NTS Entry Charging Review Update UNC Transmission Workstream 7th January 2010

Introduction In August 2009, National Grid launched a review of entry charging principles through the formation of the Entry Charging Review Group (ECRG). This was in response to growing concern about the increasing rate of the TO entry commodity charge. TO Entry Commodity Charges have increased, year-on-year, due to the increasing revenue under-recovery from NTS Entry Capacity Revenue. The ECRG have identified the following as the key contributing factors to the high level of the TO Entry Commodity Charge the quantities of firm and interruptible capacity made available at zero reserve price, the quantities of entry capacity procured ahead of the gas day and the ability of shippers to profile their capacity procurement. The review group has suggested a phased approach may be of benefit. The first phase to involve the removal of entry capacity reserve price discounts and a UNC Modification Proposal to reduce the quantities of daily interruptible entry capacity (DISEC) released Further phases to be developed through the ECRG. Anticipated to include the re-introduction of daily and monthly capacity reserve price multipliers within the Charging Methodology.

Discussion Paper ECRG agreed that an initial discussion paper be raised (Jan 2010), before a proposal is raised to remove entry capacity discounts, to seek views on; Principles/objectives of the review Discarded options Entry-Exit split & Commodity changes A Phased Approach Phase 1: Remove discounts* and reduce interruptible quantity released for 1st Oct ‘10 Phase 2: Price Multipliers – October 2011 Earliest UNC Changes References to zero reserve prices* Interruptible quantity** & release Neutrality changes** (within day obligated capacity revenue could be removed) Licence Changes Removal of clearing obligation Revenue mapping (within day obligated capacity revenue is SO but could be TO) Auction Timings & Frequency *Initial National Grid NTS view no Systems Impact identified ** Initial National Grid NTS view Potential Systems Impact

Potential UNC Changes UNC Changes Auction Timings & Frequency References to zero reserve prices TPD Section B 2.4.13 (f) (ii) Interruptible release / Quantity TPD Section B 2.5.11 Neutrality changes (within day obligated capacity revenue could be removed) TPD Section B 2.13.2 (a) (i) (1) Auction Timings & Frequency

Potential UNC Changes – Initial thoughts References to zero reserve prices Remove UNC references to zero reserve prices Interruptible release – potential options: Only release when all firm sold out Only release when [90%] of firm sold out Release UIOLI when quantity greater than unsold firm Interruptible quantity (where applicable) – potential options: Only release the difference between the UIOLI and the unsold firm Release the UIOLI quantity

Potential UNC Changes – Initial thoughts Neutrality changes (within day obligated capacity revenue could be removed) Obligated capacity could be removed from capacity neutrality smear Auction Timings & Frequency Likely to depend upon other changes? Timing of DISEC auction in relation to Day Ahead firm release? Within Day hourly assessment of firm release will continue

Potential Charging Timelines Process Phase I Phase II (Earliest) Review Meetings from 9 September 2009 Discussion Paper January 2010 Summer 2010 and/or Spring/summer 2011 Charging Proposal Consultation 26 February 2010 May 2011 Consultation ends Prepare Final Proposals 26 March 2010 June 2011 Submit Final proposals 30 April 2010 July 2011 RIA ends 30 July 2010 Assume no RIA Decision/ Notice of Charges 30 July 2011 Implementation 01 October 2010 01 October 2011

Potential UNC Timeline There is an expectation that any UNC changes would be progressed on a similar timeline to the Charging Methodology changes such that they could be considered by Ofgem as part of a single Regulatory Impact Assessment (RIA) Process Key Dates UNC Workstream: Initiate discussions 07 January 2010 UNC Workstream: Draft UNC Proposal 04 February 2010 UNC Workstream: UNC Proposal 04 March 2010 UNC Panel: Start Consultation 18 March 2010 Consultation close-out 12 April 2010 UNC Panel recommendation 15 April / 20 May 2010 RIA ends – Decision/ Notice of Charges 30 July 2010 Implementation 01 October 2010 Easter causes issues with the timeline. May need to request short notice inclusion (for recommendation) at April Mod Panel.