Funding UKLink Process changes (User Pays)

2 Purpose of Presentation  Review of User Pays  Principles  Application to date  National Grid NTS observations for discussion  Views on next steps

3 User Pays - the story so far NTS PCRGDPCRACSMod 0213 The concept of “User Pays” applies solely to those services provided by xoserve (i.e. UK Link systems incl. Gemini), the Transporters Agent  Concept was first discussed in October 2006  User Pays principles developed over a number of years and its application is based on a number of key developments

4 NTS Price Control Review – Costs of ongoing Industry Framework Changes  Transmission Price Control Review (TPCR) process  Ofgem set NGG Transmission’s price control allowance for xoserve funding for 2007/08 only.  GDPCR  Ofgem set funding from 1 April 2008 until 31 Mar 2012 and divided costs in to two categories.  Ofgem suggested future Gemini system development costs should be paid for by parties that value the change the greatest (8.14 GDPCR) Exit Reform and Entry Capacity Arrangements Fixed allowance provided Future developments Funded by those who value it most xoserve Funding

5 Gas Distribution Price Control Review (GDPCR)  User Pays Implementation Group (UPIG) set up in Sept  Examined how to implement the Ofgem GDPCR proposals to introduce "User Pays" arrangements for defined services (not future change)  The User Pays arrangements proposed that xoserve's services be split between:  “Core” / PCR proposed services, to be funded through the Transporters’ price control, and  "user pays" services which would be funded by those users who most value them, shippers, transporters or both.  User pays services were further classified  “Code" services, those already detailed within the UNC - continue to be governed by the existing UNC arrangements  “Non-code" services - provided via a contract between xoserve and the customer and not detailed in the UNC. Users are charged for the non-code services they use by xoserve

6 Agency Charging Statement (ACS)  GDPCR introduced changes to SSC A15 (“Agency”) of the Transporters' licence  Obliges Transporters to produce and publish an Agency Charging Statement (ACS)  ACS  Contains the scope of core and user pays services, the charging methodology for user pays services and the charges themselves  Proposed changes to the ACS must be sent to Ofgem for a minimum period of 28 days in accordance with A15  Charges ‘as far as reasonably practicable, reflect the costs of providing the service’ charges can include xoserve margin (6%)  Mod 0188 introduced concept of ACS into UNC

7 UNC Modification Proposal 0213V: “Introduction of User Pays Governance Arrangements into the UNC” EDF Energy raised UNC Modification Proposal 0213V as a means of revising the UNC Mod Process, so that a Mod must state if it contains a User Pays element All proposals to say whether User Pays or not if Users Pay it should state:  Who should fund the xoserve costs, e.g. transporters or shippers, and in what proportion, e.g. transporters 50%, shippers 50%  How costs should be apportioned - transactional basis, or by market share, or per new report etc. When a User Pays proposal is sent to Consultation  GTs should provide a high level cost estimate (ROM) with the draft Mod report A more robust cost estimate can be requested by the Modification Panel Assumption is that all User Pays modifications will have a ROM unless the Panel determine otherwise. (Business Rule 9 of 0213V)  User Pays costs should be included in the FMR and an accompanying revised ACS A direction from the Authority to implement the Modification Proposal would also be deemed to be a non-veto of the ACS amendment.

8 Detailed Cost Analysis (DCA) Who can request a DCA?  Modification Panel  Gas & Electricity Markets Authority  Workstream All DCA requests are required to be submitted to xoserve via a GT Cost recovery DCA are chargeable and would be defined in the ACS and recovered accordingly. Non implemented proposals which have had DCA are also chargeable and would be defined in the ACS and recovered accordingly Therefore consideration should be given to the economic implications of requesting numerous DCAs

9 Observations for discussion Although user pays is still in its infancy, National Grid NTS suggests a discussion on the following;  Rough Order of Magnitudes (ROM) and Detailed Cost Analysis (DCA)  Production of the IS scoping document(s) Who, where, when, who pays?  Timing and timeframe  Impact of Modification Proposals with multiple Alternatives  Roles and Responsibilities  Modification Panel  UK Link Committee Change to UNC Governance Rules?

10 ROMs & DCAs: Timescales Implications Timescales are potentially longer and the industry should be mindful of this when raising Modification Proposals. Steps may include;  Workstream – development of business rules  ROM required  DCA required  UK Link committee

11 Roles and Responsibilities How effective is the Modification Panel in judging, prior to consultation, that Business Rules (BR) are sufficiently detailed to enable system development costs to be accurately determined?  Does the Modification Panel have this skills set?  Is the UK Link Committee better placed to judge this/

12 User Pays - Application to date User Pays PrincipleMod 0246Mod 0224 Proposal a core service funded through PCR? No Proposal User Pays?Yes Proposal a Non-Code Service (ASA)? No Proposal a Code Service (UNC)? Yes Who should fund proposal? 100% Shippers – rationale provided (no benefit to GTs) 100% Shippers How should costs be apportioned? All shippers with QSEC capacity - based on their proportion of the overall value of capacity Y2- Y16 on implementation Development cost - all shippers, based on eligible Meter Points. Ongoing services – all participating meter points pay a daily charge + transactional charge for Cons. Adj.

13 National Grid NTS’ observations Observations  Lack of clarity with efficiency on multiple DCAs for the same modification proposals.  Role of Panel and User Pays Modifications  Role of UK Link committee  Timescales  Potential need for governance scheduling discussions