European Workgroup Place your chosen image here The

European Workgroup Place your chosen image here. The four corners must just cover the arrow tips. For covers, the three pictures should be the same size and in a straight line. European Workgroup 1 st May 2014

1. General Update 2

Code Status Update Code Current Status Implementation date Congestion Management (CMP) Implemented 1 st October 2013 (Fixed) Capacity Allocation Mechanism (CAM) CAM approved for EU wide implementation at relevant EU IPs. 1 st November 2015 (Fixed) Gas Balancing (BAL) BAL approved for EU wide implementation 26 th March 2014 (Commission Regulation (EU) No 312/2014 establishing a Network Code on Gas Balancing of Transmission Networks. ) Interoperability In comitology. Comitology meetings postponed from 28 th April and 11 th July 2014, & Data new dates TBC. Exchange (INT) Under development. Code to be submitted 31 st December 2014. Tariffs Incremental Capacity Under development. Incremental Capacity to be introduced via combination of new articles in CAM Network Code and via Tariffs Network Code amendment to be submitted 31 st December 2014. 1 st Oct 2015 (subject to NRA approval for additional 12 months) (Fixed) Q 4 2015 (Estimated) Estimated earliest mid January 2017. Applicable from October 2017. Applicable from March 2017

Gas Codes Timeline

Road Map Notes: 1) Short term UIOLI may not be required for NTS 2) Long term capacity auctions may need to be delivered in conjunction with short term auctions

2. EU Code Updates

Gas allocations at IPs under the EU Interoperability Code

Background – the current GB allocations regime ¾ The GB commercial regime has always kept ‘transportation’ and ‘energy’ responsibilities separate ¾ Shippers are allocated gas according to measured quantities ¾ Shippers use allocation agents to administer allocations on their behalf based on measured quantities - and to send allocation statements to NG 8

Background – Interoperability Code provisions and stakeholder views ¾ TSOs must agree a nomination matching rule/process and for this to be included in the Interconnection Agreement (IA) ¾ ‘allocate as nominate with Operational Balancing Account (OBA)’ allocation rule envisaged, and for the allocation rule to be included in the IA* ¾ OBA favoured by IUK, BBL and supported by Gaslink – NG working with adjacent TSOs to facilitate OBAs (retaining NG’s residual balancing role) *for any IP, an OBA will be used if at least 1 TSO wants this arrangement. 9

What is an OBA? Nominates 4 Units Shipper TSO Allocates 4 Units 4. 01 Units steered Across the IP Operational Balancing Account = (4 – 4. 01) = 0. 01 • GB current regime: 4. 01 units would be allocated to shippers and scheduling charges apply for the 0. 01 ‘steering error’ • OBA regime: 0. 01 is allocated to the OBA which is corrected by a subsequent physical steer of flow between TSOs

OBA key issues and implications ¾ Size of steering tolerance ¾ Interactions with other aspects of the GB regime ¾ Steering tolerance breaches must be minimised in order to comply with the Interoperability Code ¾ An option in relation to breaches in steering tolerance is reversion to allocate as measured 11

National Grid NTS’ proposed approach (1) ¾ An allocate as nominate regime appears to remove the need for an agent to administer allocations on shippers’ behalf ¾ …therefore, NG’s proposed approach is to perform matching / allocation process directly with adjacent TSO, as envisaged by the Code (No Agents) ¾ Shippers could continue to be able to nominate agents for other communications under UNC TPD V 12

National Grid NTS’ proposed approach (2) ¾ ‘De-designate’ IP allocation agents in order to enable direct TSO-TSO arrangements under ‘allocate as nominate with OBA’ ¾ National Grid NTS to liaise with Ofgem before issuing Notice to Users of intent to de-designate, with briefing note - via Joint Office ¾ National Grid NTS to ensure Notice period is sufficient (issued by Sept 2014) to enable changes by Users and Agents to their own agreements 13

Indicative timeline Task Timeline Negotiate terms with adjacent TSOs to facilitate OBAs Qtr 2 – Qtr 4 2014 EU Workgroup discussions May – June 2014 UNC Mod raised Qtr 3 2014 UNC Mod development Qtr 3 2014 – early Qtr 1 2015 (subject to revised comitology dates) Liaison with Ofgem re IP allocation agents Qtr 3 2014 Notification of de-designation of allocation agents and briefing note sent to Users via Joint Office Qtr 3 2014 14

