1. Analysis of the Xoserve Read Validation Proposal Author: Alex Cullin 27/08/2014

2. Objectives  Determine read rejection rate (if no over-ride flag was set) if the NEXUS rules (which employs a flat line RAQ apportionment) were applied.  Repeat the exercise using a seasonally adjusted (WAALP) RAQ apportionment and compare the results.  Highlight any significant weaknesses in the proposal and suggest alternatives. 2

3. Method Obtain list of live meters on live meter points For each month:  Determine the GT accepted readings in that month.  For each reading, locate the previous GT accepted reading  Calculate the kWh consumption between the two readings  Retrieve the RAQ for the previous GT accepted reading  Using the straight-line apportionment method determine the portion of the RAQ applicable to the meter reading advance period  Apply the GT tolerance rules to determine which readings pass or fail the proposed GT validation. Repeat the exercise with WAALP adjusted RAQ values. NB: The reads used in this analysis are already accepted by GT so exceptions volumes estimated in this analysis would be in addition to any read exceptions currently produced. 3

4. Exclusions / Limitations / Sample Size Reads were excluded if:  We failed to calculate an RAQ for the last GT accepted reading  Recent Gains  Meter exchanges in RAQ period  We failed to determine which readings were accepted by GT  IGT sites All E.ON obtained, GT accepted readings were considered however where multiple readings were accepted by the GT within a 30 day period only the latest reading in the period has been used for the analysis.  This limitation has minimal impact on the figures because the vast majority of E.ON MPRS have an AQ below 73,200 and therefore read submission is limited to one reading every 63 days (25 days post NEXUS). The total number of readings used in the analysis (after exclusions) was 5.4M 4

5. Results Over the year, 6.25% of readings sent to the GT would be rejected (if no over- ride flag was set). However there’s a large degree of seasonality with the rejection rate dipping to 2% in June and peaking at 26% in September. 5

6. Results The exception volumes lag behind the change in seasonal usage. This is because it’s not the reading that’s being validated but the period of usage between the reading and the one prior. This period is on average 116 days so the exceptions are delayed by roughly half this amount. 6

7. Exception Breakdown Of the 6.25%, 81% failed when they breeched the lower threshold (20% of RAQ) with the majority of failures occurring in the months associated with summer consumption periods. 7

8. Exception Breakdown The majority of the exceptions are caused by the consumption breaching the lower 20% tolerance check. A simple comparison of the straight-line 20% lower tolerance vs the expected seasonal usage shows the weakness in the method. The next graph shows the consumption for a standard residential house 13,500 kWh/pa. It’s clear that a standard residential consumer will intersect the lower 20% tolerance with normal expected usage during the summer months. This will in turn translate into higher exceptions volumes for consumers using even marginally lower than expected consumption. 8

9. Proposed lower tolerance vs Expected residential usage Blue - AQ apportioned per day (straight-line method) Green - 20% lower tolerance based on the straight line apportioned AQ. Red - WAALP adjusted expected usage. 9

10. WAALP Adjusted Clearly if a WAALP adjusted lower tolerance were used a customer with typical consumption would never intersect the tolerance and only reads relating to consumption periods which show significantly lower than expected usage will be rejected (or require the over-ride flag to be set). 10

11. Exception Comparison WAALP vs Straight-line RAQ Below is a comparison of exception volumes using the tolerances on a straight-line apportioned RAQ vs a WAALP adjusted RAQ. NB: Only band 1 customers (AQ between 0-73,200) were used in this comparison and an EM LDZ profile was used regardless of MPR LDZ Band 1 MPRs make up the majority of E.ONs rejections. The majority of the seasonal peak has been removed and reduced the % failure from 6% to 2.7% 11

12. Dealing with Low consumption / Low Expectation of Consumption BG propose splitting the lowest tolerance band (currently 0-73,200) into 2 bands and applying a different tolerance to each.  0 to 20,999  21,000 – 73,200 The BG analysis did not suggest what these new tolerances should be: The majority of the E.ONs MPRs in the lower AQ band (0-73,200) sit within the lower sub band of 0-20,999 This is because the lower band includes typical residential usage of around 12,000-13,500 kWh. 12

13. Change in usage Splitting the lowest AQ band in two does not directly address customers that are showing a sustained change in consumption patterns but for a period which is less that the minimum RAQ period. This is because although the RAQ mechanism is triggered by the most recent reading, the consumption that influences the RAQ is between 6 and 36 months old (soon to be 9-36 months). Where the consumption on the meter point is changing the RAQ is slow to catch up and only alters after a sustained period at the new usage. 13

14. Change in usage The reading in red is taken after a period of sustained low usage but the RAQ will still not be fully reflective of the new consumption pattern. The low consumption readings (green and red) will therefore test the lower 20% tolerance for a number of months before the RAQ reacts sufficiently. The RAQ is affected to lesser degrees (and the change further delayed) if the reduced consumption takes place in summer vs winter months due to the WAALP profiling used to calculate the RAQ. 14

15. Low expected usage Scenario 1 A meter point which has not consumed for some time (AQ = 1) would breach the upper tolerance check (300%) if a reading showing an annual consumption of 4 kWh were submitted, the reading would breach the market breakers tolerance of 700% if 7kWh consumption were submitted. Of the meter points with an RAQ of 1 prior to the read being submitted. The vast majority failed the market breaker tolerance check. Where the market breaker tolerance is exceeded the reading can not be over-ridden. Scenario 2 For a meter point with an RAQ of 3000, if the consumption returns to a normal residential level of 12,000 kWh the upper tolerance (300%) would be breached. 15

16. Market Breakers Of the 5.4M readings sent 0.4% would breach the Market Breakers tolerance rules and would be rejected. 16

17. Market Breakers When comparing the results for Band 1 only (0-73,200 kWh) the market breaker failures is actually slightly higher overall with the WAALP adjusted RAQ compared to the straight-tine RAQ. 0.46% vs 0.43%. The distribution of exception throughout the year is different. This shows that WAALP adjusting the RAQ is not a solution to high volumes of market breakers. 17

18. Seasonality Conclusion WAALP adjust the RAQ before applying the Xoserve proposed Tolerances. 18 Low consumption Conclusions There are more numerous valid scenarios where a residential customer is legitimately using very little consumption (either for short or prolonged periods of time) compared to those that need investigation. Splitting the lower AQ band and applying a new tolerance does not fully address these issues. If the BG proposal were taken forward (in additional to WAALP adjusting the RAQ) then I believe removing the lower tolerance (or setting it to 0%) for the sub 20,999 kWh band would be a prudent proposal.

19. Low Expectation Conclusions An upper tolerance of 300% and market breaker tolerance of 700% should only be applied to the sub 20,999 band if the actual (annualised) consumption between the 2 readings exceeds 20,999 kWh. So where the RAQ is 1 to 20,999 (NDM):  Readings that have an actual consumption (annualised using the WAALP) of less than 20,999 would not be subject to upper tolerance / Market Breaker checks.  Readings that have an actual consumption (annualised using the WAALP) of more than 20,999 would be subject to the 300% upper tolerance and 700% market breakers checks. Where this consumption is legitimate the MPR would need to undergo the AQ correction process. These proposals would still protect the industry from spurious readings entering into settlements would better fit with the reality of customer consumption patterns. 19