1. New gas shipper licence arrangements Gas Transmission Workstream 2 December 2010

2. 2 Summary After months of consultation in September 2010 the New Application Regulations and the Updated Guidance Document were published*:  Introduction of new risk-based, three tier licence application process  Changes to the Revocation Schedule of all future licences  Discussion: should “traders” be required to have a licence? * These can be found on Ofgem website at http://www.ofgem.gov.uk/Licensing/Work/Pages/Work.aspx

3. 3 Why change the application process? Changes are designed to:  Mitigate risk of potentially fraudulent licence applications  Make the application process clearer and easier  Strike a balance between additional administrative burden on applicants and need to verify their serious intentions

4. 4 Tiered application – information requirements Tier 1 (All applicants) Applicants Details Applicants Directors details Service address (if non GB) Legal Status (Plc, Ltd, etc) Holding/Parent Co details and Director details Disqualifications statements Criminal Convictions Statement >20% shareholder details Details of persons in control (if not body corp.) Details of previous licences held/revoked/refused Proposed arrangements to use licence for purpose Certified copy of Certificate of Incorporation and Vat registration Tier 2 Proof of contact with the relevant Code Administrators Certified copies of any documents that verify infos Details of any licence/authorisation refused/revoked/terminated by other regulatory body Applicants bank, Auditors, Solicitors details. Tier 3 Original ID Documents Interview with Ofgem Information burden on applicant increases with Risk Existing New

5. 5 How to determine move to tier 2 and 3 Key areas that the risk assessment will take into account  unexplained omissions/discrepancies in the information (Ofgem will always take into account applicant’s explanation)  difficulty verifying information provided  any information relevant to our decision to grant a licence which comes to our attention during the application process  readiness/intent to use licence for purpose for which granted All licence applications will be scored against these criteria in order to decide the move to tier 2 and if necessary to tier 3* * For more details, refer to the tables on p. 16-17 of “Guidance for gas and electricity licence applications”

6. 6 Licence Revocation  The Revocation Schedule has been changed to better address the issue of unused and dormant licences.  All future gas shipper licences may be revoked if unused for 1 year (longer if licensee has physical assets)  In case of the licensee having ceased the activity the licence may be revoked immediately  Ofgem will not automatically revoke an unused licence and will always give the licensee the possibility for representation

7. 7 Distinction between “traders” and shippers  Currently the UNC makes no distinction between physical and non-physical traders and both are required to have a licence  A shipper is a person that “arranges with a gas transporter for gas to be introduced into, conveyed by means of or taken out of a pipeline system operated by the transporter”*  A non-physical trader (“trader”) does not arrange to convey gas across the GB transportation network * As defined under s5(1)(c) of the Gas Act 1986

8. 8 Ofgem view Ofgem consider that there is merit in making changes to the industry contracts to differentiate between “trader” and shipper  Removal of an entry barrier: greater competition  Consistency across all gas and electricity licences/Codes  Reduction in numbers of dormant licences BUT is the proposed change proportionate? We look forward to industry parties views on the matter

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