User Pays Principles and Governance 8th November 2006

Core Services Plus User Pays - Rationale from Second Consultation Document It gives GTs (through xoserve) an incentive to provide additional services and to respond to the needs of shippers as they would have the opportunity to earn additional revenue over and above their costs. It gives users an incentive to manage costs they impose on xoserve because they would pay for the additional services they request. It would enable the price control arrangements to respond more flexibly in the event of modifications to section u of the UNC. It would help to make sure that incremental UK-Link capacity is given to those who value it most.

User Pays – Model A Second GDPCR consultation document proposed that User Pays arrangements are Excluded Services provided by the transporters. On this basis, a possible model would be: The charge for each service is agreed in a charging methodology statement. The expected revenue/cost from Excluded Services is not included in the GTs’ allowed revenue. The GTs procure the services from xoserve, probably via the Agency Services Agreement. The GTs invoice users for the excluded services they take (likely to be undertaken by xoserve). Users pay the GTs for the service taken.

User Pays – Model A GTs User xoserve Contract? Pay for Service Invoice Provision Charges Service Request ASA xoserve

User Pays – Model B An alternative model is that users contract directly with the GTs’ agency (xoserve). On this basis, a possible model would be: The charge for each service is agreed in a charging methodology statement. The expected revenue/cost from the services is not included in the GTs’ allowed revenue. The GTs could require xoserve to provide a service via the Agency Services Agreement. xoserve invoices users for the services they take. Users pay xoserve for the service taken.

User Pays – Model B GTs User xoserve Invoice and Pay for Service Request and Provide Service ASA Contract? xoserve

Assumptions User pays arrangements will not apply before April 2008. No change to current GT licence obligations. On-going cost of non-user pays services will be funded by GTs’ allowed revenue.

Four Areas to Consider New enduring services. New one off services. Existing services Change to services

New Enduring Services Principle Issues for consideration: For new enduring services requested by Users, the additional cost is recovered as a charge to Users on a usage basis. Issues for consideration: When should a service be provided. What form should the service take. What unit charge should be made for the service.

New One Off Services Principle: Current arrangements should apply where a service is Limited in duration Is not intended to be available to all Users Insufficiently specified to set a charge in advance. These can be considered similar to ‘de minimis’ activities.

Existing Services The key stakeholder of a service line is the party who has the most interest in the way the service operates. The key stakeholder is not necessarily The recipient of the output from the service line or The owner of the obligation. Principle Criteria for applying user pays arrangements to an existing service: The key stakeholders are Users. Users have discretion on whether to use the service. The cost of the service line is usage dependent.

Existing Services Issues for consideration: How is the key stakeholder of a service identified. Who applies the user pays criteria. Who decides what charge should be made for the service.

Change to Services Principle Issues for Consideration The xoserve costs of change are recovered from the stakeholders in proportion to their interest in the way the change operates. For changes to a user pays service, the default assumption is that the cost is recovered from users of the service. Issues for Consideration What are the criteria for apportioning costs between stakeholders What form should the change take What charge should be made for the change How is the cost recovered from Users Additional charges made on a usage basis Adjustment to GT allowed revenue How are the GTs funded Allowance

Summary of Issues How is a new service initiated. How is the nature of a service or change agreed. How is the charge for a service or change determined. How is the key stakeholder and apportionment between stakeholders undertaken. How are the user pays criteria applied. How is the cost of change recovered from Users. How are the GTs funded for change