Third Energy Package for Change of Supplier 2009/73/EC

The requirement  European directive to ensure that customers can switch their gas supply within 3 weeks.  In the majority of cases, current industry processes allow transfer for all customers within 3 weeks

Work to date  A number of options have been proposed to facilitate a 3 week switch for all customers.  ‘Option 8’ suggested that if Bank Holidays were treated as business days then 3 weeks would always be achievable.  At the last Workstream meeting (5th January 2011) xoserve were tasked to look further at the potential impacts of Option 8:  “SPA non-business-days not recorded in xoserve systems" and UNC changed to permit all consequences.

Option Impact Analysis so far Numerous processes use the SPA non-business-days. Analysis to date has demonstrated that 85 processes would be affected by removal of this data. The consequences of these impacts are a mix of both “desired impacts ”, i.e. required for, or consistent with, implementation of the EU directive, and “undesired impacts”, i.e. not required to implement the EU directive. Many non-SPA impacted processes have not been analysed yet. Notable potential side affects / “undesired” impacts identified so far are…  OPNT estimate generated too early (M.3.8.5)  OPNT reads rejected incorrectly that are within the UNC window (M.3.8.2, M.3.8.3, M.3.8.4)  Network / xoserve Query performance will be calculated incorrectly.  Reduced timescales for manual management of reads  Reduced timescales for Shippers to submit reads to avoid Must Read charges  Reduced timescales to record asset changes, risking payment of excess liabilities

Option Implementation Analysis so far  Impact on exceptional processing normally run on Bank Holidays.  Analysis incomplete, but key finding so far is that AQ Review process schedule relies on system availability on the August Bank Holiday  Feasibility of backing out the system changes already made to include Bank Holidays for 2011  Currently we believe that 1 week plus 30 business days lead-time is required ahead of the earliest bank holiday that needs removing from xoserve systems  The Project timeline to implement is…  Complete detailed impact analysis of Option 8  Industry confirmation of Option 8  Drafting, review and approval of MOD for Option 8  Implementation of Option 8, including project governance, mobilisation, test case definition and test case execution. Timescales for implementation will be subject to…  Priorities and resource availability and the time the change order is received  Magnitude of process impact identified by the detailed impact analysis  No changes are required to existing processes apart from their scheduling

EU directive / UNC issues When does “three weeks” end?  Option 8 assumes that current minimum UNC transfer period meets the EU Directive  UNC transfer period of 15 business days means the transfer effective date is the day following the end of the three week period  Is this acceptable? Weekends - when does “three weeks” start?  DECC documents suggest that the 3 week period begins the day after the cooling off period concludes.  Currently, if a shipper submits a confirmation on a Saturday or Sunday, D-15 is the following Monday  In this scenario, Option 8 would not provide compliance.

The following demonstrates these issues CC – End of Cooling off 3WS – 3 week start RQ – Confirmation requested CO – Confirmation confirmed 3WE – 3 week end LI – Confirmation live

DECC Documents  Documents published 14th January 2011 gave some further clarity on expectations of the 3 week switching timescales.  DECC state that the requirement is for as many customers as possible to be able to switch within 3 weeks.  They state that suppliers and other market participants need to be involved to achieve this goal.  Ofgem are to lead a piece of work to put together a programme of proportionate change with a view to increasing the number of customers able to switch supplier within 3 weeks.

DECC document references The statements on the previous slide are supported by the following quotes from recently issued DECC documents DECC – Government Response  1.4 “Suppliers will need to make adjustments to their systems to ensure that as many customers as possible are able to switch within three weeks (after the end of any cooling-off period for domestic consumers). In doing so, we would expect the suppliers to work proactively with other suppliers and market participants and their customers…”  1.5 “Ofgem will be leading work with the suppliers in the next few months to put together a programme of proportionate changes with a view to increasing the number of customers who are switched within three weeks. “  1.10 “A licence requirement on all suppliers to take reasonable steps to improve their systems and processes so as to increase the speed at which customers switch. An obligation on the incumbent supplier and Gas Transporter to co- operate with the new supplier to enable the transfer.”  1.12 “Ofgem will lead a programme of work to provide the industry with guidance on the steps needed to improve their systems and processes so that more customers are able to switch within the new timescales” DECC - Impact Assessment  Description: “Suppliers to be required to make improvements to their systems and processes to ensure that as many people as possible are able to switch within these timescales”  Total Transition: “1 year”

DECC Documents - 2 Detailed Business Rule clarification From DECC – Government Response  Introduction: “The requirements of the Directives must be transposed into domestic legislation by 3 March 2011”  5.22  “The obligation to switch customers within 3 weeks will start the day after the contract is entered into, unless a cooling-off period applies, in which case it starts after the cooling- off period expires (provided this does not exceed 14 calendar days).  To enable a new supplier to comply with the obligation to switch the customer within 3 weeks, operators of exempt distribution networks will be expected to take all reasonable steps to ensure that the new supplier is able to start supplying the customer within the relevant period.”

Options identified to date…  Treat Bank Holidays as working days*  Reduce the 7 day “objection window”*  Remove the “objection” process from supply point confirmation process.*  Reduce “confirmation” window.*  Confirm the supply point during 14 day cooling off period.*  Incumbent shipper to withdraw – allowing confirmation to take place in D-8.  Suppliers using same shipper organisation can update Transporter systems via “SUN” file within D+1. * System changes required.