 2010 Zonal Baseline Users able to book annual rights subject to national, area and zonal limits through “pay-as-bid” auction 5 years ahead Annual right Oct 2011 Annual right Oct 2012 Allocate subject to national, area and zonal maxima Reserve Price ~0 p/kWh Invitation issued 28 days in advance

65. Section 7: Daily NTS Exit (Flexibility) Capacity Sales  Daily NTS Exit Flexibility  OPN Process  OPN submitted at an NTS Exit Point level  Needs to be detailed at a User level either by  Providing a User OPN or  A default methodology to derive a User OPN  National Grid NTS calculate an implied NTS Exit (Flexibility) Capacity Usage from the OPN  If National Grid NTS can accommodate the requested OPN then the User’s NTS Exit (Flexibility) Capacity holding is increased (if required) by the User’s implied NTS Exit (Flexibility) Capacity usage.

66. Section 7: Daily NTS Exit (Flexibility) Capacity Sales  If National Grid NTS cannot accommodate the OPN then the OPN is rejected and User’s can re-submit  If the revised OPN still cannot be accommodated then an Auction is invoked (National Grid NTS may also have to invoke Constraint Management Tools)  Additional NTS Exit (Flexibility) Capacity allocated via OPN process is charged at the Daily NTS Exit (Flexibility) reserve price.

67. Section 7: Daily NTS Exit (Flexibility) Capacity Sales  Auction Process  Minimum of [30] minutes notice given by National Grid NTS, detailing  NTS Exit Zone  Reserve Price  Volume released at National Grid NTS discretion  Users can place bids from 08.00 D-7 to 21.00 D  Must be greater than or equal to reserve price  10 bids per NTS Exit Zone, per User, per day (excludes withdrawn and allocated bids)  Must be greater than or equal to Minimum Eligible Quantity (50,000 kWh)  Evergreen or reducing

68. Section 7: Daily NTS Exit (Flexibility) Capacity Sales  Pay as bid auction  Not later than 1 hour after each User has been notified of their allocation the National Grid NTS will publish the following information per NTS Exit Zone per day. Each one of the pieces of information detailed below will be provided:  Weighted Average Price of all successful bids  Aggregate Volume Allocated  Number of Users who submitted bids  Number of successful Users  The highest price accepted  The volume accepted associated to the highest price  The lowest price accepted  The volume accepted associated to the lowest price

69. Flex Capacity – Increase (daily) Capacity 5 Oct 2010 Zonal Baseline Annual right Oct 2011 Annual right Oct 2012 Daily right subject to new zonal maxima based on our assessment Assessment of daily capability and unutilised flex Consider release of additional flex (in accordance with incentive/obligation) Allocate through OPN acceptance, if can meet all requests If can ’ t meet all requests, allocate through “ pay-as- bid ” auction Day ahead and within day Current Notice Periods and Ramp Rates apply Reserve Price ~0 p/kWh

70. Section 8: Transfers and Assignment of NTS Exit (Flexibility) Capacity  A trade registration system to facilitate trading (provided in 2009)  2 “types” of NTS Exit (Flexibility) Capacity Trading  Annual Trading  Opens after first Annual auction for a Year has been allocated.  Annual Block ONLY  Can be traded at and between Zones  Cannot be traded during Annual Auction (i.e. from first bid date to allocation completed)  Cannot trade annually after last Annual Auction for that Gas Year

71. Section 8: Transfers and Assignment of NTS Exit (Flexibility) Capacity  Daily Trading  Opens after last Annual auction for a Year has been allocated.  Minimum for a day.  Can be traded at and between Zones  Both Annual and Daily trading subject to Intra and Inter Zonal Rules:  Intra-Zonal  Users can trade ahead of the day (subject to Annual and Daily rules) and within day (upto 04.00)  Facilitate trading between Users

72. Section 8: Transfers and Assignment of NTS Exit (Flexibility) Capacity  Inter-Zonal  Can trade in advance (subject to Annual and Daily rules).  Trading window open up to 12.00 D-1  Trades subject to  Area maxima  Zonal Maxima  NTS SO taking Constraint Management Actions within an NTS Exit Zone  Can trade between Users and a User can trade with itself.  Either “type” of trade and intra/inter zonal results in an adjustment to both the buying and selling User’s NTS Exit (Flexibility) holding at the relevant NTS Exit Zones.

73. Section 8: Transfers and Assignment of NTS Exit (Flexibility) Capacity  National Grid NTS will facilitate primary transfer (assignment) of a User’s total amount of capacity holding to another User at an NTS Exit Zone with 5 days notice  User able to assign its total amount of capacity holdings at an NTS Exit Zone to another User at the same NTS Exit Zone, subject to credit checks, including the liability to pay for capacity charges

74. Section 9 : NTS Exit Capacity Constraint Management  NTS Exit (Flat) Capacity Constraint Management  Scaleback Of Interruptible  Options & Forwards contracts  NTS Exit (Flat) Capacity Buy Backs  NTS Exit (Flexibility) Capacity Constraint Management  D-1 Buy Back of Primary Product  Bi-Lateral Contracts  Flow Swaps  Forwards & Options  Turn Up

75. Section 9 : NTS Exit Capacity Constraint Management  Scaling Back of NTS Exit (Flat) Interruptible  Interrupt anytime after 15.00 D-1  Minimum of current hour +1 notice  Takes account of “deemed flow”  National Grid NTS shall determine the proportion of Interruptible required to be scaled off.  Users pay for original Interruptible (pre-scale).

