Gas Transmission Access: Curtailment 21 September 2017 First Gas / Presentation

Agenda Preliminary: Confirm what the GTAC says about “curtailment” (e.g. section 9) Clarify First Gas’ views in relation to gas producer-gas buyer relations Achieve common understanding of what the GTAC currently says about Mismatch (arising from gas production outages or otherwise) Agenda: Seek participants’ views on the need for NQ curtailment rights Consider the implications of NQ curtailments Confirm the role of OFO’s Example – Receipt Point (OBA) outage and possible implications for producer and Shippers Discuss potential GTAC amendments to provide NQ curtailment rights

Revised engagement approach for draft GTAC Release of revised draft GTAC (11 September) Focused sessions on selected topics (21 & 28 September) Submission of GTAC to GIC for review (8 December) Complete GTAC draft released for consultation and negotiation (10 August) GIC complete review (by 23 March) Workshop on revised draft GTAC (15 September) Release of second revised draft GTAC (3 November) GIC releases Preliminary Assessment (22 December) 2-day workshop (24-25 August) Submissions on GIC Preliminary Assessment due (23 February) Final mark-ups on second revised draft GTAC due (24 November) Initial run through session (17 August) Telecon Q&A session (31 August) Stakeholder mark-ups and submissions on revised draft GTAC due (9 October) Aug 2017 Sept 2017 Oct 2017 Nov 2017 Dec 2017 Jan 2018 Feb 2018 Mar 2018 Ensure provisions of GTAC are well-understood before inviting mark-ups Enable further revisions to be made to better achieve intent and eliminate ambiguities Allow stakeholders to propose improvements and highlight any remaining concerns Allow time for First Gas to review proposed changes and submissions Allow stakeholders to review changes made following first round of mark-ups and obtain legal review/mark-ups Allow time for First Gas to finalise the GTAC before submitting to GIC Allow stakeholders further opportunity to address any unresolved issues (including issues raised by other parties prior to submission of final GTAC) * See GIC paper “Proposed approach to GTAC assessment” for further details on this stage

Curtailment – Current GTAC Provisions & Principles Section 1.2 of the GTAC states that “curtail” includes “to reduce either partly or to zero and to shut or close down”. GTAC curtailment applies to both nominations and flows e.g. First Gas may curtail: NQs at a Delivery Point > Available Operational Capacity NQs at a Receipt Point when NQs > Maximum Design Flow Rate Actual flow in the circumstances referred to in section 9.1 Section 9 is currently focused on responding to events that have damaged or affected, or may damage or affect the physical ability of the Transmission System (or part of it) to receive and/or deliver gas. MPOC “Curtailment” is where either the TSO (s15.1) or an Interconnected Party (s15.2) reduces SQs and NQs at both the Receipt and corresponding Delivery Points (as MPOC nominations are daisy-chained).

Curtailment - Current GTAC Provisions & Principles (2) First Gas won’t become involved in the gas sale and purchase arrangements of gas producers and Shippers First Gas believes that including an equivalent to section 15.2 of the MPOC in the GTAC would be inappropriate OBAs are one choice for gas producers: they are not compulsory Not “daisy-chaining” nominations (now gas/capacity, not gas/gas) is deliberate Gas producers and Shippers have means under the GTAC, e.g. ID Cycles (including proposed Emergency Cycle) and gas trading, to manage their Mismatches Circumstances for First Gas to reduce NQs in the GTAC are currently limited. However, some of the scenario analysis in this presentation show that there may be scope for an increased ability for First Gas to initiate a curtailment of NQs / SQs at either Receipt Points and Delivery Points depending on the circumstances

OFO’s – Another Form of “Curtailment” OFO’s may be used to curtail flow in the circumstances where an “adverse event” such as those listed in section 9.1(a) of the GTAC or template ICA’s has occurred and a physical response is required to “curtail” flow OFO’s can be issued to Shippers or Interconnected Parties First Gas will issue an OFO to the Interconnected Party at a Receipt Point or Dedicated Delivery Point, and not to the Shipper(s) using that point (new section 9.5 GTAC) There are potentially significant consequences for failing to comply with an OFO: First Gas may curtail the injection and/or take of Gas itself; and the Shipper and/or Interconnected Party indemnify First Gas for any Loss incurred by First Gas for failing to comply: GTAC liability caps will not apply OFO’s will be published on the new IT system OFO’s cannot make a party inject or increase offtake

GTAC Curtailment Example: Production Station (OBA) Outage – Falling Line Pack / Pressure Receipt Point (with OBA) experiences significant outage. First Gas received notification of outage (wider notification to industry?) No flow at Receipt Point anticipated for rest of day. Outage occurs shortly after commencement of ID2 Nominations Cycle Receipt Point supplies Shippers with a diverse range of customers ranging from large direct connected parties to smaller commercial and domestic users.

