NTS Exit (Flat) Capacity Charges – Credit Arrangements (UNC TPD V3.3.4) Simon Trivella – 14 th January 2009 Distribution Workstream

Background Modification Proposal 0116 –Relevant Code Indebtedness (RCI) used for Credit arrangements –Value at Risk not within the UNC –Introduce DNOs as Users under TPD V3 & V4 –Include 12 months of NTS Exit (Flat) Capacity Charges in RCI

Background Post Modification Proposal 0116 –Suite of Credit related Modification Proposals Implementation of Best Practice Guidelines (Ofgem 58/05) 0144A introduced concept of Value at Risk Value at Risk (VAR) –Aggregate amount of unpaid Transportation Charges; plus –20 times the average daily aggregate amount of Transportation Charges from previous month

Background Modification Proposal 0195AV –Specific section on credit arrangements within Proposal Makes reference to Implementation of Proposal 0144AV (VAR) Reference to Proposal 0145 “Management of Users Approaching and Exceeding Code Credit Limit” Therefore suggests V3.3.4 was not within the intent of 0195AV Other conflicting paragraphs in Proposal (based on 0116) –Legal text based upon 0116 Proposals –Introduced UNC TPD V3.3.4

Background UNC TPD V3.3.4: “For the purposes of paragraph 3.3.2(c)(i) and (iii) and the application of Section B3.2.6 and 3.3.3(f) and paragraph 3.6 of Section B Annex B-1, a User’s Value at Risk shall be treated as including the aggregate NTS Exit (Flat) Capacity Charges payable by the User for each Day in the following twelve (12) calendar months commencing from the first Day of the calendar month following the Day in respect of which the User’s Value at Risk is to be determined”

UNC TPD V3.3.4 – WWU View No justification for its introduction Differential treatment for NTS Exit (Flat) Capacity Charges –All other Transportation Charges treated as per VAR definition Not aligned with “Best Practice” Could lead to over securitisation (both DNOs and Shippers)

UNC TPD V3.3.4 – WWU View Differential treatment for National Grid (DNO) –NGD and NG NTS are single entity for credit purposes Text could mean that V3.3.4 only applies once User’s VAR exceeds 100% of User’s Code Credit Limit –User would be required provide Security to reduce below 100% –V3.3.4 would increase required security by over 10 months worth of NTS Exit (Flat) Capacity Charges

UNC TPD V3.3.4 – WWU View DNOs would want to apply equivalent arrangements to “passed through” NTS Exit (Flat) Capacity Charges to Shippers –WWU’s RAV, versus NG RAV, lead to potential significant Shipper costs Requested opinion from Ofgem “Ofgem gas policy team and ICL has been unable to identify any Ofgem imperative for this mechanism. …. specifics like this would have been ‘industry response to the overall requirement for robust arrangements’”

UNC TPD V3.3.4 – WWU View Responses to 0195AV raised concerns about V3.3.4 Support from Review Group 0252 Suggested discussion at both Dist & Transmission Workstreams

DNOs as Users under TPD V3 & V4 No clear requirement / justification for this NGD & NG NTS single entity –Arrangements do not work and present differential treatment How would Termination work (TPD V4)? DNOs present no / low risk to NG NTS –Extensive discussions prior to Modification Proposal 0261 “Biggest risk” seen as New Project Default “Some risk” of Shipper default on single NTS Exit Point

Potential Options Do nothing –Not viable as current arrangements are not appropriate or coherent Remove TPD V3.3.4 –Both DNO and Shipper Users Remove DNOs from V3.3.4 –Shipper Users still subject V3.3.4

Potential Options Remove DNOs from V3 & V4 –DNOs no longer classed as a User –Shipper Users remain subject to V3.3.4 Remove DNOs from V3 & V4 AND remove V3.3.4 –DNOs no longer classed as a User –Shipper Users no subject to V3.3.4

Next Steps Presented / Discussed at Transmission Workstream x 2 Feedback from Distribution Workstream (Jan 2010) Modification Proposal raised

NTS Exit (Flat) Capacity Charges – Credit Arrangements (UNC TPD V3.3.4) Simon Trivella – 14 th January 2009 Distribution Workstream