Place your chosen image here. The four corners must just cover the arrow tips. For covers, the three pictures should be the same size and in a straight line. Workgroup 0395 & 0398 – Limitation on Retrospective Invoicing and Invoice Correction 10 October 2011 Impact on LDZ Meter Error Reconciliation Arrangements

2  National Grid in its role as Shrinkage Manager has reviewed the impact of changes in the rules as envisaged by the two MOD proposals  The figures presented are an estimate as a full analysis would require a day-by-day drill down  The data includes some errors which are pre-Mod 152AV – Limitations on Retrospective Invoicing and Invoicing Correction’.  Assumed that the cash identified and invoiced would not have been recovered if the end-date of the error on our records exceeded the closure date according to the rules in UNC.  Likely to be an under-estimate as some additional reconciliations would be partially affected, but aren’t included in the current statistics  E.g if an error had a last day of 01/05/08, it would be considered as fully reconciled under the 2 year version of the rules as long it was closed by 31/3/2011 whereas if the error had started prior to 01/04/08, those days would need to be reconciled before 31/03/2010  Doesn’t allow for delays after the invoice was issued  Only includes meter reconciliations closed out within National Grid (excludes current Aberdeen and Horndon SMER’s for example) Impact of Changes in Rules on Reconciliations

3 Cash Impact

4  Mod 0395 : Reduce code-cut off date to Formula Year -2  Mod 0398 : Reduce code-cut off date to Formula Year -3  Current regime (Mod 152V) : Code cut-off date is Formula Year -4.  Much of the evidence presented in support 0395/0398 is in terms of DN RbD activities.  Little mention made of the impact upon transmission activities, particularly upon the LDZ meter reconciliation and it’s impact upon the shipping community.  Important to recognise NGT are cash neutral with regard to LDZ Offtake Meter Reconciliation.  Cash recovered from specific shippers in the event of a meter error offsets the commodity charges that would otherwise affect all shippers to be increased in order to cover the UAG component where errors are not reconciled.  LDZ Meter reconciliation is not a one way street. It is entirely possible that a large offtake meter over-read would result in cash flow in the opposite direction. Impact of Changes in Rules on LDZ Meter Reconciliation

5  Annual meter validations – potentially up to 12 months just to detect an error  In the event of identifying a Significant Meter Error Reconciliation (SMER) – up to 4 months to agree experts  Experimental work e.g. flow trials – up to 4 months.  Production of SMER and supporting evidence – up to 2 months  NGT review of error report – up to 3 months  Invoicing – up to 3 months  There is the potential for up to 28 months to pass before completing an Offtake Meter Reconciliation  Not really compatible with Mod 0395 – meter reconciliations easily have the potential to run over the point where we can reconcile an error.  Mod 0398, and a 4 year code cut-off date could be workable.  The proposed mods clash somewhat with the principle of due diligence that introducing the independent technical experts into meter error reporting.  What about a “mastermind clause”? i.e. errors can be reported at any point up to the code cut-off date, however once identified will then be reconciled irrespective of the timescale? Timescales for LDZ Meter Error Reporting

6 Aberdeen SC006 SMER  An early estimate of the magnitude of the error included daily correction factors of:  for the period 21/09/09 to 27/07/10  for the period 28/07/10 to 09/08/10  Using actual flow data and system average prices gives a result of:  £18,657,966  £7,814,778  The numbers are somewhat biased towards because this includes the time the site was flowing over the winter months.  Bearing in mind the timescales for delivering the SMER and invoicing it, clearly there is a considerable risk to the shipping community were the £18M not to be recovered.  Later implementation of either mod proposal would perhaps allow Aberdeen to be reconciled, but what is to say that another such error is not around the corner, and would not be reconcilable?  What if we had a large over-read, that had been cut-off early from reconciliation? Would the affected shippers be happy that commodity charge is reduced for all shippers where only one or two were supplying a particular offtake? It must be stressed the figures quoted here are illustrative only. The results of the Aberdeen SMER are for expert determination.