Project Nexus : Funding Arrangements Joel Martin - 30 April 2009.

Project Nexus Funding : Key Objectives Provision of Replacement Systems to Support Current and future Industry Requirements. Reach early agreement on funding principles to allow smooth passage of change and system implementation. Ensure timely delivery of replacement systems.

Key areas to consider : Background behind Funding principles. Agreement of Funding principles. Application of Funding principles.

Background to Funding principles (1) : Gas Distribution Price Control – Final Proposals Placed incentives on:- Transporters to provide more than a minimum level of service. Shippers / Suppliers to more carefully consider costs they impose on xoserve.

Background to Funding principles (3) : Gas Distribution Price Control – Final Proposals Specifically in relation to Project Nexus: GDPCR funding for a ‘like for like’ system replacement. User Pays principle would: “help to make sure that the incremental capacity of these new systems is given to those who value it most.”

Background to Funding principles (2) : Gas Distribution Price Control – Final Proposals Introduced definitions of types of service: Core Services. User Pays Services.

Background to Funding principles (4) : Gas Distribution Price Control – Final Proposals Core Services Transporters funded on a ‘like for like’ basis. Doesn’t exclude change to existing core services being funded centrally. Incremental costs will require establishment of funding principle.

Agreement of Funding principles (1) Early agreement provides firm base for progressing required industry change. Established funding framework allows change to be progressed un-hindered. Agreement required between Transporters & Shippers.

Agreement of Funding principles (2) Core systems replaced on a like for like basis. Changes to core systems resulting in an incremental increase in costs requires funding. User Pays principle provides framework and decision tool for progressing Nexus change and allocation of costs.

Application of Funding principles (1) Changes to core services will require UNC Modification Proposals. Opportunity to utilise MOD213V process: Allows agreed User Pays methodology to be applied. Provides framework for cost allocation decisions. Ultimately provides Ofgem decision on cost allocation.

Conclusions: Like for Like system replacement funding by Transporters. Additional requirements and changes to systems will require MOD 213V User Pays methodology to be applied. Changes to existing systems and process may be possible under centrally funded budget / identification of incremental costs is key. Costs Transparency essential to provide confidence around cost allocation decisions.

Questions….?