1. xoserve Services Workgroup

2. xoserve Funding Arrangements - Model Comparison ModelKey Benefits User Pays Model AUser Pays Model B Baseline Services (Core) GTs have service level obligations under UNC Ensures all stakeholders in the loop Increased risks between GTs and Agent Shippers do not have direct recourse under UNC Volume Driven & Commercial Service (User Pays) No value added by GTs involvement Potential for increased delay or reduced service levels Shipper to Agent direct relationship means better service level and increased leverage for shippers X X

3. Models Compared Model A (Regulated) Model B (Commercial) Baseline/Core Traditional Price Control Strong incentive to minimise costs No incentive to respond to demand Vanilla service Liabilities incentivise delivery Monopoly Limited User protection User Pays/Volume Driven Incentive Scheme Revenue and costs vary with activity Incentive to respond to demand Risk of perverse incentives Short term windfall gain or loss Potentially complex User Choice Flexible Good for service variation Lacks transparency

4. User Choice Model Users approach xoserve to request services xoserve quote and charge on normal commercial basis Scope for negotiation Users can take-it or leave-it No visibility of service, charges or costs Outside price controls Adjust allowed revenue every five years

5. User Choice Assessment Strength Flexible –No constraints to meeting User requirements Commercial –Benefits from standard commercial incentives Weakness Governance –No visibility of costs, charges or services offered Discriminatory –Not available to all

6. User Choice Refinements xoserve publish pricing principles Audit of performance –Internal and external, plus periodic Ofgem audit User Group/Board Oversight

7. User Choice Services Used by some Users only –One off, individual services –Varied service level Commercially driven –Users perceive an advantage

8. User Choice Service Lines –Provide Query Management –User Admission & Termination –Must Reads –Provision of Services in Relation to Obligations under GT licence –Provision of user reports and information

9. Incentive Scheme Model Services set out in UNC Users pay depending on usage Inside price controls Allowed revenue flexes with usage Potentially complex –Charging structure –Targets –Sharing factors

10. Incentive Scheme Assessment Strength Incentives aligned –xoserve benefit by meeting User demands Flexible –Automatic revenue adjuster Governance –Transparent Weakness Incentives may be perverse –Focus on what is measured Complex –Operating costs increased Creates windfall gain or loss –Match between cost and revenue change imperfect

11. Incentive Scheme Services Available to all Users –Defined in UNC Volume driven –Those who use most pay most

12. Incentive Scheme Service Lines –Provide Query Management –User Admission & Termination –Must Reads –Provision of Services in Relation to Obligations under GT licence –Provision of user reports and information

13. Incentive Scheme Example - AMR Introduce charge per meter read received More reads means more revenue xoserve choose how to provide service –Capex and/or opex funded by additional revenue

14. Price Control Options Meter read income excluded –Allowed Revenue = Target – Assumed Excluded Revenue Incentive Scheme –Target Revenue set by Ofgem –Variations shared e.g. 50:50 –Caps and collars set by Ofgem

15. Incentive Scheme Issues Incentive not to submit reads –User liabilities to offset? Charge by category –DM v NDM, monthly v annual read, AMR? Charge variations within price control period –Level, structure, new charges Administrative costs –More charge items to monitor and invoice

16. What Might Users Pay for? Meter Reads Submitted? Queries Submitted? Supply Point Transfers? Invoices Issued? Information Requests? Admission/Termination? UNC Modification Proposals Raised/Implemented?