1. User Pays Funding – Potential Licence Mechanism Simon Trivella – January 21 st 2010 Governance Workstream

2. Background (Shipper) User Pays funding for [Development] costs –User Pays Charge –Invoiced to defined parties [upon implementation] –Previously suggestions for alternatives “Pot” of allowed cash for DNs Include in service / transaction charges –WWU suggested potential license mechanism

3. Special Condition E3 Distribution Network allowed pass-through items (F t ) “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” (F t ) = (RB t ) + (LF t ) + (PD t ) + (TG t ) + (TPWI t ) + (MP t )

4. Special Condition E3 RB t = business rates adjustment LF t = licence fee adjustment PD t = NTS pensions deficit charge adjustment TG t = ToG reasonable endevours payments (SC7) TPWI t = FTSG SoP payments for 3 rd party damage and water ingress MP t = Miscellaneous pass-through (as directed)

5. Potential Licence Modification to E3 Include new term UP t –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 (can still be identified)

6. Potential Licence Modification to E3 Include new term UP t –Ofgem direction on Modification Proposal also used to determine qualification for inclusion in UP t –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 UP t applied –Approximate Transportation Charge increase of 0.067% –Approximate consumer cost of £0.08 per annum

8. 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

9. User Pays Funding – Potential Licence Mechanism Simon Trivella – January 21 st 2010 Governance Workstream