Summary and next steps ¾ National Grid NTS considers that an OBA allocation regime will be required at all three IPs ¾ Changes will be required both to the Interconnection Agreements and UNC ¾ We propose to engage in parallel with our adjacent TSOs and GB shippers to agree the OBA design ¾ Interactions with other aspects of the GB regime will also be explored (e. g. constraint management, meter reconciliation) ¾ Progress update to be shared at the June European Workgroup meeting 15

Tariff Code & Incremental Capacity Amendment

European Network Code Development Process ENTSO EU Commission ACER (ERGEG/CEER) Work programme ENTSO Agency Commission Stakeholder Consultation Stakeholder workshops We are here Preparation of draft Network Code Framework guidelines Stakeholder Consultation & workshops Commission Agency Consultation Commission Comitology DECC Legally binding Network Code GB Code Change process 17

EU Tariff Code update ¾ ENTSOG Stakeholder Joints Working Sessions now complete ¾ ENTSOG now developing draft Code based on ACER FG and taking account of stakeholder feedback received during SJWS process ¾ Code based on published Business Rules ¾ http: //www. entsog. eu/publications/tariffs#TAR-NC-MEETINGS-SJWS-WORKSHOPS ¾ Draft TAR NC due for approval within ENTSOG’s internal governance process by mid-May ¾ Draft Code and supporting document published end May ¾ Public Consultation on the draft TAR NC will take place from the end of May to the end of July ¾ Next Stakeholder Workshop – 25 th June

Structure of the Draft TAR NC Recitals Chapter General Provisions 1 • Subject matter • Scope • Definitions • • Chapter Cost Allocation Methodologies 2 Link to transmission revenue Inputs Entry/exit split Selection and approval process/criteria Cost allocation methodologies Secondary Adjustments Cost allocation test Storage 19

Structure of the Draft TAR NC Chapter 3 Publication Requirements • • • Aims of information publication What to publish How to publish Publication of information for multiple TSOs Tariff setting year Publication notice period Chapter 4 Reserve Prices • Firm standard capacity product pricing (multipliers and seasonal factors) • Interruptible capacity pricing (uni- and bi-directional interruptible capacity) Chapter 5 Revenue Reconciliation • • Aims of revenue reconciliation Under/over revenue recovery Regulatory account Reconciliation of the regulatory account 20

Structure of the Draft TAR NC Chapter 6 CAM Related Topics • VIP pricing • Bundles capacity pricing • Payable Price Chapter 7 Incremental and New Capacity • Publication requirements • Economic test • Determination of the price Chapter 8 Final and Transitional Provisions • Mitigating Measures • Entry into force 21

EU Tariff Code update - issues ¾ Fixed Price vs Floating price at IPs ¾ ACER clearly states only Floating is allowed (i. e. the price paid at time of use will not be the same as price allocated in auction) ¾ Strong shipper feedback to retain option of allowing fixed price – especially for incremental capacity. ¾ Initial Draft Code from ENTSOG likely to allow both Fixed & Floating ¾ Shorthaul at IPs at risk due to loss of commodity charge at IPs ¾ NG working with ENTSOG to preserve this product ¾ Mitigation measures: shippers pushing for one-off reset of long-term capacity contracts when Code comes into effect (i. e. right to cancel contracts due to application of different pricing methodology) ¾ NG has requested ENTSOG legal team to see if Tariff Code can legally include provisions to allow this option. ¾ Standardisation of Gas Tariff Year (1 Jan vs 1 Oct) ¾ problems for GB if 1 Jan chosen (would create price volatility) For further information, please contact Colin Hamilton (colin. j. hamilton@nationalgrid. com, 07971 760360)

EU Incremental Amendment update ¾ Incremental Amendment to CAM Code will deliver: ¾ A standardised way for market participants to flag appetite for incremental /new capacity ¾ A standardised process to ensure a minimal level of cross border TSO/NRA coordination ¾ A standardised process to establish economic viability of an incremental/new capacity project with local input parameters ¾ An integrated offer of incremental and existing capacity via CAM NC auction process ¾ Principles for Open Season Procedures in case auctions cannot be used ¾ Possibilities to adjust tariff or depreciation rate in case economic viability cannot be established in existing framework

EU Incremental Amendment update ¾ Incremental Amendment being develop together with Tariff Code, thus: ¾ ENTSOG Stakeholder Joints Working Sessions now complete ¾ ENTSOG now developing draft Amendment based on ACER Guidance Document and taking account of stakeholder feedback received during SJWS process ¾ Code based on published Business Rules ¾ http: //www. entsog. eu/publications/incremental-capacity#5 -BUSINESSRULES ¾ Draft INC Amendment due for approval within ENTSOG’s internal governance process by mid-May ¾ Public Consultation on the draft INC amendment will take place from the end of May to the end of July ¾ Next Stakeholder Workshop – 24 th June For further information, please contact Colin Hamilton (colin. j. hamilton@nationalgrid. com, 07971 760360)

