Mod 0445 – Amendment to the Arrangements for Daily Metered Supply Point Capacity Ofgem Direction to Provide Further Evidence National Grid Distribution – 12 th December 2014

2 Contents  Ofgem Concerns  Overview of Modification Proposal 0244  Specific Points Raised in the Rejection of Mod 0244  FMR should clearly explain how the situation has materially changed from the original proposal (0224)  Are arrangements sufficiently robust to avoid potential gaming?  In light of UNC objectives, are current capacity commitments placed on users adequate?  Are there benefits to aligning the reservation of network capacity by customers with GDN’s reservation of network capacity on the NTS?  Industry Requirements  Next Steps

3 Ofgem Concerns  Insufficient analysis and evidence to support proposal  Analysis  Evidence  How will affected customers be impacted?  As there are no minimum AQ based limitations on eligibility for Class 2 DM Supply Points, we anticipate significant uptake of Users electing into this category. Through increased choice and flexibility, the end user should benefit.  What is the likely impact upon customer charges?  Generally speaking, when forecast income is not fully recovered in the time period specified, subsequent charges would be increased to compensate  The degree to whether and if/how much charges may change will ultimately be determined by the ‘take up’ (utilisation) of the facility by Shippers

4 Overview of Mod 0244  Allows Shippers to amend DM AQs, SOQs and/or BSSOQs  Shipper must change Supply Meter Point (SMP) AQ to >= 73,201kWh  SOQ must be decreased by more than 20%  The SOQ and BSSOQ must be > 1/365 of the AQ AND SOQ must be >= BSSOQ  Site must remain DM for at least 12 months & be liable to applicable DM charges  Existing Ratchet regime continues to apply  Reapplication may be made by sites using the process that fall below mandatory DM threshold, provided they are within same 12 month period referred to above  Where process has been used at least twice at a SMP within 12 months, then Gas Transporter to ensure that subsequent increase to AQ, SOQ and/or BSSOQ be charged retrospectively for capacity charge element avoided in original reduction  Exclude NeXa or ARCA sites

5 Mod 0445 FMR should clearly explain how the situation has materially changed from the original proposal (0244)  Consumer Demand  3 ‘transitional’ Mods (0275, 0405 and 0478) addressed limitations and adverse effects of exit capacity arrangements  Raised to meet requests from Shippers on behalf of their customers that are unfairly constrained from reducing capacity sufficiently in line with actual consumer demand  Initial driver was downturn in economy, but climate has been sustained with little prospect of changing  Sterilisation of Capacity  Current ‘bottom stop’ mechanism has effect of sterilising capacity which could otherwise be released to other Users/Consumers  Enduring solution sought providing flexibility for consumers, while safeguarding Shipper community financially against inappropriate behaviours, such as within year profiling  Project Nexus  Introduction of ‘Class 2’ DM Supply Points, along with advent of AMR and SMART, may see significant numbers of Supply Points elected into this category by Users (increased freedom of consumer choice)  Nexus principles include the desire to maximize read availability and granularity of data, thus leading to more accurate gas allocation and reconciliation  Varied consumer types – need flexibility for a larger range of consumer  Mod 0445 requirements are included within the Nexus requirements. If Mod 0445 is not implemented, this will lead to a change to design. Xoserve may not be able accommodate this change in time for Project Nexus implementation

6 Specific Points Raised in the Rejection of Mod 0244  Are arrangements sufficiently robust to avoid potential gaming?  Previous Mods, in particular 0244B, lacked safeguards against inappropriate behaviour by Users in terms of ‘within year’ profiling of capacity. Measures include protecting the Shipper Community against adverse financial impacts by incorporating a mechanism which has the effect of returning costs of inappropriate profiling of capacity to the Shipper community  In light of UNC objectives, are current capacity commitments placed on users adequate?  Significant risk that if existing capacity arrangements prevail post Nexus implementation, then they may act as a disincentive for Users to freely enter into daily settlement agreements  Are there benefits to aligning the reservation of network capacity by customers with GDN’s reservation of network capacity on the NTS?  GDNs reserve capacity in line with the latest 1-in-20 Demand Forecast, which can go up or down. A mixture of Annual and Daily products can be secured to meet the system requirement. The Exit regime does allow for flexibility as it provides greater choice

7 Shipper Requirements (Evidence)  Data on how many Daily Metered customers may take up the offer of more flexible arrangements?  Can provide data confidentially if desired  Does availability of choice through Project Nexus Class 2 sites increase likelihood of increased use of flexible capacity product?  How many consumers might rely on these arrangements as an alternative to vacating their sites altogether?

8 Next Steps  Need Shipper responses by end January 2015  GDNs to conduct relevant analysis  Submit findings – February 2015?  Resubmit FMR – February 2015?