Capacity Release Processes and Investment Planning

1. Capacity Release Processes and Investment Planning Transmission Planning Code Workshop 2 1st May 2008

2. Introduction • This presentation aims to outline the interaction between the following processes • Long term Entry Capacity release • Offtake Capacity Statement process • Annual investment plan cycle

3. Long Term Entry Capacity Release

4. Entry Capacity Auctions • Entry capacity released through a series of auctions to facilitate • Long term signals - market mechanism to inform investment • Short term rationing - efficient allocation of scarce resource • Long term entry capacity auctions currently held in September each year • Entry Capacity offered up to existing obligated levels • 10% held back for shorter term • Additional demand for entry capacity can be signalled by users – price steps published for capacity levels up to 150% prevailing obligated levels • Default lead-time for any further incremental obligated capacity released is 42 months • Two incentive mechanisms in Licence to vary lead-time (permits and accelerated release)

5. UNC Entry Capacity Products

6. Incremental entry capacity release process (1) • Shippers participate in long term entry capacity auctions • NGG publishes price schedule, capacity offered, lead-times, project values prior to the auctions • Bids placed in accordance with UNC rules to signal demand for entry capacity • Information from auctions analysed after auctions close • Incremental Entry Capacity Release (IECR) Methodology applied • Entry Capacity Substitution (ECS) Methodology applied (if required) • If auction signal received for incremental obligated entry capacity • Licence requires NGG to make an “incremental obligated entry capacity proposal” to the Authority • Proposal must comply with IECR and ECS methodologies

7. Incremental entry capacity release process (2) • Incremental obligated entry capacity proposal states (for relevant ASEPs) • Amounts of firm entry capacity proposed as incremental obligated entry capacity and dates for release • Proportion of this which is substituted from other ASEPs • If Authority direct proposal • Obligation to offer additional capacity for sale commences from date in proposal • NGG may release additional capacity (non-obligated entry capacity) at its discretion

8. confirmation of annual Plan preparatory Entry analysis Oct incremental proposal made to Authority Dec investment proposals published in TYS Sept QSEC Auctions May-June initial TBE Base Case available June-Aug indicative Investment Plan developed against Base Case supply and demand and other Supply Scenarios Nov Authority decision July Lead-times notified in auction invitation letter end Nov Shippers notified of entry capacity holdings Timeline for Investment Planning - Entry 1 Oct Lead-time starts (default is 42 months)

9. Long Term Exit Capacity Release

10. Long Term Exit Capacity Release • Shippers and DNOs currently use different processes to book exit capacity • Described in the Exit Capacity Release Methodology Statement for the Interim and Transitional Periods (ExCR) • All users must provide user commitment via an Advanced Reservation of Capacity Agreement (ARCA) for long term flat capacity bookings that • Require specific reinforcement to the NTS and • Are greater than 20 million therms/annum • DNOs may signal changes to their Offtake (Flat) Capacity, Offtake (Flex) Capacity and Assured Offtake Pressure requirements through the annual Offtake Capacity Statement process • If specific reinforcement is not required, Shippers may only book exit capacity from 6 months prior to the gas flow day

11. Offtake Capacity Statement(UNC Section B) • Signals DNOs 1 in 20 peak day requirements for Offtake Capacity and Agreed Operating Pressures • Runs in parallel to TBE process • Initiated 1 June each year • DNOs must submit OCS requests by 24 July • Preliminary allocations by NTS required by 15 September • OCS agreed by 30 September for the approaching gas year (Y) to year Y+3 • DNOs may revise bookings in future years

12. Long term demand forecast data (UNC OAD section H) • Process for sharing NTS demand forecast information between Transporters • Includes DN off-peak forecast data • Used to inform TBE demand forecasts • Split of LDZ offtake flows used as input to network analysis for off-peak analysis • Information is not used for off-peak capacity bookings

13. Dec investment proposals published in TYS May-June initial TBE Base Case available June-end July OCS requests and DN offtake forecasts end July-Sept Analysis of requests, preliminary allocations and discussions with DNOs Timeline for Investment Planning - Exit confirmation of annual Plan Exit analysis 30 Sept DNOs notified of Offtake Capacity holdings and AOPs

14. Timeline for Investment Planning – Entry and Exit process alignment • Exit and entry plan analysis undertaken in parallel • OCS bookings must be confirmed to DNOs ahead of decision on incremental entry capacity release • Any additional exit capability arising from entry investment will be considered in future years’ planning cycles confirmation of annual Plan Oct incremental proposal made to Authority Dec investment proposals published in TYS Nov Authority decision end Sept DNOs notified of Offtake Capacity holdings and AOPs end Nov Shippers notified of entry capacity holdings

15. Questions