© Energy UK April 2012 Modification 435 Workgroup Alternative approaches to NDM Compensation 19 February

© Energy UK April 2012 NDM Compensation in the event of involuntary interruption during a GDE Mod 435 Workgroup – 19 th February Ofgem SCR proposal – Domestic VOLL set at £20 therm, payable to NDM customers when interrupted and also feeds into cashout prices Industry concerns – impact on NBP market ; prompt and curve, socialisation of residuals in the event of bankruptcy Aim of this presentation and associated note is to facilitate discussion of alternative approaches to NDM compensation separate to the cashout arrangements Based on a discussion with a group of Energy UK Members Not an Energy UK position paper Not fully worked up options Further discussion and development needed

© Energy UK April 2012 A Compensation Fund Mod 435 Workgroup – 19 th February Funded ex ante or ex post Ex ante – certainty of payment if ring fenced, but cost to industry, barrier to entry ? Ex post – how is payment assured? But no upfront cost to industry Who pays? Industry wide – collective responsibility, but may not be able to pass costs to customers Domestic shippers – collective responsibility, likely to be passed onto customers Individual shippers – may be simpler to administer than collective funds Targetting No targetting ? Short shippers share of fund drawn down first, then other funds? - Adds complexity Network isolation determined by NEC – not necessarily those customers served by short shippers Other May never be used Where is fund held? oversight of fund – escrow account, letter of credit What % of customers are covered by the fund ?

© Energy UK April 2012 Supplier Licence Condition Mod 435 Workgroup – 19 th February Licence condition in domestic supply licence to pay compensation No upfront costs that may be passed to customers Simple to implement Market consequences avoided Rapid payment to customer, credit on next bill / pay now – any targetting carried out later Compensation potentially paid by parties not causing emergency BUT proving fault likely to be difficult and subject to legal challenge Targetting Ring fence to the supplier – Responsibility and risk sits with supplier, simple to implement, minimal systems impact but may not be paid if supplier goes bankrupt.... Possibly socialise the residual? Short shippers – adds complexity, system impact, credit? Short shippers with extended time line - as above may prevent immediate bankruptcy Other mechanism ?