PARCA: Contractual Overview

1. PARCA: Contractual Overview TX Workgroup 27th February 2013 Steve Pownall

2. Purpose of today… Is to provide an overview of PARCA contract as follows: • Pre-PARCA Assessment (proforma) • PARCA Phased ‘Works’ • Provision of capacity inc ‘fine tuning’ • Customer fees and financial commitment • Information provision • Demonstration Data • Milestone Information

3. …but before we commence.. • Going forward, for the purposes of the proposed ‘PARCA’ contract /arrangements ONLY, we intend to use a simplified naming convention: WasWill becomeWorks Stage 1a Phase 1 Needs Case/Technical Options Stage 1b Phase 2, Schedule A Strategic Options Stage 2 Phase 2, Schedule B Outline routing & siting Stage 3 Phase 2, Schedule C Detailed routing & siting / EIA Stage 4 Phase 2, Schedule D Proposed DCO Application Stage 5 Phase 2, Schedule E Submit DCO Application / hearings Stage 6 Phase 2, Schedule F Secretary of State decision Note: ‘Local Planning’ Works will be under Phase 2, Schedule G (to be defined)

4. Pre-PARCA Assessment • Customer to provide the following information to National Grid: • Details of customer • Proposed project location including facility site and NTS connection site • Indicative capacity requirement (profiled if appropriate) • Indicative capacity upper/lower range – for ‘fine tuning’ purposes only • For DNO Users; Pressure and Flex requirements • Used to populate the PARCA data items prior to signature by both parties • We anticipate dialogue between the customer and National Grid prior to the submission of this information

5. PARCA Phased Works - Overview (1) The PARCA Works will be contained within two Phases • Phase 1 - Needs Case & Technical Options • Where no NTS reinforcement is required the PARCA becomes primarily a customer ‘Demonstration Data’ contract up to point of capacity allocation • Phase 2 - Statutory Planning Works either: • National planning (Planning Act 2008) for Development Consent Order • Schedules A - F (please see below) • Or: • Local planning • Schedule G [to be defined] • Note: Where we identify NTS reinforcement that requires planning, this could be met through either build or through non-build alternatives e.g. commercial contract or a combination of both. We anticipate that a proportion of the Phase 2 Statutory Planning Works will still need to be carried out under an alternative to a full-build option.

6. PARCA Phased Works - Overview (2) • Two natural ‘customer’ breakpoints • Following output from Phase 1 • Customer to indicate whether it wishes to progress to Phase 2 - if NG indicates a Needs Case for NTS reinforcement • Where no NTS reinforcement is identified the customer will be required to pay a reservation fee; or the customer may bid through the capacity auction process • Phase 2 - following Secretary of State (or local authority) decision on our planning application • Customer may terminate PARCA Works at any time but liable for costs incurred (and committed) up to the point of termination

7. PARCA Phase 1 Works: Establish Needs Case and Technical Options

8. PARCA Phase 2 Works: Schedule A – Strategic Options works

9. PARCA Phase 2 Works: Schedule B – Outline Routing and Siting works

10. PARCA Phase 2 Works: Schedule C – Detailed Routing & Siting works

11. PARCA Phase 2 Works:Schedules D, E and F Milestone Information: Provide customer with update ‘report’, reconfirm NG Project Plan timescales, as necessary for each schedule

12. Provision of Capacity timeline (1) • Effective Date (ED): • At which the customer and National Grid sign the PARCA • From which National Grid agrees to undertake Phase 1 Works – will require the customer to pay the fee prior to commencement of the Works • Reservation Date (RsD): • The customer will have its capacity requirement reserved • Allocation Date (AD): • The customer (where not a User) must have nominated one (or more) User(s) up to 1 month prior to this date • The default date that is between 24 and 35 months prior to the Registration Date • Registration Date (RgD): • Date from which the User holds the capacity

