1. User Pays Funding – Potential Licence Mechanism
RG Post Implementation Review of Central Systems Funding and Governance Arrangements
Simon Trivella – November 22nd 2010
Same slide as usual

2. Background (Shipper) User Pays funding for [Development] costs
User Pays Charge
Invoiced to defined parties (upon implementation)
Previously suggestions for alternative mechanisms
“Pot” of allowed cash for DNs
Include in service / transaction charges
WWU suggested potential license mechanism
Presentation given at Workstreams (Jan, March 2010)

3. (Ft) = (RBt) + (LFt) + (PDt) + (TGt) + (TPWIt) + (MPt)
Special Condition E3
Distribution Network allowed pass-through items (Ft)
“The purpose of this condition is to provide for the calculation of adjustments to the maximum Distribution Network Activity Revenue to reflect certain costs that can be passed through to customers of the licensee”
(Ft) = (RBt) + (LFt) + (PDt) + (TGt) + (TPWIt) + (MPt)

4. Special Condition E3 RBt = business rates adjustment
LFt = licence fee adjustment
PDt = NTS pensions deficit charge adjustment
TGt = ToG reasonable endevours payments (SC7)
TPWIt = FTSG SoP payments for 3rd party damage and water ingress
MPt = Miscellaneous pass-through (as directed)

5. Potential Licence Modification to E3
Include new term UPt
Cost included in allowed revenue in the following Formula Year
Charged through Transportation Charges
No requirement for additional invoices (40+)
Greater flexibility for Shipper pass-through
Remains transparent
Still requires ROM / DCA etc.

6. Potential Licence Modification to E3
Include new term UPt
Ofgem direction on Modification Proposal also used to determine qualification for inclusion in UPt
In simplest form would only work for all Shipper changes
How material is this ?
Potential for cost targeting by SSP/LSP or AQ band
Additional complexity that may not be justified ?
Allows for simple “impact” measure of percentage change

7. Potential Licence Modification to E3
Example
User Pays change with £2m Development / Implementation costs
Cross industry benefit and therefore UPt applied
Approximate Transportation Charge increase of 0.067%
Approximate consumer cost of 8p per annum

8. Potential Licence Modification to E3
Alternative option
Utilise the existing MPt (miscellaneous) element
Requires a direction from the Authority
Designed for one-of events

9. Similar NTS License Mechanism
SC C8G (NTS SO internal incentives, costs and revenue)
Covers Agency costs that are not User Pays or not funded
IT Systems and development costs;
Provision of services as a result of industry framework changes;
Entry capacity baseline swapping;
0.52p/kWh limit on incremental capacity buy-back;
Energy balancing changes;
European driven changes (limited);
20% of costs attributable to major changes to the RbD process;
Shipper driven UNC Modification Proposals (100% gemini, 11% of other)
Total amount of logged up costs not to exceed £10.5m (04/05) prices

10. Next steps? Feedback from Review Group 0334 members
Alternative / amended approach ?
Review Group recommendation ?
Ofgem consideration ?

11. User Pays Funding – Potential Licence Mechanism
RG Post Implementation Review of Central Systems Funding and Governance Arrangements
Simon Trivella – November 22nd 2010
Same slide as usual