1. UK Gas Entry Regime – Review of existing Interruptible Arrangements & Potential Reforms for this Winter

2. 2 Introduction - Why the need for change? National Grid NTS believes that we should consider providing additional flexibility, via Entry interruption arrangements for this winter. We believe that changes to interruptible arrangements would have the least impact upon existing capacity holders whilst allowing us to get the most gas into the system that we can for this winter. To inform the debate we have reviewed existing arrangements and looked at 3 options that we feel may best deliver additional capacity for this winter, please note that these options are not exclusive and we are willing to look at any alternatives that the industry may suggest

3. 3 Current regime Once all primary capacity has been sold there are only 3 ways for Users to acquire additional capacity: Secondary capacity markets Limited activity Could this be improved? UIOLI Interruptible capacity is offered and is calculated by comparing the firm entry capacity of existing holdings with flows over the last 30 days Non-obligated incremental entry capacity Limited amounts in the past have been offered, the risk is generally unbalanced between revenue and buy back cost

4. 4 Initial Options Option A - That National Grid NTS increase the amount of Interruptible Entry Capacity made available via the existing DISEC auction. Option B - That National Grid NTS introduce a new monthly interruptible product. Option C – that National Grid NTS introduce a new Option or Forward based contract.

5. 5 Option A – Current Interruptible Capacity Product - (DISEC) Daily Interruptible capacity is offered on the day before the gas day, the rationale being that it is a tool designed to overcome potential hoarding of Entry Capacity. Minimum Quantity Fixed by Algorithm Use it or Lose it calculation Made available via a Day ahead auction Pay as Bid Allocate highest bid first Discounted Reserve Price National Grid NTS can scale back at No cost

6. 6 Option A Currently the definition of Available Interruptible Capacity at an ASEP in UNC B2.5.10 is: an amount of NTS Entry Capacity equal to the daily average unutilised firm capacity this can be amended to mirror the current process for the release of non obligated Firm Capacity i.e. additional capacity can be released at National Grids discretion. In addition we can examine the possibility of restoring capacity rights within day once constraint is over.

7. 7 Option A - Benefits Simple UNC change Limited or no impact on the Gemini system Mirrors the current process for Daily Firm Capacity (non-obligated) Will feed into existing entitlements Potentially is achievable for this winter

8. 8 Option A - Issues Systems UIOLI calculation is done via a complicated offline spreadsheet, mechanical process governed by time constraints with limited functionality to correct errors. Feasibility of introducing a manual override of the data will need to be assessed Accrued Rights Users have right to flow at 1/24 th, where capacity is scaled back within day the User will have accrued rights up to the time the capacity is scaled back i.e. if it is initiated at 14:00 hrs a User will have accrued 8/24ths, if the User has not flown at this point they will be able to flow 8/24ths post interruption. Should interruption be called at D-1 Restoration of rights Will require changes to the scaling factor calculation within Gemini, this will need to be assessed by Xoserve.

9. 9 Option A – Additional Questions Additional Questions Where will the additional Interruptible Capacity be released i.e. at all ASEPs or only those that have Sold out? How much capacity will be released i.e. should it be based on Nodal Maximum or capability against flows, percentage of baseline etc? Should the Reserve Price be zero?

10. 10 Option B – New Rolling Monthly Interruptible System Entry Capacity Auction (RMISEC) Based on existing RMSEC auction Quantity determined by National Grid NTS i.e. difference between Capacity sold for that month and theoretical Nodal Maximum or discretionary. Single day blind auction Pay as bid Allocate highest bid first Allocations made at the end of the day Discounted Reserve Price Capacity to be scaled back on D-1 Limited to Sold out ASEPs

11. 11 Option B – Benefits May require only minor changes to Gemini system i.e. new auction type May be able to utilise existing Daily Interruptible Charge Type (DAI) Will not require Licence Changes as can utilise existing Revenue Pot (REVIC) Will feed into existing entitlements Dependent upon Xoserve assessment is potentially achievable for this winter

12. 12 Option B - Issues Systems May require new charge type, notice will then be required for the UK-Link Committee Dependent upon Xoserve assessment may not be achievable for this winter Additional Questions Where will the additional Interruptible Capacity be released i.e. at all ASEPs or only those that have Sold out? How much capacity will be released i.e. should it be based on Nodal Maximum or capability against flows, percentage of baseline etc? What level should the Reserve Price be set at?

13. 13 Option C - New Option or Forward based interruptible contract National Grid NTS looked at potential for introducing a new interruptible option or Forward contract. New contract would require capacity to be released rather than surrendered (new functionality for the Gemini System) Initial feedback was that this did not fit with existing Gemini functionality i.e. would require a new Method of Sale (MoS) & may require significant development Not viewed as a realistic option for this winter

14. 14 To conclude……… Are there alternatives that industry would like us to consider? Is there support for us to move this forward? If so….. Then we are prepared to develop a modification proposal for discussion at the next Transmission work-stream.