1. EU Developments Transmission Workgroup 6th October 2011

2. October Update  Gas Balancing Framework Guidelines  Final version was expected to be published 12 September 2011  Delayed by the ACER Board of Regulators, and now expected to be published mid-October  Moffat PRF Market Consultation  Consultation closed on Friday 30 th September  Update will be given at November Transmission Workgroup

3. European Developments: Gas Quality Harmonisation – Cost Benefit Analysis Transmission Workgroup 6 th October 2011

4. Introduction  In January 2007, the EC gave Mandate M/400 to CEN to draw up European standards for gas quality  The Mandate requires an analysis of the costs and benefits of harmonising Member States’ gas quality specifications  GL and Poyry were appointed to do the work and produced a preliminary report for consultation  This presentation outlines:  How the study has been approached  The main conclusions of the report  The headlines of National Grid NTS’ response

5. The Cost-Benefit Analysis  The report assumes harmonisation to the EASEE-gas specification, achieved via either:  Appliance replacement / adjustment, or  Gas processing at cross border points  Cost estimates take a ‘worst case’ view  Benefits have been estimated by Poyry modeling  Odourisation issues and Low-Cal gases are excluded

6. Key Conclusions  “A net benefit would not materialise from the harmonisation of Europe’s gas quality specifications”  Benefits of harmonisation would be at most €0.2bn p/a  Processing costs are estimated to be €11bn  Appliance replacement is estimated to cost €179bn  There are other issues associated with harmonisation  Insufficient information is available on the potential impacts

7. NGG’s Response  We agree with the headline conclusion  We note the report is based on poor quality data but doubt that better data would yield a different answer  Highlight the safety risks of harmonisation  We are not convinced that a lack of harmonisation constitutes a barrier to free trade of gas in the EU  Normal commercial incentives should be capable of addressing cross border issues on a case by case basis  Harmonisation should be based on a narrow range, if pursued at all

8. Next Steps  The Commission will publish all non-confidential responses at: http://ec.europa.eu/energy/gas_electricity/consultations/ 20110916_gas_quality_en.htm http://ec.europa.eu/energy/gas_electricity/consultations/ 20110916_gas_quality_en.htm  GL/Poyry presentation to Madrid Forum  Presentation material will be published at: http://ec.europa.eu/energy/gas_electricity/forum_gas_ma drid_en.htm http://ec.europa.eu/energy/gas_electricity/forum_gas_ma drid_en.htm  GL/Poyry final report and recommendations are expected by the end of the year

9. European Developments: Interoperability Framework Guideline Transmission Workgroup 6 th October 2011

10. Introduction  ‘Interoperability’ represents a third area of European Network Code development, following Capacity Allocation and Balancing  It aims to address the physical / operational differences between TSOs that could impair the functioning of the EU gas market  In August 2011, ACER published a ‘Scoping Document’ to seek views on what issues should be included within this Framework Guideline

11. Potential Interoperability Issues  Nomination Processes  Operational Constraints  Interconnection Agreements  Units  Gas Quality  Data Exchange  Capacity Calculation

12. National Grid NTS Response  Need to assess whether each issue actually constitutes a barrier to cross-border flows  Assess the costs and benefits of any harmonisation proposal  Implement change where value would be delivered  In general, application of interoperability rules should only be required at cross-border points (not all entry / exit points)

13. Next Steps  We expect the Commission to instruct ACER to prepare the Framework Guideline in Nov / Dec 2011 (6 month process)  Commission then instructs ENTSOG to develop the draft Code (12 month process)  ACER evaluates the Code and submits to the Commission  Code goes through comitology process to become legally binding on TSOs by 2014

14. EU Updates Timetable  Timetable aims to highlight the key items (consultations, workshops, decisions, etc.) NG NTS expect to cover via this agenda item in the forthcoming months TopicTX Workgroup Moffat PRF Market Consultation update Gas Balancing Framework Guidelines overview Nov 3 rd 2011 Regional Investment Plan UpdateDec 1 st 2011 Jan 5 th 2012