1. 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. RIIO-T1 – Mod 373 and Capacity process examples 27th June 2012

2. Background -1  Feedback received that end-to-end processes for different types of projects would be useful to understand what’s being proposed  Also want to see the link with UNC Mod 373  At 27 th June meeting we will go through worked examples interactively, but these slides provide an overview of the examples being considered  Example slides included here only cover Exit projects as we need to agree principles, can be broadened to entry 2

3. Background - 2  Four cases covered:  Case 1 – no reinforcement* for either NGG or developer  Case 2 – NGG needs reinforcement, but not developer  Case 3 – NGG doesn’t need reinforcement, but developer does  Case 4 – both need reinforcement  Initially go through existing arrangements to show the UNC Mod 373 process alongside the capacity process  Then show how the potential solutions would work for the Case 2 and Case 4 examples above 3 * i.e. a major project which would be subject to relevant Planning application

4. Case 1 – no reinforcement needed for either side Assumptions made:  Project has all its consents, hence does not need to go through Planning Inspectorate itself, also NGG does not need reinforcement – provide requirement via non- investment solution on the system (unsold at point or substitutable) or via commercial solution  Customer will want to see connections offer and takes 3 months to accept offer for connection before providing capacity signal, but could be earlier?  As no reinforcement needed, earliest capacity delivery date is delivery of connection, but customer could apply in July app window with 38 month obligated time if wanted – hence range of capacity dates 4

5. 5 Day 0 3 months9 months 12 months 15 months33 months39 months47 months53 months Connection Application Existing Arrangements Case 1 - Exit project - No Reinforcement needed for either side Simple Connection Complex Connection Provide Offer Provide Offer Accept Offer Accept Offer Provide Cap Signal Deliver Connection Deliver Connection Earliest Cap Date Earliest Cap Date MOD 373 Connex Proc Capacity Process Include relevant point in licence Provide Cap Signal Obligated Release Date, assumed to be 38 months from signal being received in July Conceptual Design Study Feasibility Study Conceptual Design Study

6. Case 2 – Reinforcement needed for NGG Assumptions made:  Timeline for submission to Planning Inspectorate is based on that provided in Paragraph 3-5 of Annex B (Delivering connections and capacity) to the May SO external incentives submission. To be considered:  This assumes that the customer is willing to provide a firm capacity signal once they’ve signed the connection offer, but what assumptions can NGG make re unsold/substitutable capacity on the system?  NGG need to have a firm “need case” for the Planning submission. Risk is that if NGG assumes there is “spare” capacity on the system and only base the Planning submission on the residual needed, what happens if that capacity is sold in a subsequent auction? 6

7. Provide Cap Signal 7 Day 0 3 months9 months 12 months 15 months33 months39 months47 months63 months Connection Application Existing Arrangements Case 2 - Exit project - Reinforcement needed for NGG Simple Connection Provide Offer* Provide Offer* Accept Offer Accept Offer Deliver Connection Deliver Connection MOD 373 Connex Proc Capacity Process 66 months 99 months 81 months24 months Identify route corridor (15m) Undertake EIA & Det Des (24m) Planning Submission (15m) Construction (24m) Strategic Options (12m) Identify route corridor (15m) Undertake EIA & Detailed Des (24m) Planning Sub (15m) Construction (24m) Determine & Agree Revenue Driver *Offer includes indication of reinforcement 78 months 105 months Provide Cap Signal Strategic Options (12m) Obligated Release Date, assumed to be 38 months from signal being received in July Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection

8. Case 3 – No Reinforcement for NGG, but project needs Planning To be considered:  This assumes that the customer is willing to provide a firm capacity signal before they know if they have their Planning agreed – is this viable?  User is tied into firm capacity from signal – but if they wait to provide the signal after their Planning has been received then the “spare” capacity on the system (i.e. remaining unsold/substitutable) could have gone and hence NGG would need to reinforce – so then Case 4 applies 8

9. Customer’s Planning Application 9 Day 0 3 months9 months 12 months 15 months33 months39 months47 months53 months Connection Application Existing Arrangements Case 3 - Exit project - No Reinforcement for NGG, but project needs Planning Simple Connection Provide Offer Provide Offer Accept Offer Accept Offer Deliver Connection Deliver Connection Earliest Cap Date Earliest Cap Date MOD 373 Connex Proc Capacity Process Include relevant point in licence Provide Cap Signal 99 months 105 months Obligated Release Date, assumed to be 38 months from signal being received in July Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection

