1. Entry Capacity Release Methodology Statement Transmission Workstream, 4 th May 2006

2. Arrangements under current price control  Baseline levels of capacity which we are obliged to release set by Ofgem  for existing entry points, baselines set at start of price control for each of the 5 years of the price control  TO Baseline based on “theoretical max physical” level  SO Baseline set at 90% of TO Baseline  20% of SO Baseline held back to short/medium term  for new entry points, baselines set to zero  We are obliged to produce a methodology statement governing release of capacity above baselines

3. Ofgem Issues  Fixed baselines do not allow changes in supply/demand to be reflected in amounts of capacity made available  Risk of sterilisation of capacity  Potential barrier to entry

4. Ofgem proposal for next price control  Decouple “baselines” for revenue and capacity release  Trigger levels for incremental revenue based on “practical maximum physical” basis  No explicitly defined obligated level of capacity release, and instead, we are obliged to develop a methodology statement to determine amount of capacity to be released  Ofgem requested that we publish our initial thoughts and timetable Although we have not accepted such proposals, here are some initial thoughts……

5. Entry Capacity Release Methodology Statement - Licence Obligations  Produce and keep under review a methodology statement to ensure all available capacity released to:  promote efficient and economic system operation  avoid undue preference in the supply of transportation services  facilitate competition between gas shippers  Similar governance arrangements as for transportation charging methodology statement  we are obliged to consult shippers on proposed changes  Authority right to veto our proposed changes

6. Entry Capacity Release Methodology Statement - Scope For new and existing entry points:  Setting of obligated level of capacity release for unconstrained and constrained period  Allocation of incremental capacity (i.e. above obligated level) in unconstrained period …but not  Allocation of obligated capacity (dealt with via UNC)  Setting of capacity prices

7. Entry Capacity Release Methodology Statement - Objectives  Set obligated capacity levels representing “physical maximum capacity” that can reasonably be accommodated under the most up-to-date and likely supply demand scenarios  Indicate the way in which we will interpret results of long term entry capacity auctions in terms of whether or not to allocate incremental capacity

8. Key Questions  How should obligated levels be calculated?  Should any capacity be held back?  How often should obligated levels be recalculated during next price control?  What are the impacts of movements in obligated levels, both between price controls and during next price control?  Should there be different processes for unconstrained and constrained release periods?  Should be statement be applied to entry and exit?  What information should be published or forums held to aid transparency?  Would the release of the Network Model be of use?

9. Way Forward May-July 06Discuss principles at Transmission Workstreams Aug-Sept 06Prepare proposed methodology statement October 06Undertake consultation November 06Submit proposal to Authority December 06Methodology statement approved Jan-Feb 07Determine obligated capacity levels Mar 07Published obligated capacity levels 1 Apr 07New obligated levels effective