Modification Proposal 0154 Enduring Provisions for LDZ System Entry Points

1. Modification Proposal 0154Enduring Provisions for LDZ System Entry Points Transmission Workstream 4th July 2007

2. NTS / LDZ Offtake NTS Distribution Network What gas could enter directly into a DN? LNG Boil-off & Reject Gas Onshore Fields Embedded Storage Other Naturally Occurring Sources

3. How it works for existing DN Entry Points: • Physically: • Gas enters the DN • NEA / LOP exist between DFO & DNO • Operated by DNCC • Covers gas delivery conditions and constraint management • Commercially: • Capacity at a DN Entry Point: • Is included in NTS’s Licence and forms part incentive regime • Is auctioned • Is required by the Shipper to avoid NTS Entry overruns charges • Section B1.2.8 provides the UNC linkage • Energy: • Gas allocated to shipper’s balance • Gas traded may be traded at NBP

4. Clear disconnect between: physical connection and the investment signals resulting from the auctions physical services received and transportation charges paid DN capability assessment and NTS obligated offerings constraint management and financial consequences New DN input connections would require NTS licence amendment Anomaly exacerbated by Network Sales and mutual “arms-length” licence obligations Issues

5. Current Status: • Modification Proposal 105 implemented October 2006 • Expires October 2007 • Removes the requirement for “new” entry points to be part of the NTS Entry regime • DNO and DFO connection / entry agreement establishes maximum flows and entry conditions for gas entering the system • Requires an allocation agreement for multi-shipper flows • Standard Special Licence Condition D12 agreed April 2007 • Obligations to offer terms based on maximum flows with 6 months of application • Rights to recover costs plus and set delivery conditions • Contains non-discrimination & dispute escalation (to Ofgem) clauses • Shipper / DFO benefits flowing from “Mod 105” implementation

6. The Proposed Solution: • Allows gas “sources” to connect and avoid involvement NTS Transportation Charging regime • Physical capability agreement at the interface • Bilateral agreement will specify entry conditions, e.g. composition, delivery pressure, flow-rates etc • Shippers avoid NTS Entry Capacity & Transportation Regime • Gas is included in energy regime and is available at NBP • Shipper’s input quantity – by meter or allocation

7. Proposed Solution • We see no requirement to move to an “NTS-like” Entry / Exit Capacity charging regime • No capacity charging at system points • LDZ Capacity remains “a through-the-network” charge rather than “at a system point” charge • No capacity auctions, obligations or liability (charging consultation dependant) since network capability is demand sensitive • Excessive complexity will result in this gas not being “priced off the system” • Proposal is a simple solution • commensurate with the amount of gas entering and the nature of the “sources” involved