76. Section 9 : NTS Exit Capacity Constraint Management  Buyback of NTS Exit (Flat and Flexibility) Capacity  Process same as daily release  Pay as bid auction  Limits to bids/offers (reserve price bids, minimum eligible quantity and so on)  Allocate lowest price first  Potential for Flat buyback D-1 and D  Potential for Flex buyback D-1  Information provided post auction

77. Section 9 : NTS Exit Capacity Constraint Management  Within Day Flow Reductions  NTS SO notify Users of quantity and period  Users submit offers  Quantity  Price  Pay as bid auction  Price feeds into NTS Exit (Flexibility) Capacity Overrun  Flow reduction reduces a Users NTS Exit (Flexibility) Capacity holding by 1/3 of the quantity accepted.

78. Section 10: Exit Capacity Neutrality Arrangements  Cost and revenues smeared on NTS Exit (Flat) Capacity holdings over all NTS Exit Points  Revenues  D-1 and D NTS Exit (Flat) Capacity Sales  Non-obligated NTS Exit (Flat) Capacity Sales  D-1 and D NTS Exit (Flexibility) Capacity Sales  NTS Exit (Flat) Capacity Overrun Charges  NTS Exit (Flexibility) Capacity Overrun Charges  Costs  NTS Exit Capacity Constraint Management tools

79. Section 11: Charging Arrangements  Users pay National Grid NTS  NTS Exit Capacity Charges (Flat and Flexibility)  NTS Exit Commodity Charges  NTS Exit Capacity Overrun Charges  NTS Exit Capacity Neutrality Charges  National Grid NTS pay Users  NTS Exit Capacity Surrender Charges  NTS Exit Capacity Neutrality Revenues  Non compliant gas and liabilities  Invoiced in accordance with UNC Section S

80. Section 12: NTS SO Credit Checks & Termination Rules  Credit (subject to Credit Modifications raised)  Extension to current credit rules  Notify Users if exceed 70% of their credit limit  Sanction placed if exceed 85% of User’s credit limit  Assessment of outstanding invoices plus next 12 months entry capacity charges.  Considers 12 months Flat & Flex in security & credit assessment  DNs will need appropriate security

81. Section 12: NTS SO Credit Checks & Termination Rules  Termination  DNO terminates, new DNO takes over  Non DNO User terminates  NTS Exit (Flat and Flexibility) Capacity revert to NTS SO  Except  where the User has traded the product onto another User  Non terminated user has option to “buy” the traded quantity and # accept the liabilities  the User has bought the product from another User  Product reverts to non-terminated User

82. Section 13: Liability Arrangements and User Obligations  Liabilities – Direct Connects  Principle applies to both Flat and Flexibility  Amount of gas not made available for Offtake by National Grid NTS  Based on holdings (C), flows (X) and nominations (Y)  Flat Liability use Flat holdings, end of day flows/nominations  Flex Liability use Flex holdings, 22.00 flows and flex nominations  Rate for Flat = Prevailing Exit Capacity Price (P)  Rate for Flexibility = WAP for Annual Auction bids for that Gas Year for that NTS Exit Zone (P). C * (1-X/Y) * P * F F = multiplier of 10 DN’s as now

83. Section 13: Liability Arrangements and User Obligations  National Grid NTS obligations to make gas available for offtake  National Grid NTS shall not be obliged to make gas available for Offtake where :  Quantity flowed exceeds the User’s NTS Exit (Flat) Capacity Holding.  At any time where flows exceed the maximum permitted rate  On any day that there is Planned Maintenance  Maximum Permitted Rate  Applies between 06.00 and 22.00  Flex holding + 16/24ths of end of day Flow

84. Section 13: Liability Arrangements and User Obligations  User obligations at NTS Exit Points  User not entitled to flow at a rate that exceeds the Maximum Permitted Rate  Flat holding / 24 + Flex holding / 4  Where National Grid NTS believe that this rate is being exceeded – National Grid NTS can take any steps to secure the required reduction

85. Section 13: Liability Arrangements and User Obligations  Pressure Obligations at NTS/LDZ Offtakes  Commitments for 2009/10 (set this summer) rolled over going forward.  National Grid NTS and DNO’s can request a :  Permanent increase / decrease in April each year, detailing new Assured Offtake Pressure and start of Gas year applies  Finite increase / decrease at any time, detailing the new Assured Offtake Pressure and the period that the pressure shall apply.  The counter party must accept within 2 months for permanent or 10 days for temporary unless it would prejudice the safe and economic operation of their system.

86. Section 14: Further References in UNC  Section G  Interruptible Firm Allowance  SOQ Capacity Booking  Interruptible Supply Points  Partnering Supply Points  CSEP Ancillary Agreements remain but UNC takes precedent  Section I OAD  Various Sections to be removed as superseded by these Business Rules