GTAC Curtailment Example: Production Station (OBA) Outage – Falling Line Pack / Pressure Time Event Scenario 1 Scenario 2 11:00 I2 starts - 11:01 Production Station (OBA) Trips Incentives for Shipper and Producer to reduce Noms. 14:00 I3 Nominations, Confirmations, Approvals Shipper » Noms I3 = I2 Producer » accepts Producer » rejects by reducing it to deemed Qty 15:00 I3 starts Incentives Producer » to fix issue Shipper » none Shipper » to reduce Noms and offtake; or source gas somewhere else Charges/Fees Producer » Negative RM Producer » Negative RM to a lesser amount Shipper » Negative RM

GTAC Curtailment Example: Production Station (OBA) Outage – Falling Line Pack / Pressure Time Event Scenario 3 Scenario 4 11:00 I2 starts - 11:01 Production Station (OBA) Trips Incentives for Shipper and Producer to reduce Noms. 14:00 I3 Nominations, Confirmations, Approvals Shipper » Noms I3 < I2 (reduction) Producer » accepts Producer » rejects by increasing it to previously approved Qty (I3 = I2) 15:00 I3 starts Incentives Producer » to fix issue Shipper » none Shipper » to reduce Noms or increase offtake; Charges/Fees Producer » Negative RM to a lesser amount Shipper » Positive RM and Underrun Charges

Previous GTAC Curtailment Example: Four Nomination Scenarios There are four ways nominations can change at the Receipt Point in response to the outage and there are two demand permutations: Shippers nominate at ID3 for the same gas as ID2 Producer accepts There is demand response to the outage There is no demand response Producer rejects nomination and reduces nominations to deemed flow Shippers nominate at ID3 for reduced quantities (demand response) Producer rejects reduction and nominations are kept the same as ID2

GTAC Curtailment Example: 1ai & 2ai Four Nomination Scenarios Producer nominations have been kept the same and there is a demand response Running Mismatch Producer Negative Running Mismatch increases Shipper Positive Running Mismatch increases To alleviate the resulting Running Mismatch the parties trade

GTAC Curtailment Example: 1aii & 2aii Four Nomination Scenarios Nominations remain the same and there is no demand response Running Mismatch Producer Negative Running Mismatch increases Shipper Running Mismatch remains the same Producer has two ways to alleviate the Running Mismatch Purchase from another producer Purchase a demand response from another Shipper or Delivery OBA party The other party effectively increases their positive Running Mismatch which is then purchased by the Producer If alternative supply/demand response cannot be obtained by the Producer and/or Shippers then First Gas will explore trading as well and/or look to curtail demand

GTAC Curtailment Example: 1bi & 2bi Four Nomination Scenarios Producer reduces nominations to deemed flow in ID3 and demand is reduced Running Mismatch Producer Negative Running Mismatch increases (less than before) Shipper Positive Running Mismatch increases (less than before) To alleviate the resulting Running Mismatch the parties trade

GTAC Curtailment Example: 1bii & 2bii Four Nomination Scenarios Producer reduces nominations to deemed flow in ID3 and there is no demand response Running Mismatch Producer Negative Running Mismatch increases (less than before) Shipper Negative Running Mismatch increases Producer has the same options as 1a to reduce their (lesser) exposure to Running Mismatch Shipper has three ways to alleviate the Running Mismatch Purchase from another producer Purchase a demand response from another Shipper or Delivery OBA party Reduce demand from its end users (if possible) Again, if alternative supply/demand response cannot be obtained by the Producer and/or Shippers then First Gas will explore trading and/or look to curtail demand

GTAC Potential Amendments s4.20 says that any reduced NQ will be automatically accepted: must the gas producer agree to that? If a gas producer has the right to reduce NQs “intra-ID”, do Shippers need the same right to reduce Delivery NQs? Consumers should not be affected unnecessarily: line pack/Mismatch, park and loan should be utilised First Gas will know which Shippers are affected by a producer outage The producer should advise the outage duration and ΔGJ First Gas will try to buy Balancing Gas for ≤ ΔGJ if line pack becomes too depleted: that gas may not be obtainable Consumers may then need to be curtailed: Shippers could set up a curtailment order, otherwise First Gas would curtail pro-rata

GTAC Potential Amendments (2) What happens when demand is < supply? First Gas will attempt to move gas around the system (“store more”) Line pack increases and TTP may rise > 48 bar g First Gas will try to sell Balancing Gas, but there may be no buyer Curtailment of gas injections into the system may ultimately be required First Gas can not discriminate against any producer We could quantity the reduction in line pack required and curtail all producers pro rata This would be a last resort: producers and Shippers who might not be in Mismatch would be affected too

Curtailment – Emergency ID Cycle A proposed “Emergency ID Cycle” is designed to provide flexibility to respond to changing circumstances (particularly after last ID cycle) It would be another tool to help gas producers and Shippers manage their Mismatch positions. Section 4.25 GTAC currently states, “If practicable, First Gas will provide a fifth Intra-Day Cycle, in addition to and after the four referred to in section 4.14, to be used where a Shipper experiences an unforeseeable change in either its receipts of Gas or its customers’ demand for Gas. To manage unexpected production station outages, “intra-ID” changes to NQ may be required (Emergency ID cycle ≠ “Intra-ID” Cycle). Will need to be workable from a new IT system perspective. Preliminary industry feedback is to remove the reference to “fifth” ID Cycle and possibly make it more than a singular cycle. We would welcome further feedback on the potential role and application of an Emergency ID Cycle (or cycles).