High level aims for Proposal 0435

1. Modification Proposal 0435:Arrangements to better secure firm gas supplies for GB customersInitial Workgroup discussion1 November 2012

2. High level aims for Proposal 0435 • Place an obligation on NG NTS to follow a process or methodology in order to assess the requirement for annual DSR • Place an obligation on NG NTS to conduct a specified process in order to secure the required amount of DSR • Socialise any “Option” fees that are required by customers for being interruptible through an uplift to the (non-emergency) SMPb default/SMPb buy price • Allow NG NTS to interrupt DSR customers – in addition to taking gas buying actions - as a system balancing tool, once either a “Margins Notice” or “Gas Deficit Warning” has been issued, and up to GDE Stage 2. • Gas buying actions and DSR interruption to be taken in increasing price order. • An individual “exercise” fee will set daily SMPb unless and until a higher priced action is taken • This will target exercise fees at short shippers • Prevailing GDE arrangements remain unchanged

3. Procedural standing of Modification Proposal 0435 • Raised by British Gas Trading Limited on 8 October 2012 • Intention is to provide a fully developed solution as an alternative (not in addition) to the Ofgem SCR proposal. • Initial discussion at Modification Panel on 18 October 2012: • Panel decided 0435 is related to the ongoing gas SCR, and should proceed to a workgroup for assessment and development for up to 6 months • Ofgem confirmed on 23 October 2012 that: • It agrees that 0435 relates to the SCR, but; • Does not intend to suspend its development at this stage (although that option remains open). Assessment and development should therefore continue. The aim for today is to provide a draft workplan for the development of 0435, for discussion and agreement.

4. Suggested discussions for the next 5 meetings * More detailed questions/comments for each of these sections are given on the following slides Should discussions be part of scheduled transmission Workgroups, or are stand-alone meetings required?

5. Detailed assumptions and questions to be addressed • Service Provided • Customers receive no payment – option or exercise - if they choose not to bid or their bid is not accepted? • Option fee is paying for availability and option to interrupt? • Exercise price is the unit payment to the customer (i.e. their VoLL) until reconnection? • What happens to the interrupted gas? Who “owns” the gas following the exercise of the interruption? • Is the gas released onto the market and paid for at market rates (gas being paid for twice i.e. once with the exercise price and then again with the market transaction)? • Is the gas released onto the system and the relevant shipper’s market position made long (or less short)? • What happens to market length of shippers who have had their demand interrupted? • How long can the contract be enacted for i.e. until notified that they can come back on? What is the trigger to bring demand back on? What is the sequence of restoration (most expensive first)? • What about a part day (i.e. MN/GDW lifted within day)?

6. Detailed assumptions and questions to be addressed • Volume Calculation • How is the efficient & economic DSR volume/cost determined/demonstrated? • What if not enough DSR volume is tendered? Or the volume calculation determines a higher DSR volume requirement than can be met? Or tendered prices are deemed inefficient? • Is there an appeal mechanism for any parts of the 0435 process? • Demand • What demand level should be used in the volume calculation? • How is each provider’s demand volume determined both at the time of the tender and at the time of exercise? • Supply • Is the DSR volume calculation impacted by forecast supplies or storage bookings? • How do you determine the level of supply both in winter and summer periods? • What failure in supply should be considered? • Infrastructure loss / import failure / offshore failure/ non-notified maintenance activity?

7. Detailed assumptions and questions to be addressed • Eligibility Criteria • Which supply points are eligible: • NTS direct connects? • All daily metered sites? • Do DNOs / iGTs / NTS CSEP operators conduct their own process? • Is there a max / min availability requirement to be allowed into the auction process? • Is there a maximum number of tranches a customer can bid in? • Is there a minimum notice period for turn down/off? • Will the contract have defined turn down timescales e.g. needs to be able to respond within X hours?

8. Detailed assumptions and questions to be addressed • Monitoring & Penalties • How does the provider prove compliance with the instruction to turn down/off? • e.g. Requirement for mandatory flow monitoring feeds to NG NTS? • What if a customer at multi-shipper offtake continues to take gas – who is liable for any penalty charges? • What if the provider does not comply with the instruction? • Who is liable for any penalties? • What are the penalties for FTI? • Who are the penalties payable to and how are these revenues treated? • Pay back of all / some historic option fees previously paid in event of FTI? • What if the provider is not taking gas at the time of a GBA? • Are special arrangements needed for where a number of tranches of interruption are tendered / interrupted?

9. Detailed assumptions and questions to be addressed • Costs • How are under recovered option fee payments recovered (e.g. The uplift on SMPb over [1 year] leaves an over or under recovery? • Are there any interactions with other contracts? Which contract takes precedence? • Supplier / shipper to consumer contract? • OM contracts? • Capacity contracts? • DN interruption? • Who has priority? • When are the Option and Exercise fee payments made to the demand side provider – should it be made some time after the money has been recovered?