MOD 232 Proposal, Richard Dutton 16th December2008

Background Follows on from Development Workgroup 194 This proposal is concerned with the allocation of costs associated with Unallocated Energy not principally with how the costs are derived The proposal provides a mechanism that will facilitate competition in the supplier community

The Proposal Follows the existing Shrinkage model, except this element of “Shrinkage” will not be subject to existing Shrinkage Incentives Take the “agreed” quantity of Unallocated Gas, for the industry as a whole, and purchase this in the same way as Shrinkage is currently purchased for Take the costs of this purchase and allocate via the existing DN charging methodology This allocation should take into consideration each market sector This Unallocated Gas should be removed from the Daily Allocation in the same way as Shrinkage currently is

The benefits A simple solution, for DNs, drawing on a framework that is already in place A simple solution, for ALL Suppliers, allowing them to use existing methodologies to pass on this cost, thereby mitigating risk to Suppliers This mitigation of risk facilitates competition The facilitating of competition is one of the key conditions in the GDNs license This is an industry wide problem requiring an “industry wide solution” Many of the issues do not sit solely with the Supplier Orphan meters for example It is a targeted solution, both in terms of Domestic/I&C split and cost per supply point Fixed, banded or directly proportional to AQ

The benefits It is because the costs are so unclear and ambiguous that a mechanism should be considered that allows the Suppliers to pass these costs through It is because the costs are potentially so large that a mechanism should be considered that allows the Suppliers to pass these costs through