1. Delivering Security of Supply: UK Power and Gas Markets CERT – 31 May 2005 Aleck Dadson - Director, Regulatory Affairs Centrica plc

2. 2 Centrica Group Companies 11.8 m residential gas customers 6.0 m residential electricity customers No.1 in maintenance & installation of domestic central heating Offers plumbing, drain services, home electrical, and kitchen appliance cover 368,000 business gas customers 515,000 business electricity customers 1.75 m active telecommunications services 3.2 m residential & small commercial gas & electricity customers 1.8 m home and business service customers Approx. 80% of UK gas storage in Rough facility 600,000 electricity and 200,000 gas customers in Belgium Emerging SME business in Spain Manages energy supply, contracts, trading and UK resources 2.4 tcf proven & probable gas reserves 2.9 GW power generation capability

3. 3 Roosecote 229 MW 100% Centrica Energy £105/kW 2003 32 staff Barry 240 MW 100% Centrica Energy £165/kW 2003 30 staff Peterborough 2x180 MW 100% Centrica Energy £248/kW 2001 46 staff Kings Lynn 325 MW 100% Centrica Energy £248/kW 2001 48 staff Glanford Brigg 4x60 MW 100% Centrica Energy £154/kW 2002 46 staff Humber Power 1260 MW JV: 60% Centrica Energy/ 40% TFE £343/kW 2001 70 staff Killingholme 652 MW 100% Centrica Energy £218/kW 1/7/2004 52 staff Morecambe Bay Gas Fields 100% Centrica Energy Centrica Storage Limited 100% Centrica Group 385 staff 150 staff Centrica UK Gas and Electricity Assets

4. 4 How can we best secure the new investment and new resources the energy sector needs? UK experience is that markets can deliver security of supply Features of the UK framework Consistent regulatory approach for gas and electricity Clear vision of the desired “end game” Political support for “staying the course” Government has resisted temptation to intervene

5. 5 Electricity experience Electricity generation build – historic drivers High wholesale prices Need for competition in generators – supported by offtake Environmental pressure on coal plants Delivered over 20 GW of new CCGT plant over 10 years Going forward – new drivers NETA started with an “overhang” of generating capacity: much since mothballed Industry structure changed: fewer larger players, most with some vertical integration Influence of Government policy/legislation Low carbon future: renewables obligation, EU ETS Nuclear review

6. 6 Electricity prospects In the near term Return of mothballed plant plus renewables maintain plant margin Plant margin ok but prices relatively high because of high input fuel costs In the medium to long term Significant ongoing investment in renewables Getting close to point of new build as margins get tighter in 2008/2009 Several power stations have consents to build and some could go forward relatively quickly if decision to build made Nuclear plant decommissioning Government nuclear review

7. 7 Electricity - Forward Prices and Plant Returning to the System Price (£/MWh) 45 40 35 30 25 20 15 50 Winter 03 Peak and Baseload Forward Prices (£/MWh) and De-Mothballed Plant Innogy announce they will operate 2 of the 3 mothballed units at Fitoots from Dec 03 to Mar 04 (220 MW) Return of Dinorwig unit 2 (288 MW) Innogy announce return of GT at Tilbury (17 MW) Return of Grain unit 4 announced (675 MW) Return of Grain unit 1 announced (650 MW) International Power announce the return of Deeside 2 (250 MW) 01/05/0329/05/0326/06/0324/07/0321/08/0318/09/0316/10/0313/11/03 Winter 03 Baseload Winter 03 Peak Return of Baglan-1 (500 MW) Return of Killingholme PG1 + PG2 (both 280 MW) - standing reserve contract Return of Ffestiniog 3 (90 MW) Return of Dinorwig unit 3 (288 MW)

8. 8 Gas experience and prospects In the near term UK gas prices driven to high, previously unseen levels in 2004/2005 Liquidity in traded market has fallen Structural decline in UKCS production: UK moving to position of net importer Tight UK gas supply/demand through 2005/2006 with imports filling the gap In the medium to long term Significant new investment in new pipeline and LNG capacity 2007+ Capable of meeting 20% of GB demand Improving demand/supply balance Over longer term, key issues will be success of European gas market liberalisation and development of global LNG market

9. 9 * Data From BP Statistical Review 1659 1410 1002 168 109 176 160 69 46 62 110 67 54 48 26 8 11 Trinidad Nigeria Available Reserves (tcf) Gas – Europe is surrounded by abundant reserves

10. 10 Milford Haven - LNG terminal Dragon - Petroplus / BG Group - 6.3 bcm/yr due 2007. Potential expansion to 12.6 bcm/yr South Hook - Qatar Petroleum / Exxon Mobil - 10.4 bcm/yr end 2007. Potential expansion of 10.4 bcm/yr by end 2010 Gas - Timing of new import projects is critical Langeled Ormen Lange Partners - 27 bcm/yr Pipeline completion due Oct 2006. Ormen Lange start-up due Oct 2007 Isle of Grain - LNG terminal National Grid Transco - 4.6 bcm/yr 2005 Possible expansion 9.3 bcm/yr in 2007+ IUK enhancement (currently 8.5bcm/yr) 8 bcm/yr additional reverse flow Dec 2005 Further 8 bcm/yr by Dec 2006. Possible further modifications takes total to 25 bcm Dutch Interconnector (BBL) GasUnie - 16 bcm/yr Pipeline contract awarded Start-up due end 2006. Vesterled (existing) 13bcm/yr

11. 11 Conclusions and Observations Huge investment is required in order to secure new energy supplies: i.e. $40 billion in Ontario In liberalised markets, risk of government intervention can chill investment decisions In such circumstances, private investment may still be secured, but most likely only under arrangements that see risk borne by ratepayers/taxpayers rather than by investors Markets may not be perfect: but there are no perfect alternatives