RIIO Gas Transmission Workshop - 5 th Sept Supplementary information 1 Hypothetical examples to illustrate the impact of combining the constraint management incentive schemes

Introduction  Purpose of these examples is to show how the decisions regarding managing constraints on the system would be affected by adopting NGG’s proposed combined scheme for constraint management compared with the current arrangements  NGG proposed that sharing factors should be equal to the RIIO-T1 efficiency rate applied in the totex incentive mechanism  The examples include “NGG cost” and “Shipper cost” where “Shipper cost” relates to the generality of Users, rather than a specific User  These examples are for illustrative purposes only (i.e. the costs indicated are entirely fictional) and assume that the actions each have the same effect on the system (i.e. there is no consideration that some actions be more effective than others)  Note that the resultant costs/revenues (after application of the sharing factor) would be subject to the appropriate cap/collar 2

Example 1 3 Bi-directional site (Storage) (not entering or withdrawing) System Exit Point (CCGT) OptionAction cost NGG exposure NGG cost Shipper cost NGG exposure NGG cost Shipper cost 1Locational buy at Storage, balanced by locational sell elsewhere £100k (net cost) 50%£50k 45%£45k£55k 2Buy back capacity rights at CCGT £70k100%£70k-45%£31.5k£38.5k 3Locational buy at Entry Point, balanced by locational sell elsewhere £150k (net cost) 50%£75k 45%£67.5k£82.5k Proposed arrangements Current arrangements NGG incentivised by lowest NGG cost System Entry Point Low pressure Shipper cost reduced under proposed arrangements

Example 2 4 System Entry Point System Exit Point (DN Offtake) High pressure OptionAction cost NGG exposure NGG cost Shipper cost NGG exposure NGG cost Shipper cost 1Buy back capacity rights at Entry Point £50k50%£25k 45%£22.5k£27.5k 2Turn up demand at CCGT £60k100%£60k-45%£27k£33k 3Offtake Flow Reduction £30k100%£30k-45%£13.5k£16.5k 4Flow swap from this DN Offtake to another Not available in this example Proposed arrangements Current arrangements NGG incentivised by lowest NGG cost Shipper cost reduced under proposed arrangements System Exit Point (CCGT)

Example 3 5 System Entry Point High pressure OptionAction cost NGG exposure NGG cost Shipper cost NGG exposure NGG cost Shipper cost 1Buy back capacity rights at Entry Point £50k50%£25k 45%£22.5k£27.5k 2Buy back capacity rights at Interconnector £40k50%£20k 45%£18k£22k 3Locational sell at Interconnector (no related buy as NTS is long) £20k revenue 50% £10k revenue 45% £9k revenue £11k revenue 4Flow swap to this DN Offtake from another -50%--45%-- Proposed arrangements Current arrangements NGG incentivised by lowest NGG cost / highest revenue NTS is long (over-supplied) Shipper revenue increased under proposed arrangements System Exit Point (DN Offtake) Bi-directional site (Interconnector)

Example 4 6 Low pressure OptionAction cost NGG exposure NGG cost Shipper cost NGG exposure NGG cost Shipper cost 1Locational buy at Entry Point, balanced by locational sell elsewhere £50k (net cost) 50%£25k 45%£22.5k£27.5k 2Buy back capacity rights at CCGT £100k * 0% Flow swap from this DN Offtake to another Not available in this example Proposed arrangements Current arrangements System Entry Point System Exit Point over-running (DN Offtake) Shipper cost unchanged under proposed arrangements System Exit Point (CCGT) * Note all costs associated with Exit actions to manage a constraint caused by the over-running user are passed to that over-running user (TPD J7.4) hence are not borne by the generality of shippers NGG incentivised by lowest NGG cost

Example 5 7 Low pressure OptionAction cost NGG exposure NGG cost Shipper cost NGG exposure NGG cost Shipper cost 1Locational buy at Entry Point, balanced by locational sell elsewhere £50k (net cost) 50%£25k 45%£22.5k£27.5k 2Buy back capacity rights at CCGT £100k *100%£100k-45%£45k£55k 3Flow swap from this DN Offtake to another Not available in this example Proposed arrangements Current arrangements System Entry Point System Exit Point (DN Offtake) Shipper cost increased under proposed arrangements System Exit Point (CCGT) NGG incentivised by lowest NGG cost * Note the change from Example 4 is that there is no over-running user and therefore costs are not entirely borne by a particular shipper