10. Case 4 – Reinforcement needed for both To be considered:  This again assumes that the customer is willing to provide a firm capacity signal before they know if they have their Planning – is this viable?  Again, User is tied in to firm capacity from signal – but if they wait to provide the signal after their planning, then lead-time will be extended. 10

11. 11 Day 0 3 months9 months 12 months 15 months33 months39 months47 months63 months Connection Application Existing Arrangements Case 4 - Exit project - Reinforcement needed for both Simple Connection Provide Offer* Provide Offer* Accept Offer Accept Offer Deliver Connection Deliver Connection MOD 373 Connex Proc Capacity Process 66 months81 months24 months Identify route corridor (15m) Undertake EIA & Det Des (24m) Planning Submission (15m) Construction (24m) Identify route corridor (15m) Undertake EIA & Detailed Des (24m) Construction (24m) Determine & Agree Revenue Driver *Offer includes indication of reinforcement 78 months 105 months Planning Sub (15m) Provide Cap Signal Strategic Options (12m) Strategic Options (12m) Customer’s Planning Application 99 months Obligated Release Date, assumed to be 38 months from signal being received in July Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection

12. Potential solutions  As part of the Business plan, we suggested that we could create a new process to allow Users to signal their requirements once Planning signal is received  We suggested that a separate Application window could be provided for this, but only where a Customer has signed a PCA (Pre-capacity agreement)  Licence obligated lead-time for release of incremental capacity would be amended to 24 months (where a PCA has been signed) 12

13. Transitional projects  Projects which already have their consents, but NGG needs to build reinforcement on the system (i.e. Case 2) have been called “Transitional projects”  A long-term non-firm product may help to ‘bridge the gap’ until firm capacity rights can be delivered – as shown on the following slide …  Note that if a bi-lateral contract is signed, the capacity process could start earlier, as per slide 18 … 13

14. Provide Cap Signal 14 Day 0 3 months9 months 12 months 15 months33 months39 months47 months63 months Connection Application Transitional Projects Case 2 - Exit project - Reinforcement needed for NGG – Potential new product? Simple Connection Provide Offer* Provide Offer* Accept Offer Accept Offer Deliver Connection Deliver Connection MOD 373 Connex Proc Capacity Process 66 months 99 months 81 months24 months Identify route corridor (15m) Undertake EIA & Det Des (24m) Planning Submission (15m) Construction (24m) Strategic Options (12m) Identify route corridor (15m) Undertake EIA & Detailed Des (24m) Planning Sub (15m) Construction (24m) Determine & Agree Revenue Driver *Offer includes indication of reinforcement 78 months 105 months Provide Cap Signal Strategic Options (12m) Long-term non-firm product? Obligated Release Date, assumed to be 38 months from signal being received in July Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection

15. Potential solutions - Case 1 - No Reinforcement needed for either side  But if no reinforcement is needed, this results in an earlier obligated lead-time compared to the current arrangements (24 months instead of 38 months for exit), as shown on the following slide … 15

16. 16 Day 0 3 months9 months 12 months 15 months33 months39 months47 months53 months Connection Application Potential Solutions Case 1 - Exit project - No Reinforcement needed for either side Simple Connection Provide Offer Provide Offer Accept Offer Accept Offer Provide Cap Signal Deliver Connection Deliver Connection Earliest Cap Date Earliest Cap Date MOD 373 Connex Proc Capacity Process Include relevant point in licence Provide Cap Signal Obligated Release Date, assumed to be 24 months from signal being received in October Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection

17. Potential Solutions - Separate Application Case 2 - Reinforcement needed for NGG  Customer choice whether to sign PCA:  Benefit is that capacity process runs alongside the connection process, provides certainty and capacity is delivered earlier (90 months vs 105 months)  But not obligatory – a User could bid in “normal” way (application window), however such release would be dependant on whether substitution is available or where NGG is prepared to release “non- obligated”  A Long-term non-firm product could allow customers to secure capacity rights until the “firm” capacity could be provided via the appropriate reinforcement  NGG needs to finalise the Planning “need case”, such that the Planning submission can be completed and submitted.  Assumption is that there will need to be a decision made relating to “spare” (unsold capacity/substitution) capacity prior to deciding what to submit re the Planning application 17

