Capacity Methodology Statements Transmission Workstream 7th June 2007

Capacity Methodology Statements Constrained Period Unconstrained Entry Entry Capacity Transfer and Trade Methodology Statement Entry Capacity Substitution Methodology Statement Incremental Entry Capacity Release Methodology Statement Exit Exit Capacity Baseline Revision Methodology Statement Exit Capacity Release Methodology Statement (Interim & Enduring)

Methodology Statement – Timetable Consultation start Consultation end Comment Capacity Transfer and Trade 2nd May 30th May Incremental Entry Capacity Release 16th May 5th June Entry Capacity Substitution 18th May 15th June See later slides Exit Capacity Release (Interim) 13th June (Enduring) TBC Linked to implementation of mod 116A Exit Capacity Baseline Revision Applies to Enduring Exit regime

Entry Capacity Substitution Transmission Workstream 7th June 2007

Proposed new licence condition Background Proposed new licence condition Aims to minimise investment needed to satisfy incremental demand for NTS Entry Capacity Process initiated by User capacity requests in the QSEC auction.

Users bid in QSEC auctions Process Users bid in QSEC auctions NG assesses bids in accordance with IECR methodology. Bids pass economic test Incremental capacity released (subject to lead time) Network Analysis of incremental capacity identifies system unable to satisfy requests without reinforcement. Opportunities for capacity substitution investigated. Consider within zone substitutions first Consider recipient ASEP with lowest Revenue Driver first Consider nearest (by pipeline length) donor ASEP first

Conditions for Substitutions Satisfactory User commitment through QSEC auctions No incremental change in buy back risk. No compromise of existing commitments (e.g. offtake pressures). Where, after exhausting all substitutions, a residual requirement for reinforcement remains and this reinforcement is uneconomic due to economies of size, then some substitutions may be rejected. An upper limit on the exchange rate may apply (subject to consultation) to avoid excessive loss of capacity at donor ASEPs.

Key Issues Users have no involvement in the process after submitting QSEC auction bids. Substitutions have no impact on NG’s obligation to make capacity available to the User. Unsold baseline capacity (in the QSEC auction) at any ASEP may be substituted to another ASEP and will not be available in subsequent auctions. Capacity NOT available in the QSEC auction will NOT be substituted to another ASEP.

Theoretical Example – St. Fergus

Theoretical Example: Effects of Entry Capacity Substitution

Interim Exit Capacity Release Transmission Workstream 7th June 2007

Previous version updated, no major changes. Background Previous version updated, no major changes. Duration extended for delay to implementation of Enduring Exit regime. Initial Volume Allocations (NTS/LDZ offtakes) updated based on latest OCS. Flex capacity values removed because incremental (flex) capacity is not released. Exit Baseline Revision (to account for effects of substitution) does not apply to interim / transitional period.