13. Reservation Date (RsD) Allocation Date (AD) Registration Date (RgD) RsD AD RgD Nominate user up to 1 month before AD PARCA: Phase 1 Works Date from which the User holds the capacity Date PARCA signed by the customer and National Grid • Price • NPV (entry only) • Quantity (& range) reservation fee or security due • Capacity ‘tagged’ in Gemini from this date and no longer forms part of unsold. • Capacity allocated to the User • NPV (entry only) Default Allocation Date is between 24 and 35 months prior to the RgD Provision of Capacity timeline (2) Effective Date (ED) ED

14. Provision of Capacity & ‘fine tuning’ Fine tuning of customer’s capacity requirement: • Customers have requested the flexibility to ‘fine tune’ their capacity requirement prior to the capacity Allocation Date • As a project progresses, a customer will have more certainty as to its ‘final’ capacity requirement: linked to a number of factors e.g. chosen turbine manufacturer • We understand that capacity fine-tuning is an important customer consideration • Fine tuning will be allowed within an agreed upper and lower range • Pre-PARCA Assessment proforma • We will require the customer to provide demonstration data to support its request to fine tune its capacity requirement

15. Customer fees and financial commitment (1) PARCA Phase 1 (Needs Case and Technical Options) Fee • Customer will fully fund the PARCA Phase 1 Works: fee approx £120,000 ~ £150,000 – similar principles to 0373 NTS Connection (excluded service, cost pass through) • Fee reconciled against outturn costs with ££ difference refunded to, or recovered from, the customer PARCA Phase 2 (Statutory Planning Works) - securitisation • Where Phase 1 Works identifies either: • Requirement for physical NTS reinforcement and, Local or National planning consent is required or; • Use of a commercial contract can be utilised to meet the customer’s capacity requirement then: • The customer will securitise 100% of the proposed Pre-Capacity Allocation Revenue Driver(see last TX Workgroup PARCA Funding presentation for details)

16. Customer fees and financial commitment (2) Capacity Reservation Fee • This could be applied following the completion of PARCA Phase 1 Works, where the customer’s capacity requirement will be met entirely through existing system capability • In this scenario, the customer may secure its capacity requirement either by bidding in the capacity auction or by reserving through the PARCA • The Capacity Reservation Fee could be calculated: • Following PARCA Phase 1 Works and customer agreeing that it wishes to progress its project • The Capacity Reservation Fee will be calculated based on (to be discussed in March TX Workgroup)

17. PARCA Funding (revised for ‘Phases’) Proposal for a Planning Act 2008 project Phase 1 Works Phase 2 Works NTS Investment: Project Needs Case / Technical Options NTS Reinforcement (or other commercial method) required PARCA Phase Strategic Options Schedule A Outline Routing & siting Schedule B Detailed EIA Routing & siting Schedule C Proposed DCO Application Schedule D DCO Application and hearings Schedule E DCO submission & SoS decision Schedule F X Pre-Capacity Allocation Revenue Driver calculated by end of Phase 1 Pre-Capacity Allocation Revenue Driver triggered and profiled over 4 years X Post-Capacity Allocation RD triggered & profiled over 3 yrs Post-Capacity Allocation Revenue Driver calc’d during Phase 2 Appendix 3 X X All costs charged to PARCA Signatory Classified as 100% Excluded Services – no impact on Allowed Revenue Invoiced up front and reconciled Post Capacity Allocation RD triggered RD* added to Allowed Revenue and charged to industry via Transportation Charges Pre Capacity Allocation Revenue Driver triggered RD* added to Allowed Revenue and charged to industry via Transportation Charges. PARCA Signatory securitises value of RD Pre Capacity Revenue Driver runs up to DCO Funding / Charging 17 *Value of RD’s are reconciled with actual costs, reconciliations through Transportation charges.

18. Information Provision Demonstration Data (from customer) • Please see overview… • Most categories seem to be required towards the end of the PARCA process e.g. Phase 2, Schedules E, F • We would appreciate views (please!) from all categories of our customers e.g. entry, storage and exit as to whether there might be additional items PARCA Phased Works – Milestone Information (from National Grid) • Please see overview… • The proposed categories of information that customers will receive from National Grid are aligned to the PARCA Phased Works and associated milestones • Is there any other additional information that customers might wish to see from National Grid?

19. And finally… Do you have any further questions, comments?