18. Pre Planning work (51m) Planning Submission (15m) 18 Day 0 3 months9 months 12 months 15 months33 months39 months51 months63 months Connection Application Potential Solution – Separate Application Case 2 - Exit project - Reinforcement needed for NGG Simple Connection Provide Offer* Provide Offer* Accept Offer Accept Offer Deliver Connection Deliver Connection MOD 373 Connex Proc 66 months 90 months 84 months24 months *Offer includes indication of reinforcement 78 months Capacity Process Assume PCA signed Sign PCA Stage one rev driver calculated & released Stage two rev driver calculated Stage 2 revenue driver released Long-term non-firm product? Formal capacity signal received Planning “need case” finalised Construction (24m) Obligated Release Date, assumed to be 24 months from signal being received in October Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection

19. Potential solutions - Separate Application Case 4 - Reinforcement needed for both  Same customer choice for capacity as for Case 2  Same decision needed regarding unsold capacity  Customer only now needs to provide “firm” signal for capacity once their Planning decision is known 19

20. Pre Planning work (51m) Planning Submission (15m) 20 Day 0 3 months9 months 12 months 15 months33 months39 months51 months63 months Connection Application Potential Solution – Separate Application Case 4 - Exit project - Reinforcement needed for both Simple Connection Provide Offer* Provide Offer* Accept Offer Accept Offer Deliver Connection Deliver Connection MOD 373 Connex Proc 66 months 90 months 84 months24 months *Offer includes indication of reinforcement 78 months Capacity Process Assume PCA signed Sign PCA Stage one rev driver calculated & released Stage two rev driver calculated Stage 2 revenue driver releasedFormal capacity signal received Planning “need case” finalised Construction (24m) Long-term non- firm product? Customer’s Planning Application Obligated Release Date, assumed to be 24 months from signal being received in October Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection

21. Potential solutions – Reservation of Capacity  Following customer feedback we have been considering an alternative approach (to be discussed further on 27 th June)  Alternate approach proposes that customer is offered a different bi-lateral contract  PARCA (the principles of the existing PCA and ARCA contracts)  Contract includes “Capacity Confirmation” phase to confirm firm requirement for capacity (rather than needing a “Formal signal”)  Following two slides show the process for the Case 2 and Case 4 examples considered above for this alternative approach … 21

22. Pre Planning work (51m) Planning Submission (15m) 22 Day 0 3 months9 months 12 months 15 months33 months39 months51 months63 months Connection Application Potential Solution – Reserve Capacity Case 2 - Exit project - Reinforcement needed for NGG Simple Connection Provide Offer* Provide Offer* Accept Offer Accept Offer Deliver Connection Deliver Connection MOD 373 Connex Proc 66 months 90 months 84 months24 months *Offer includes indication of reinforcement 78 months Capacity Process Assume PARCA signed Option of signing PARCA Stage one rev driver calculated & released Stage two rev driver calculated Stage 2 revenue driver released Long-term non-firm product? Capacity Confirmation received Planning “need case” finalised Construction (24m) Obligated Release Date, assumed to be 24 months from signal being received in October Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection

23. Pre Planning work (51m) Planning Submission (15m) 23 Day 0 3 months9 months 12 months 15 months33 months39 months51 months63 months Connection Application Potential Solution – Reserve Capacity Case 4 - Exit project - Reinforcement needed for both Simple Connection Provide Offer* Provide Offer* Accept Offer Accept Offer Deliver Connection Deliver Connection MOD 373 Connex Proc 66 months 90 months 84 months24 months *Offer includes indication of reinforcement 78 months Capacity Process Assume PARCA signed Option of signing PARCA Stage one rev driver calculated & released Stage two rev driver calculated Stage 2 revenue driver releasedCapacity Confirmation received Planning “need case” finalised Construction (24m) Long-term non- firm product? Customer’s Planning Application Obligated Release Date, assumed to be 24 months from signal being received in October Conceptual Design Study Conceptual Design Study Feasibility Study Complex Connection