Discretionary Release of Non Obligated NTS System Entry Capacity Transmission Workstream 1st May 2008

Background  Concept of releasing strips of non obligated NTS entry capacity first raised November  Discussions with the industry reached consensus to postpone until such time as could be considered in more depth or Industry wished to revisit.  In response to subsequent industry requests National Grid NTS brought 3 options forward to April Transmission workstream:  Option A – Ad-hoc release of non obligated capacity  Option B – As ‘A’ but with associated buy-back  Option C – Scheduled release of non obligated + buy back 2

Background 2  National Grid NTS committed to bring forward a draft enabling modification based on Option A as:  we have seen a clear demand for the product  ability to potentially implement ahead of this winter  and we believe that due to a number of new investments it may be possible to release additional non-obligated capacity this year 3

Proposal – Discretionary Release of Non obligated capacity  National Grid NTS to bring forward an enabling mod that will allow the release of Non Obligated capacity, via an ad hoc auction release, outside of the existing Quarterly & Daily auctions  Less complex UNC modification that will give National Grid NTS greater flexibility in responding to market requirements i.e. can cater for both option A and option B.  Auction rules to be published as part of a set of Terms and Conditions during the invitation process, to be accepted by Users prior to bidding for capacity  Quantity made available to be based on a risk assessment  Potentially minimal system intervention required (expected to be held off-line, but systematised where possible)  Will be taken into account in the calculation of Trade & Transfer exchange rates (once the capacity has been sold it becomes Obligated Firm capacity)  Price paid for the capacity to be equal to or greater than the corresponding MSEC Reserve Price – otherwise there may be significant charging implications. 4

General Issues  There are a number of issues that National Grid NTS will need to consider:  Can this be implemented prior to Winter 08/09  Interaction with Trade & Transfer i.e. if National Grid NTS was to offer non obligated capacity with an associated buy-back  How would ad-hoc processes be initiated  Impact upon the secondary market  Ensuring that the process is non discriminatory 5

Advantages  Will maximise the amount of capacity released to the market  Will increase National Grid NTS’ ability to respond to customer requests, where there is an appropriate risk/reward balance.  Will allow for greater product differentiation i.e. will facilitate both Option A and Option B  Should be limited system issues (will still require xoserve assessment)  There will be minimal ongoing overheads  There is the potential for additional revenue to be passed to Shippers 6

Proposed UNC mod timeline Draft mod presented to work-stream01/05/08 Mod sent to panel15/05/08 Proposal issued for consultation16/05/08 Closeout for reps9/06/08 Final Mod Report issued by JO10/06/08 Mod panel decide upon recommendation19/06/08 Ofgem decision expected21/07/08 Proposed implementation date01/08/08 7

Way Forward  National Grid NTS to raise a draft enabling modification for consideration at the May Panel 8