Entry Overrun Calculation April 2009 Transmission Workstream

Background (1) Current overrun charge = the overrun quantity multiplied by the highest of 8 x the highest bid price paid in any entry capacity release mechanism for that ASEP 1.1 x the top 25% accepted offer price, forward price or exercise price 1.1 x the highest unit price (recently introduced by T&T) Mod 119 raised in October 2006 which proposed that two changes be made: Change the top 25% average to the highest accepted offer, forward or exercise price in respect of the day at that ASEP To address concerns that Shippers could benefit financially from an overrun where the buyback price is higher than the overrun charge Add in the highest reserve price applied to that ASEP To combat the situation where the overrun charge is 0 either because no capacity has been bought or the capacity has been bought at 0 price

Background (2) National Grid believed that this proposal would have better facilitated the relevant objectives by; Reflecting the intention that Users are incentivised to purchase a right to flow gas onto the System; Thereby providing signals to National Grid of the intended use of the system; Remove perverse incentives on Users during constraint actions and provides National Grid with the opportunity to more efficiently manage any potential constraint Ofgem rejected the Mod: Unaware of any evidence of shippers benefiting financially from overrunning Not all overruns result in a cost to NG and in some cases may even benefit the system Overrun charge / calculation must ensure that costs are allocated appropriately and accurately

Current Situation The original two issues remain: Potential for financial benefit when buyback price > overrun charge Potential for 0 overrun charge to be set After completing a comprehensive review of overruns since July 2006, National Grid NTS have identified only limited evidence of these situations occurring - but are still concerned by the potential implications. Therefore we will continue to monitor the situation, but will not raise a Modification Proposal at this time and request the topic is closed. However we will bring forward a proposal in a timely manner should we need to do so.