Place your chosen image here. The four corners must just cover the arrow tips. For covers, the three pictures should be the same size and in a straight line. Developing capacity & connection processes Long term non-firm capacity: Draft business principles 6 th September 2012

2 Long Term Non-Firm: Recap  Allow new connections and existing site expansions access to the NTS ahead of timescales for firm incremental capacity delivery, but only where NTS reinforcement is needed  Would provide greater certainty for customers  Where customer has significantly progressed their project and NTS connection is ready, but firm capacity delivery is beyond the first potential gas flow date  Where customer project is ready ahead of schedule  Where customer project doesn’t need planning consent so timescales are potentially misaligned  ‘In flight’ projects  Aimed at covering the gap between firm capacity delivery and first gas flow date Option A: Long term off-peak exit / interruptible entry capacity Introduces new capacity product, sold through auctions (adhoc or fixed) Option B: Non-obligated firm capacity, with buyback option Released via non-obligated capacity mechanism with a buyback option contract attached

3 Draft Business principles  High level principles  First draft only  Industry discussion needed to ensure ideas are developed into a workable solution for industry, consider:  Are these options workable?  Are these viable alternatives?

4 Process trigger No Yes Customer signals incremental capacity requirement NG NTS analyse & determine how requirement could be met In the case that NTS build is required, does customer require early access to NTS? Unsold firm? Substitution? NTS build? Customer bids/applies for firm incremental capacity from the agreed delivery date Long term non-firm capacity release would be considered for the ‘early capacity period’

5 Long Term Non-Firm: Release criteria  Applies to both Option A & B  Only released where:  An incremental signal has been provided and  Earlier access to the NTS is required and  NTS reinforcement required  Staged capacity release (annually), conditional upon:  Demonstration requirements being satisfied (where a bilateral agreement is in place); and  There being insufficient unsold firm capacity available to fulfil the customer’s capacity requirement for the year ahead (customer must purchase any unsold firm capacity where available)

6 Option A: Draft business principles Capacity Product  Longer term release of Interruptible Entry and Off-Peak Exit Capacity  Release via an annual adhoc process  Subject to curtailment  Likelihood of curtailment provided to the relevant user for the release period Pricing  ‘Pay as Bid’ pricing, with a reserve price Duration  Capacity released throughout entire ‘early capacity period’  Held once a year for (up to) a 12 month period  Up to 12 Monthly blocks

7 Option B: Draft business principles Capacity Product  Non-obligated firm capacity  Release via an annual adhoc process  Buyback option contract for all days on which capacity is held  Likelihood of buyback provided to the relevant user for the release period Pricing  ‘Pay as Bid’ capacity pricing  Zero option price + exercise price capped at price paid for capacity Duration  Capacity released throughout entire early capacity period (annually)  Held once a year for (up to) a 12 month period  Up to 12 Monthly blocks

Long Term Non-Firm Capacity Scenarios: How might it work in practice?

9 Scenario 1 – Status quo arrangements Buyback Period Sold/Obligated Level Request level Firm capacity delivery date Achievable firm capacity delivery date LTNF = Long term non-firm capacity Time Capacity Quantity Incremental Capacity Situation: NG NTS unable to meet firm capacity delivery date and no permits to use

10 Scenarios 2&3 – Status quo arrangements LTNF Sold/Obligated Level Request level Scenario 2: NG NTS can meet firm capacity delivery date but customer requests early access Scenario 3: NG NTS unable to meet firm capacity delivery date, extend with permits First gas date Firm capacity delivery date extended by permits Firm capacity delivery date LTNF = Long term non-firm capacity Time Capacity Quantity Incremental Capacity

11 Scenario 4 – ‘PARCA’/Split Auctions & PCA LTNF Period Sold/Obligated Level Request level First gas date Firm capacity delivery date Demo Dates passed  All Planning Consents Obtained  Situation: Demonstration information satisfied and all planning consents obtained Time Capacity Quantity LTNF = Long term non-firm capacity Incremental Capacity

12 Initial LTNF period Sold/Obligated Level Request level LTNF to replace delayed incremental Original firm capacity delivery date Revised firm capacity delivery date due to planning consent delay NG NTS Planning consent obtained  Situation: Delay in obtaining NG NTS planning consent Scenario 5 – ‘PARCA’/Split Auctions & PCA First gas date Time Capacity Quantity LTNF = Long term non-firm capacity Incremental Capacity Customer Planning consent obtained 

13 Proposed first LTNF period Sold/Obligated Level Request level LTNF to replace delayed incremental Original firm capacity delivery date & revised first gas date Revised firm capacity delivery date due to planning consent delay Customer Planning consent obtained  Situation: Delay in obtaining customer planning consent Scenario 6 – ‘PARCA’/Split Auctions & PCA Original First gas date Time Capacity Quantity LTNF = Long term non-firm capacity Incremental Capacity NG NTS Planning consent obtained 

14 Sold/Obligated level Request level Final Demo Date failed Proposed LTNF period – year 1 Firm capacity delivery date First gas date Incremental capacity build & release cancelled Date LTNF would have been renewed for new gas year Proposed LTNF period – year 2 Situation: Failure to provide demonstration information Scenario 7 – ‘PARCA’/Split Auctions & PCA Time Capacity Quantity LTNF = Long term non-firm capacity Planned Incremental Capacity (no longer to be released at this stage)