Ofgem presentation to Gas Transmission Workstream Project Ofgem presentation to Gas Transmission Workstream 7 October 2010

Presentation Outline What is Project TransmiT? Recap on Gas Transmission Charging regime How might Project TransmiT affect current gas transmission arrangements? What is Ofgem asking for? Timetable and how Project TransmiT will be taken forward

What is Project TransmiT? Open review of electricity & gas transmission arrangements Covers charging and related connections issues Driven by Ofgem’s change in duties and governance changes Objective to facilitate transition to a safe, reliable & value for money low carbon energy sector Focus is also on practical and commercial difficulties experienced by parties seeking to connect to, and use, the transmission networks Needs to be mindful of European developments potential impact on market design and charging principles

Gas transmission charges – a quick recap Ofgem sets allowed revenues for TO & SO through price controls TO revenue recovered through entry and exit capacity charges A TO commodity charge is levied on entry flows make up any allowed revenue shortfall SO charges levied on entry & exit to cover SO operation costs TO/SO interactions through Provision of incremental capacity Incentive trade-offs (eg buy-back v locational sell actions) Methodology changes need Ofgem approval

Gas transmission charging – developments over past year Entry charging review started in 2008 Concerns over high and volatile TO entry commodity charges Culminated in GCM19 and associated UNC modifications Remove firm entry capacity reserve price discounts Limit release of UIOLI capacity to 90% of firm sold out Ofgem vetoed proposals after impact assessment At September TCMF we informed group a transmission review was planned, but scope was uncertain at that time Encouraged TCMF to continue to develop proposals

Related charging issues UNC246 and variants – credit arrangements for capacity At what point in the process should revenues be released to fund incremental capacity? How can we avoid recurrence of Fleetwood issue? Carbon Capture & Storage (CCS) How to determine transfer value for existing infrastructure? Interactions of gas & electricity consumers

How might gas charging be affected? Volatility Changes in flow assumptions can bring significant volatility; how can this be dealt with? Short run marginal costs Possible for non-zero reserve price on daily capacity? Future gas loads Will charging principles be appropriate for network if wind displaces significant amounts of gas? European developments Harmonisation of tariffs, bundled products, etc.

What is Ofgem asking for? Evidence on: strengths & weaknesses of current charging system whether there is a case to reform the either of the charging system or the connection regime Views on: changes to rules, processes and administrative procedures which will overcome any shortcomings and facilitate further achievement of our primary objective process modifications that will allow timely connection of new assets whether either charging or connections should be dealt with through the Significant Code Review process

Timetable and engagement Roundtable and stakeholders workshops will be held First workshop will be held in late October/Nov; details to follow Dedicated web forum will be established Will allow stakeholders to post papers and analysis directly onto Ofgem website Continued involvement through Workstream and TCMF expected Date Action 17 November 2010 Deadline for responses to call for evidence October/Nov 2010 First stakeholder event December 2010 Publish responses to call for evidence March 2011 Publication of independent academic reports Spring 2011 Consult on options identified from evidence Summer 2011 Publish recommendations