Mod 0262 - Clarifications

1. Mod 0262 - Clarifications Transmission Workstream 6 August 2009

2. Background • UNC mod proposal 0262 “Treatment of Capacity affected by Force Majeure”, brought forward by National Grid NTS proposing: • introduction of a Force Majeure Rebate to Users at a Network Point where FM has been declared: • the FM quantity prorated between those Users registered as holding capacity at the affected point taking into account Unsold Capacity. • application of a WAP of each Users registered capacity holdings multiplied by the prorated quantity • Applicable to Capacity only but includes both NTS Entry & NTS Exit (Flat) Capacity • National Grid NTS to recover the rebate via the appropriate TO/SO Commodity charge • a reduction (when required) in the Users entitlements, by the prorated quantity, at zero price • Proposal taken to July mod Panel with a request that it be issued for consultation. Panel decision was to refer back to Transmission Workstream for further discussion/clarification

3. The mod panel asked for clarification on the following.. • What is the planned mod implementation date? • 1 October 2009 • Can Legal Text be provided • We have requested suggested legal text & it will be provided at the earliest opportunity. • How would this apply to DNOs • The proposal will only apply to DNOs, as a User of the NTS, from 1 October 2012 (Enduring NTS Exit Regime), this is implicit in the proposal as the mod only refers to Annual NTS Exit (Flat) Capacity and makes no reference to NTS Exit Capacity.

4. Clarifications ctd… • What would happen if the User failed to respond to National Grid NTS’ request for Buyback/Forward Offers • Such a failure would put the User in breach of their UNC obligations, National Grid NTS would expect this in itself to be sufficient to ensure compliance. • The mod appears to indicate that silence can be deemed as acceptance, is this acceptable under contract law? • National Grid NTS has sought legal clarification on this point and will either provide an opinion at the workstream or amend the Proposal beforehand.

5. Clarifications ctd… • How would the FM Rebate be calculated? • The FM rebate will be calculated individually for each User,National Grid NTS would expect the legal text to contain an equation similar to the following: • where: • n is the number of successful capacity bids • P is the bid price for each successful capacity bid • Q is the amount of capacity allocated pursuant to each capacity bid

6. How would the FM Rebate be calculated? • 4 Steps Required: • Step 1 - Calculate the Adjusted FM amount • FM amount – Unsold Capacity – any Daily Firm Capacity sold on the day of the FM notification • Step 2 - Calculate the Prorated Amount • Users entitlement @ ASEP / Sold Quantity @ ASEP * Adjusted FM Amount • Step 3 – Calculate WAP • Sum of each successful bid * bid price / Users Registered holding • Step 4 – Apply WAP to prorated Amount • WAP * Prorated Amount

7. Example • ASEP X • FM Notice Issued 1 August • Duration 1 Month (31 Days) • Obligated Level 500GWh/day • FM Amount 100GWh/day • Unsold Capacity 50GWh/day • Number of Users 4

8. Step 1 – Calculate Prorated amount Step 2 – Calculate Prorated amount

9. Step 3 – Calculate WAP

10. Step 4 – Apply WAP to prorated quantity

11. Proposed Timeframes • Proposal discussed Workstream 06/08/09 • Mod Panel 06/08/09 • Issued for Consultation 07/08/09 • Closeout for Representations 26/08/09 • Mod Panel Recommendation 03/09/09 • FMR submitted to Ofgem 04/09/09 • Proposed Implementation date 01/10/09