Mod 166 Review Group

Incremental Exit Capacity at New and Existing Exit Points

2

Problems with Mod 116V Arrangements

Rigidity of capacity allocation timetable does not fit well with the complexity associated with capital investment programmes which generate requirements for incremental exit capacity at new and existing exit points

3 relevant types of investment to consider

– Construction by NG NTS of upstream reinforcement (if required)

– Construction by NG NTS of ROV compound and connecting pipeline to NTS (if required)

– Construction by User/Developer of power station, downstream pipework/network or storage facility

Does not give Users the certainty that capacity can be secured at the point they need to know this.

Does not give NG NTS the certainty that their investment is not premature or that substitution they make will be utilised.

3

High Level Principles of Proposal Prevailing capacity allocated as per 116V and rolls forward annually

Prevailing capacity can be varied annually (up or down) in a July window w.e.f. October 3 years hence and will be subject to 4 years user commitment

Applies to both DC and DNO Users

Users can apply for prevailing capacity at a new exit point and increases in prevailing capacity at existing exit points (subject to a materiality threshold) through the ARCA Allocation Process (AAP) anytime between Aug - Apr

Users can reserve prevailing capacity outside of the July window by signing an ARCA and by demonstrating commitment to project in question.

ARCA can require capacity to be made available from any date and will be subject to 4 years user commitment

NG to have licence obligation to make capacity allocated under an AAP available in line with the Users required timetable or as soon as reasonably possible thereafter.

NG to earn non obligated revenue if provide capacity earlier than 116V timetable in line with User’s requested date.

NG can substitute exit capacity to meet an AAP requirement subject to restrictions

4

AAP - Applicability

AAP can be used to cover:

– Capacity required at new NTS Exit Points

– Increases in prevailing capacity which require a > [25%] increase in the prevailing baseline at existing NTS Exit Points

AAP is optional and Users can choose to use the July window for such requirements instead.

NG’s suite of connection related agreements continue to be used for ROV and connecting pipelines regardless of whether the a User opts for AAP or the July revision window

AAP to complement and dovetail with NG’s suite of connection related agreements.

5

AAP - Initial Capacity Request Process commences with an application for capacity in a standard form. This

should be tied in with NG’s current “Budget Indication of Connection Costs” pro-forma.

NG then have a fixed period of time to respond to the application (suggest 2 months as per UNC currently) stating

– what capacity is available by what date

– whether upstream reinforcement is required to provide

– whether provision of the capacity is dependent on substitution

– budget cost of any connecting pipeline

If the User’s application includes a request for NG to build a connecting line and/or requires NG to make upstream reinforcements the maximum capacity lead time should be as per the 116V timetable (i.e an application made in Sep 08 would require capacity to be made available no later than Oct 2012)

6

AAP - Substitution NG can include exit capacity substitution to meet an AAP request equivalent

to [90%] of prevailing baseline minus the prevailing capacity held.

To the extent a User’s prevailing capacity is less than the baseline (unlikely as baselines have been set based on current bookings) this allows User’s to continue securing small increases in capacity during the constrained period in the event baseline capacity is substituted away to meet an AAP requirement.

Users can reserve capacity contained in NG’s offer by signing an ARCA, regardless of whether NG need to make upstream reinforcement or not.

ARCA can be entered into once a User has signed a “Design and Construction Agreement” or where User can demonstrate commitment to project (e.g. board approval/award of contract)

This ensures capacity is reserved/substituted outside the standard 116V process based only on firm commitments

7

AAP - Demonstration Once signed if NG are required to make upstream reinforcement these works proceed

in accordance with NG’s network planning/construction process

– User already pays the cost of upstream reinforcement design works, which are refunded once NG to proceed to reinforcement construction phase.

– ARCA to also include a date (the demonstration date) whereby User is required to demonstrate his relevant consents have been secured and his construction programme is on target to offtake gas by the capacity delivery date(s)

– If the User is unable to demonstrate, NG shall be entitled not to proceed to reinforcement construction phase and to set a new demonstration date, and if necessary a new delivery date

– If the User’s inability to demonstrate is because of NG’s inability to provide a connecting pipeline on time demonstration will be deemed to apply and NG will be required to proceed to construction phase to meet the capacity delivery date

Any revised demonstration or delivery date set by NG shall each be 1 year after the previous date unless NG and the User mutually agree an earlier date

Demonstration date can be revised a maximum of [3] times, unless mutually agreed otherwise, after which the ARCA terminates

8

AAP - Fulfilment In the event capacity substitution was undertaken to meet an AAP capacity

request the baseline capacity at the substituted exit point will be restored on termination of the ARCA, or used to meet another capacity request.

User commitment starts from the point where prevailing capacity is booked except where the ARCA terminates, in which case it no longer applies.

The ARCA requires NG to buyback capacity from the delivery date specified if NG have failed to make it available and the User is in a position to offtake gas against that capacity. Buyback subject to restrictions in licence

NG allowed to earn non obligated capacity revenue in the event AAP capacity delivered earlier than the 116V timetable in line with User’s requested date.

Once an ARCA has been signed NG will publish details of how much capacity is to be made available at which exit point by when, along with details of any exit capacity substitution required to deliver this. Revisions to capacity delivery dates and ARCA terminations will also be published

9

AAP - Summary AAP gives Users the option of acquiring capacity for new capital projects more

flexibly subject to demonstration of project commitment

July revision window (an open season) retained for small capacity revisions but can be used for new capital projects if commitment dates align

Dovetails with NG’s existing suite of User connection agreements and network/construction process. Users can continue to negotiate these documents bilaterally to reflect their project requirements

All Users know the extent to which exit capacity substitution can be applied and the potential consequences of not booking sufficient prevailing capacity in the July revision window (as per entry)

Allows NG to delay upstream reinforcement if the User’s capital project is delayed. Allows User to accommodate project consenting/construction delays.

Financial incentives for NG to deliver earlier than 116V 38 month timetable for capacity acquired in both the July revision window and the AAP