22 March 2007 Slide 1 Sub-deduct Networks John McNamara

Insert strapline 22 March 2007 Slide 2 Overview  Characteristics of a Sub-deduct Network  Ofgem Concerns - Safety, Charging  Regulatory Framework & Internal Legal Advice  Independent Legal Counsel  Way Forward

Insert strapline 22 March 2007 Slide 3 Characteristics of a Sub-deduct Network  History and profile of networks  Exemption Regime  UNC – Part of system / Exempted Person  Competitive Supply Market  Ownership and maintenance responsibility ?

Insert strapline 22 March 2007 Slide 4 Ofgem Concerns  Safety - Sub-deduct pipe work inferior to DN and IGT pipe work?  Charging – Shippers unable to avoid charges at primary meter.

Insert strapline 22 March 2007 Slide 5 Reg Framework & Internal Legal Advice  Gas Act 1986 – Sections 6A and 10(3)  The pipeline Safety Regulations 1996 – 3(4)  Gas Transporters Licence – SLC 4B, SSC A50 & A22a  UNC – section G 20  Conclusion “none of BG successor entities holds responsibility for the pipe-lines beyond the emergency control valve”

Insert strapline 22 March 2007 Slide 6 Independent Legal Counsel  Blackstone Chambers – Dec 06  “Relevant legislation did not appear inconsistent with Ofgem conclusion”.  “However no sufficient clear stipulation in the legislation to render the position free from real doubt”  Counsel advice – retrieve sample original agreements to form a more confident view

Insert strapline 22 March 2007 Slide 7 Way Forward  Quantify the risk – cross industry dialogue  Determine number of sub-deduct networks that form part of system under UNC  Source original documentation  Adoption by DNs  Change to legislation

Insert strapline 22 March 2007 Slide 8 Promoting choice and value for all gas and electricity customers