MOD 326 – Allocation of Unidentified Gas Following the Appointment of the AUGE August 2010

Gas Settlements, Energy Retail 2 Reasons Behind MOD326 Proposal The AUGE Application Date is from 1 st April 2011 The Shippers/Suppliers in the LSP market have known about the future exposure to unidentified since at least 2007, and that they would face additional costs once the AUGE is established ScottishPower therefore believes that it is appropriate that the AUGE should be able to identify issues and re-allocate unidentified gas costs associated with them over the period to which they relate, with a backstop earliest date of the AUGE Application Date (1 st April 2011) However we do believe that the exposure should not be open-ended and therefore propose that the application date should roll forward in line with existing invoicing rules LSP Suppliers have had more than ample time to address the risks associated with unidentified gas in their contracts with customers and therefore should be able to recover costs MOD 326 recognises that it is unacceptable that the RbD market, and mainly domestic customers, should be exposed to any unidentified gas that is related to industrial and commercial usage

Gas Settlements, Energy Retail Key Points 3 It seems highly inappropriate that the AUGE identifies an issue, which finds a portion of the unidentified gas related to the LSP market, but cannot apportion it over the full period to which it relates In particular this is an issue, as the SSP market has exposure through RbD to the whole period – therefore if the AUGE cannot apportion over the whole period the SSP market is still being treated inequitably in relation to unidentified gas

Gas Settlements, Energy Retail How it Works in Practice The AUGE will set out the methodology to be used in apportioning unidentified gas between LSP and SSP markets in relation to issues it identifies Invoicing for the apportioning of unidentified gas will follow the protocol agreed and established under MOD229 (TPD Section E – 10.5), but obviously in some cases the number of days will be greater than 365: invoicing will be payable by way of adjustment in respect of the aggregate User Aggregate Reconciliation Clearing Values, and shall be invoiced at the same time or as soon as practicable after the Invoice in respect of the Aggregate NDM Reconciliation, and payable in accordance with TPD Section S There is no prospective nature to this MOD - it is anticipated that the AUGE methodology will address the problem of any issues that remain unresolved and how these will be treated in relation to unallocated gas in the future

Gas Settlements, Energy Retail Other Things to Note The process of identifying issues that will factor through the AUGE process will be set out in the AUG methodology (TPD Section E ) ScottishPower will be bringing forward a modification to also allow Users and Transporters to raise issues and put a requirement on them to do so We do not believe that MOD326 presents any invoicing issues and note that at August MOD Panel discussion on MOD327, it was suggested that how reconciliation was envisaged to work was an implementation issue We believe that the definition of MOD326 reconciliation should be treated in the same way as proposed in MOD327 and addressed in implementation

Gas Settlements, Energy Retail Summary 6 MOD326 is seeking a more equitable treatment of unidentified gas and ensuring that the LSP and SSP markets face the same risk As MOD326 picks up on MOD229 functionality and is similar to MOD327/317/317A we do not believe further development is required and believe that the Workstream should refer the proposal back to the Panel 6