3. UNC Modification Plans

Phase 2 UNC Modifications Potential Timescales EU Network Code Panel Submission Workgroup Development UNC Consultation March 2014 6 Months Q 3 - 2014 SMP Buy & Sell April 2014 6 Months Q 3 - 2014 Nomination Process at IP’s April 2014 6 - 9 Months Q 4 -2014 Capacity Allocation (CAM) CAM / CMP Compliant Capacity Auctions Q 2 - 2014 6 - 9 Months Q 4 - 2014 Interoperability & Data Exchange (INT) OBAs / allocations Q 3 - 2014 6 Months Q 1 - 2015 Interconnection Agreements/Contract Changes (facilitating Modification ) Q 1 - 2015 6 Months Q 3 - 2015 Data Exchange Q 3 - 2014 6 Months Q 2 - 2015 Gas Balancing (BAL) Area of change Information Provision

4. Draft Modifications

CAM & Bacton Modifications

Initial Estimated Timescales CAM & Bacton UNC Modifications Jun 14 Ofgem Decision Feb EU Workgroup Jan 15 Feb 15 Jul 14 Oct 14 Nov 14 18 DEC 20 NOV 6 NOV 4 Sep 7 Aug Sep 14 UNC Panel Vote on FMR and submission to Ofgem UNC Panel to review WG report and issue to consultation Modification WG Development Aug 14 Consultation Dec 14 Implementation Date 1 st Nov* May 14 Modification WG Development Modification WG development 3 Jul Modification WG development 5 Jun EU Workgroup 1 May 15 May Draft CAM Mod shared with EU WG Modification WG development Finalise WG Report and submit to Panel 2 Oct Modification raised at UNC Panel *W. E. F 1 st November 2015 Nov 15 CAM & Bacton Modifications 29

CAM UNC Modification Outline ¾ Key features of proposal: ¾ Applicable to European Interconnection points - Bacton (IUK and BBL) and Moffat ¾ An EU set of standard capacity products for both entry and exit (yearly, quarterly, monthly, daily and within day) and cessation of Enduring Annual NTS Exit (Flat) Capacity at IPs ¾ An EU standard capacity auction calendar ¾ EU standard capacity auction designs (Ascending Clock and Uniform Price) ¾ Priority given to cross-border bundling of unsold capacity products ¾ Set aside capacity from longer term auctions for shorter term auctions at IPs ¾ Capacity originally allocated as cross-border bundled capacity can only be resold as bundled capacity on the secondary market

CAM UNC Modification Outline ¾ A joint booking platform for the offer and purchase of capacity at interconnection points ¾ Charging arrangements ¾ Transitional arrangements ¾ Adapting pre-existing CMP solutions to apply to CAM products and auction processes where appropriate.

Bacton UNC Modification Outline ¾ Create new points in Gemini: ¾ Bacton UKCS ASEP ¾ Bacton IP ASEP ¾ Write out to individual Shippers ¾ Ask them to decide where they want their existing Bacton rights post split to be ¾ Principle is to allocate only up to new obligated levels ¾ If aggregate requirements less than obligated, allocate in full ¾ Else second invitation – again allocate in full if below obligated level ¾ Else need to pro-rate back to obligated level (and allocate surplus to ‘other’ point) ¾ Reallocation process to run after March 2015 QSEC is allocated ¾ To be completed by September 2015 32

Feb 2015 AMSEC auction held New processes 2015 Feb Mar 2015 QSEC auction held Mar 2015 QSEC auction allocated Apr May Need to stop Capacity Transfers at Bacton once new process begins Jun 10 days after QSEC auction is allocated Invite Users Inform Shippers of new ASEPs by May 2014 (if 12 months’ notice given) Inform Shippers of any new charge types or changes to invoices RMT&TSEC and Daily auctions continue for each month Jul Aug Sep Write out with final reallocations, hold second process if necessary Write out with proposed reallocations, hold second process if necessary First Capacity Reallocation Need to suspend RMT&TSEC and Daily auction for Nov at Bacton ASEP Second Capacity Reallocation if necessary Oct Nov CAM implemented Existing UNC processes Initial Draft Timeline for Bacton Reallocation Process 33

CAM & Bacton UNC Modifications - Next Steps ¾ Request referral to a Workgroup for development ¾ Solution detail to be developed as part of workgroup ¾ Legal text will be developed and provided during the development process ¾ Better facilitates objective (g) compliance with EC Regulation ¾ Any questions? 34