Developing capacity & connection processes Long term non-firm capacity: Draft business principles

1. Developing capacity & connection processesLong term non-firm capacity: Draft business principles 6th September 2012

2. Long Term Non-Firm: Recap • Allow new connections and existing site expansions access to the NTS ahead of timescales for firm incremental capacity delivery, but only where NTS reinforcement is needed • Would provide greater certainty for customers • Where customer has significantly progressed their project and NTS connection is ready, but firm capacity delivery is beyond the first potential gas flow date • Where customer project is ready ahead of schedule • Where customer project doesn’t need planning consent so timescales are potentially misaligned • ‘In flight’ projects • Aimed at covering the gap between firm capacity delivery and first gas flow date Option A: Long term off-peak exit / interruptible entry capacity Introduces new capacity product, sold through auctions (adhoc or fixed) Option B: Non-obligated firm capacity, with buyback option Released via non-obligated capacity mechanism with a buyback option contract attached

3. Draft Business principles • High level principles • First draft only • Industry discussion needed to ensure ideas are developed into a workable solution for industry, consider: • Are these options workable? • Are these viable alternatives?

4. Process trigger Customer signals incremental capacity requirement NTS build? NG NTS analyse & determine how requirement could be met Unsold firm? Substitution? In the case that NTS build is required, does customer require early access to NTS? Customer bids/applies for firm incremental capacity from the agreed delivery date No Yes Long term non-firm capacity release would be considered for the ‘early capacity period’

5. Long Term Non-Firm: Release criteria • Applies to both Option A & B • Only released where: • An incremental signal has been provided and • Earlier access to the NTS is required and • NTS reinforcement required • Staged capacity release (annually), conditional upon: • Demonstration requirements being satisfied (where a bilateral agreement is in place); and • There being insufficient unsold firm capacity available to fulfil the customer’s capacity requirement for the year ahead (customer must purchase any unsold firm capacity where available)

6. Option A: Draft business principles Capacity Product • Longer term release of Interruptible Entry and Off-Peak Exit Capacity • Release via an annual adhoc process • Subject to curtailment • Likelihood of curtailment provided to the relevant user for the release period Pricing • ‘Pay as Bid’ pricing, with a reserve price Duration • Capacity released throughout entire ‘early capacity period’ • Held once a year for (up to) a 12 month period • Up to 12 Monthly blocks

7. Option B: Draft business principles Capacity Product • Non-obligated firm capacity • Release via an annual adhoc process • Buyback option contract for all days on which capacity is held • Likelihood of buyback provided to the relevant user for the release period Pricing • ‘Pay as Bid’ capacity pricing • Zero option price + exercise price capped at price paid for capacity Duration • Capacity released throughout entire early capacity period (annually) • Held once a year for (up to) a 12 month period • Up to 12 Monthly blocks

8. Long Term Non-Firm Capacity Scenarios:How might it work in practice?

9. Scenario 1 – Status quo arrangements Situation: NG NTS unable to meet firm capacity delivery date and no permits to use Capacity Quantity Buyback Period Request level Incremental Capacity Sold/Obligated Level Time Firm capacity delivery date Achievable firm capacity delivery date LTNF = Long term non-firm capacity

10. Scenarios 2&3 – Status quo arrangements Capacity Quantity LTNF Request level Incremental Capacity Sold/Obligated Level Time Scenario 2: NG NTS can meet firm capacity delivery date but customer requests early access First gas date Firm capacity delivery date Scenario 3: NG NTS unable to meet firm capacity delivery date, extend with permits Firm capacity delivery date Firm capacity delivery date extended by permits LTNF = Long term non-firm capacity

11. Scenario 4 – ‘PARCA’/Split Auctions & PCA Situation: Demonstration information satisfied and all planning consents obtained Capacity Quantity LTNF Period Request level Incremental Capacity Sold/Obligated Level Time Demo Dates passed  All Planning Consents Obtained  First gas date Firm capacity delivery date LTNF = Long term non-firm capacity

12. Scenario 5 – ‘PARCA’/Split Auctions & PCA Situation: Delay in obtaining NG NTS planning consent LTNF to replace delayed incremental Initial LTNF period Capacity Quantity Request level Incremental Capacity Sold/Obligated Level Time Customer Planning consent obtained  NG NTS Planning consent obtained  First gas date Revised firm capacity delivery date due to planning consent delay Original firm capacity delivery date LTNF = Long term non-firm capacity

13. Scenario 6 – ‘PARCA’/Split Auctions & PCA Situation: Delay in obtaining customer planning consent LTNF to replace delayed incremental Proposed first LTNF period Capacity Quantity Request level Incremental Capacity Sold/Obligated Level Time NG NTS Planning consent obtained  Customer Planning consent obtained  Original First gas date Revised firm capacity delivery date due to planning consent delay Original firm capacity delivery date & revised first gas date LTNF = Long term non-firm capacity

14. Scenario 7 – ‘PARCA’/Split Auctions & PCA Situation: Failure to provide demonstration information Proposed LTNF period – year 1 Proposed LTNF period – year 2 Capacity Quantity Request level Planned Incremental Capacity (no longer to be released at this stage) Sold/Obligated level Time First gas date Date LTNF would have been renewed for new gas year Firm capacity delivery date Final Demo Date failed Incremental capacity build & release cancelled LTNF = Long term non-firm capacity