User Pays Funding – Potential Licence Mechanism RG0334 - Post Implementation Review of Central Systems Funding and Governance Arrangements Simon Trivella – November 22nd 2010 Same slide as usual

Background (Shipper) User Pays funding for [Development] costs User Pays Charge Invoiced to defined parties (upon implementation) Previously suggestions for alternative mechanisms “Pot” of allowed cash for DNs Include in service / transaction charges WWU suggested potential license mechanism Presentation given at Workstreams (Jan, March 2010)

(Ft) = (RBt) + (LFt) + (PDt) + (TGt) + (TPWIt) + (MPt) Special Condition E3 Distribution Network allowed pass-through items (Ft) “The purpose of this condition is to provide for the calculation of adjustments to the maximum Distribution Network Activity Revenue to reflect certain costs that can be passed through to customers of the licensee” (Ft) = (RBt) + (LFt) + (PDt) + (TGt) + (TPWIt) + (MPt)

Special Condition E3 RBt = business rates adjustment LFt = licence fee adjustment PDt = NTS pensions deficit charge adjustment TGt = ToG reasonable endevours payments (SC7) TPWIt = FTSG SoP payments for 3rd party damage and water ingress MPt = Miscellaneous pass-through (as directed)

Potential Licence Modification to E3 Include new term UPt Cost included in allowed revenue in the following Formula Year Charged through Transportation Charges No requirement for additional invoices (40+) Greater flexibility for Shipper pass-through Remains transparent Still requires ROM / DCA etc.

Potential Licence Modification to E3 Include new term UPt Ofgem direction on Modification Proposal also used to determine qualification for inclusion in UPt In simplest form would only work for all Shipper changes How material is this ? Potential for cost targeting by SSP/LSP or AQ band Additional complexity that may not be justified ? Allows for simple “impact” measure of percentage change

Potential Licence Modification to E3 Example User Pays change with £2m Development / Implementation costs Cross industry benefit and therefore UPt applied Approximate Transportation Charge increase of 0.067% Approximate consumer cost of 8p per annum

Potential Licence Modification to E3 Alternative option Utilise the existing MPt (miscellaneous) element Requires a direction from the Authority Designed for one-of events

Similar NTS License Mechanism SC C8G (NTS SO internal incentives, costs and revenue) Covers Agency costs that are not User Pays or not funded IT Systems and development costs; Provision of services as a result of industry framework changes; Entry capacity baseline swapping; 0.52p/kWh limit on incremental capacity buy-back; Energy balancing changes; European driven changes (limited); 20% of costs attributable to major changes to the RbD process; Shipper driven UNC Modification Proposals (100% gemini, 11% of other) Total amount of logged up costs not to exceed £10.5m (04/05) prices

Next steps? Feedback from Review Group 0334 members Alternative / amended approach ? Review Group recommendation ? Ofgem consideration ?

User Pays Funding – Potential Licence Mechanism RG0334 - Post Implementation Review of Central Systems Funding and Governance Arrangements Simon Trivella – November 22nd 2010 Same slide as usual