22 March 2007 Slide 1

Sub-deduct Networks

John McNamara

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Overview

Characteristics of a Sub-deduct Network Ofgem Concerns - Safety, Charging Regulatory Framework & Internal Legal Advice Independent Legal Counsel Way Forward

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Characteristics of a Sub-deduct Network

History and profile of networks Exemption Regime UNC – Part of system / Exempted Person Competitive Supply Market Ownership and maintenance responsibility ?

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Ofgem Concerns

Safety - Sub-deduct pipe work inferior to DN and IGT pipe work?

Charging – Shippers unable to avoid charges at primary meter.

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Reg Framework & Internal Legal Advice

Gas Act 1986 – Sections 6A and 10(3) The pipeline Safety Regulations 1996 – 3(4) Gas Transporters Licence – SLC 4B, SSC A50 &

A22a UNC – section G 20 Conclusion “none of BG successor entities holds

responsibility for the pipe-lines beyond the emergency control valve”

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Independent Legal Counsel

Blackstone Chambers – Dec 06 “Relevant legislation did not appear inconsistent with

Ofgem conclusion”. “However no sufficient clear stipulation in the

legislation to render the position free from real doubt”

Counsel advice – retrieve sample original agreements to form a more confident view

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Way Forward

Quantify the risk – cross industry dialogue Determine number of sub-deduct networks that

form part of system under UNC Source original documentation Adoption by DNs Change to legislation

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Promoting choice and value for all gas and electricity customers