Modification Proposal 0395 & 0398 – Limitation on Retrospective Invoicing and Invoice Correction 1 st December 2011

2 Modification Proposal 0395 / 0398  Both Modification Proposals seeks to reduce the meter reconciliation period  0395 sets it to a minimum of 2 years and a maximum of 2 years and 364 days  0398 sets it to a minimum of 3 years and a maximum of 3 years and 364 days  Current UNC sets it to a minimum of 4 years and a maximum of 4 years and 364 days

3 Cash Impact of the retrospective invoicing limits

4 Aberdeen SC006 SMER  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  Bearing in mind the timescales for delivering the SMER through the industry’s LDZ Meter Error Guidelines and invoicing it, clearly there is a risk to the NTS shipping community were the £18M to fall outside the timescales proposed in 0395 or  Later implementation of either mod proposal would perhaps allow Aberdeen to be reconciled. It must be stressed the figures quoted here are illustrative only. The results of the Aberdeen SMER are for expert determination.

5 Mod 0395 impact on Error Detection & Reconciliation Timeline 21/07/09 Last Good meter reading (2009 validation) 21/07/10 Error detected following 2010 validation27/09/10 Notification to Joint Office SMER Process It is in the gift of the industry to determine the time of total time to produce the final report. Typical Process Appointment of ITE(s) ITE Testing/Analysis Compilation of Report Agreement of Report (Potential of feedback loop) Publication of Final Report Period reconcilable under Mod /04/10 Code cut-off date under mod 395 for fiscal year Industry Process NG Process 3 months UKT begin review of SMER UKT obtain financial sanction Data sent to xoserve via RBD return Reconciliation invoices issued Reconciliation invoices due date Data sent to xoserve via RBD return

6  Much of the evidence presented in support 0395/0398 is in terms of DN RbD activities.  Less analysis of impact that Proposals may have on NTS Users, particularly in respect of NTS/LDZ meter reconciliation.  0395 proposer’s analysis identifies that majority of LDZ meter errors are under-reads.  The risk from not re-apportioning under-read energy at an NTS/LDZ offtake sits with the NTS Shippers through the Shrinkage Incentive. Impact of proposed retrospective invoicing limit on the Transmission Activities

Background information National Grid Transmission’s UAG role and performance

8  NG NTS is cash neutral with regard to NTS/LDZ Offtake Meter Reconciliation.  NG NTS does not own NTS/LDZ meters.  NTS Connected Meter Assets predominantly owned by DN’s, Terminal Operators and Large Industrial End Consumers  NG NTS has a Meter Assurance role and therefore monitors Asset Owners’ compliance with meter validation obligations  NG NTS may also assist the Asset Owner in the discovery of meter errors through its Data-mining initiatives. National Grid NTS role in reducing UAG

9 NG NTS Meter Assurance Role  NG NTS has to date received zero UAG incentive revenue.  Since 2009 NGG NTS has undertaken a range of activities to address UAG.  NGG NTS has incurred additional cost for carrying out these activities and delivered User benefits.  Costs of Data Mining from April 09 to date ~£240,000.  NG NTS Data Mining has contributed toward discovering measurement errors at both entry and exit.

10 UAG Costs as a % of throughput  For 2009/10 value of UAG compared to overall system throughput was 0.6%.  With a gross value of ~£100m p.a for 2009/10  With correction of recent Significant Meter Errors, Data mining has contributed to an estimated UAG reduction to 0.5% of overall system throughput, with a significant reduction in gross cost to the industry.