Exit Capacity User Commitment – Transmission Workstream update June 2009

Background March 2009 - Exit Capacity User Commitment strawman developed Draft Exit proposal based on Mod 0246 Entry Capacity User Commitment April Transmission Workstream User’s would like to be consulted in the development of any Exit solution Draft Strawman needs to provide further financial detail on the risk to be addressed before shippers are able to identify/support required change Exit not the same as entry use of demonstration dates 4 year User commitment fixed location argument (new Power Station can’t decide to move!) some Users are required to provide security to meet their electricity obligations

Exit Capacity Risk Analysis – Overall Risk Analysis indicates overall risk is low (<£2m) Note: Figures are a snap shot of the current risk and include all 5 years of any associated revenue drivers

Exit Capacity Risk Analysis - Existing Capacity Existing Capacity Holding - Very low risk (£0.2m) Shipper Community are not at financial risk from a DNO default Energy Act - Administration Arrangements Around 60% of NTS Exit baselines attributed to DNOs Storage/Generators/Shippers likely to be taken over if they experience difficulties Portfolio buy-outs more prominent in Exit than in Entry Industrial sites higher risk due to economic climate Number of NTS connected industrial sites small (12) Given small number the risk of default is lower than that for industrials on Distribution Networks Only 2 shutdowns seen in last 6mths (both orderly with all liabilities honoured) The value of annual enduring exit capacity without the DNOs is around £65M per year and this value is expected to reduce in July (reduction window), as Users seek to move to off-peak/interruptible products.

Exit Capacity Risk Analysis - Adhoc Applications (1) New Projects (Adhoc Applications) – Demonstration Dates mean that the risk is low (<£0.5m) Demonstration Dates First gas flow: between 6 months from date of application and 1st October Gas Year Y+4 from application if Works will be required, the Offer specifies Demonstration Date and Capacity Delivery Date. User must provide NTS with certain information (agreed at time of application) by a pre-agreed date, e.g. S36 consents, project plan, board approval, etc. NTS will publish guidance on what could constitute demonstration information Demonstration date not met If a User/developer does not provide the required information, NTS can re-set the demonstration date and the delivery date If the demonstration date is reset 3 times, NTS can either: Agree with User/developer a further demonstration date Cancel the User’s/developer’s capacity holding and recover all costs and expenses incurred in performing design works Where capacity is cancelled, it shall be prior to triggering Licence revenue driver

Exit Capacity Risk Analysis - Adhoc Applications (2) New Projects (Adhoc Applications) – low risk (<£0.5m) Demonstration date passed Probability of a Site default is very low as they will have proved the project is financially supported and planning permission received There is some risk of a Shipper default or a single exit point Shipper deferring capacity (the same UNC text exists on entry and is being addressed via Mod 0246) Note: where no investment is required the risk is the same as Existing Capacity

Exit Capacity Risk Analysis - Annual Application New Projects (Annual Application Window) – low risk (<£1m) Annual Application Window covers capacity to be utilised from 1 October Y4, Y5 and/or Y6 Demonstration Dates not applicable Shippers can also defer capacity (same UNC text as for Adhoc Applications/Entry) Out of 19 sites that have indicated an interest in bidding in July, the Revenue Driver is only applicable to 4 PowerStation's (4/19 sites) Note: where no investment is required the risk is the same as Existing Capacity

Conclusion/Next steps Biggest risk is New Project Default (Annual Application Window) However, only 20%~ of applications have an associated Revenue Driver NG propose to monitor projects progressed through annual application to assess if Demonstration Dates should be introduced in this area. Some risk of a Shipper default or a single exit point Shipper deferring capacity More focused proposal being developed to remove current UNC text enabling Users to defer NTS exit capacity commitments June Transmission Workstream Views sought on the analysis performed and proposed approach?