1. Modification 194
11th July 2008

2. Content Overview Framework Adjustment Mechanisms Un-registered sites
Shrinkage
Independent Gas Transporters
Metering
Read factors
Theft
Populated table
Next steps

3. Overview Modification 115
Ofgem agree that LSP sector should receive an element of RbD
Ofgem’s decision letter on 115/a –
“We agree with the basic tenet of the proposals, that it is inappropriate for one sector of the gas market to bear all of the costs of unallocated gas through RbD.”
Further work required to do to help determine level allocation to LSP sector
Modification 194
Initiated January 2008
9 meetings
15 Presentations
Reviewed extensive independent data analysis

4. Framework Recognises difference between market sectors.
Incentivises behaviours in these areas
Identifies each cause of RbD.
Allows for a more scientific approach to the apportionment of RbD
Enduring solution – can be amended as new information becomes available or incentives are put in place.
Reasonably sophisticated but not overly complex
Foundation for further refinement if appropriate

5. Adjustment mechanisms
Strong support for stability and certainty that codification would provide
Some feedback that ability to vary apportionment under certain circumstances
E.g. level of unconfirmed sites in I&C sector reduces
Plan to create provision for UNC committee to agree changes, but decisions with right of appeal to Ofgem – similar to Shrinkage.
Values also amendable by modifications

6. Un-registered sites / late confirmations
Costs for energy consumed by Unregistered sites are all allocated into RbD.
xoserve data shows, for sites with Shipper Activity, 87% of Energy (by AQ) is in LSP.
76% of the energy which will be lost under the Mod 152 cut of next April belongs to the LSP.
Data presented by xoserve has shown that TWh is approaching Mod 152 cut off date and will be unable to reconcile.
In addition to this, 0.164TWh is in the orphaned sites process and the energy will not be reconciled.
Therefore;
3.57% of RbD caused by Un-registered sites, and of this;
24% SSP
74% LSP NDM
2% LSP DM

7. Shrinkage
It is an accepted principle that losses which occur up stream of the ECV (Shrinkage) are recovered based on throughput outside of the LSP and SSP allocations.
In the present regime, Shrinkage is calculated based on a set of assumptions at the beginning of the period.
These assumptions are validated at the end of the period and any differences are charged solely to RbD.
This is clearly inequitable and the allocation of differences should be based on throughput.
Therefore:
0.006% of RbD is attributable to Shrinkage Error, and of this;
62% SSP
24% NDM LSP
14% DM

8. Independent Gas Transporters
Review group 157 has identified problems with the connections process between the IGT and the DNO combined with poor updates of AQs and reads into the IGTs have led to an understatement of the IGT energy, which is picked up wholly by RbD.
The NDM LSP market makes up approximately 12% of IGT throughput.
Conclusion – CSEPs errors are structural rather than driven by supplier performance therefore the cost allocation should be driven by throughput.
Therefore;
CSEPs error accounts for 7.14% of RbD; and of this –
88% SSP
12% LSP NDM

9. Metering Accuracy standards to +/- 2%.
Same standards apply to both SSP and LSP (and LDZ) meters
No evidence presented to show any difference in SSP / LSP meter performance
Though generally acknowledged that older meters have propensity to over, rather than under register
Under registering has similar effect as theft
Domestic meters are not believed to under register.
Over registering would suppress level of RbD.
Therefore;
Conclude that metering errors have a net zero impact on RbD
O difference amongst sectors therefore
O reallocation proposed

10. Theft #1 General agreement that theft is “the balancing factor”
In the absence of other contributors to RbD Theft makes up the difference
Conclusion is that presently 4TWH (71.35%) of RbD caused by theft
Extensive analysis presented by xoserve
General agreement that theft minimal / non existent in Daily metered sector
Different ways of interpreting data

11. Theft #2 Ratio of detected theft 92.55% SSP 7.45% LSP NDM
However figure understates LSP theft
lack of incentives on I&C sector and failure to investigate numerous allegations
Expectancy that detected theft would result in re-allocation of energy
Higher proportion of cases where theft detected in LSP sector but volumes not submitted to xoserve
Lower rate of detection in LSP sector 17.84% versus 32.34%

12. Theft #3 2. Ratio of allegations (weighted by volume)
This matches AQ for each allegation and compares aggregated AQs allegations on LSP and SSP sectors
55.35% SSP % LSP NDM

13. Theft #3 3. Simple Average of (1) + (2)
Assume ratio of theft is mid point between actual and alleged
68.6% SSP Sector 31.4% LSP NDM sector
4. Weighted average of (1) + (2)
Place twice as much credence on detection rates as allegation levels
76.58% SSP sector 23.4% LSP NDM sector
Conclusion is;
Likely that approach (2) no less accurate than approach (1)
But given a level of subjectivity have erred substantially on side of caution in favour of LSP sector
76.58% SSP, 23.4% LSP NDM
Therefore
71%% RbD caused by Theft, and of this;
76.58% SSP % LSP NDM 0% LSP DM

14. Conclusions The overall apportionment of RbD should be
SSP 72.9%
LSP NDM 27.08%
LSP DM 0.01%
This is supported by;
Independent industry data and analysis
The most prudent judgements and interpretations of this data.
Of special significance are those judgements on theft.
Alternative judgements on theft could justify OVERALL levels of apportionment to the LSP NDM sector of at least 33%

15. Populated table

16. Next steps Separate modifications Framework Values
Development workgroup report to be submitted to August Mod Panel based on Framework.
New Modification to be raised on Values.