Development Modification Proposal: Introduction of an Inter-day Linepack Product Review Group August 2010 Transmission Workstream 07/10/2010

Contents  Background  Review Group 0291: C27 – Balancing Arrangements  Inter-day Linepack Product Development Proposal  Inter-day Linepack Product: Overview  Next Steps

Background  February 2010 Ofgem published its Final Proposals on the National Grid Gas System Operator Incentives.  On 1 April 2010 the Authority introduced National Grid Plc’s Gas Transporter Special Licence Condition 27 (C27) – Balancing arrangements.  Places an obligation on National Grid NTS to use reasonable endeavour to:  Develop, in consultation with the industry, a Linepack Product by 1 st April 2011; and  Report back to the Authority by 1 st May 2011; and  If directed to do so by the Authority, implement the Product by 1 st October 2011.

Review Group 0291: C27 – Balancing Arrangements  National Grid initiated Review Group 0291 (RG0291) in May 2010  RG0291explored potential approaches for an Inter-day Linepack Product mechanism. Options included: 1.Inter-day Linepack ‘Bulletin Board’ 2.Incentive ‘Hybrid’ mechanism - seeks to address both the Cashout Default and Linepack issues within one mechanism 3.Cumulative Imbalance Cashout – seeks to adopt the cashout fixed differential but applies it to Users’ cumulative imbalances over a prescribed number of days

Review Group 0291 Recommendations  24 th September 2010; RG0291 issued its draft Review Group Report  RG0291 concluded that a recommendation could not be made in support of a Modification  RG0291 recognised that potential Modifications could be assessed and developed on their own merits  National Grid NTS indicated that development Modifications would be raised to allow the process to continue  The October UNC Mod Panel will be invited to close the RG0291 Review process and send related Modification/s to development

Inter-day Linepack Product: Development Proposal  Out of the three options the Inter-day Linepack Product ‘Bulletin Board’ has progressed most in respect of its development within the Review Group  RG0291 undertook an initial review of draft Business Rules of this option  National Grid will seek to continue development of the C27 Linepack Product through the Transmission Workstream (Development Proposal)

Inter-day Linepack Product: Overview  Inter-day Linepack Product is seeking to:  Facilitate the carry-over of a quantity of User’s daily imbalance to the following Gas Day:  Two types of Inter-day Linepack Product (Park & Loan)  Carry-over achieved by the User placing a bid on the Inter-day Linepack Bulletin Board (and having bid accepted)  National Grid NTS will require a new role ‘Inter-day Linepack Manager’ as counter-party to Linepack transactions (requires Licence change)  Linepack Product released daily, on a discretionary basis  Accepted Linepack Product transactions will be registered as NBP gas trade nominations  Receipts from the sale of the Inter-day Linepack Product Service will be returned to Shipper Users through Balancing Neutrality.

Next Steps  Development Modification Proposal – ‘Introduction of an Inter-day Linepack Product’ submitted to October 2010 Modification Panel.  Recommendation for development within the Transmission Workstream.  Agree schedule for development sessions  Agree Terms of Reference (ToRs)  Aim to get ‘Report’ to Ofgem by 1 st May 2010