1. Version 1.0 1 PNUNC AQ Principles Workgroup Mod 0209 – Rolling AQ Presenter: Steve Nunnington 23 rd March 2010

2. 2 Version 1.0 The Start of Mod 0209  Mod 0209 raised in April 2008 following the output of Review Group 0177 which produced a Straw Man for ‘Rolling AQ Review’.  Development Workgroup established to build on and develop the Straw Man in sufficient detail for the proposal to proceed direct to consultation.  12 months to develop and agree the detailed business rules, system impacts and costs and benefits

3. 3 Version 1.0 Summary of Mod 0209  Following taken from Modification Report, AQ Validation Rules & Business Rules (v1.0)  Meter Reads  Accepted Valid Meter Reads will be used to calculate an AQ  Estimated Meter Readings will not be considered for use in the Monthly AQ Review  Monthly Process  Where a Valid Meter Reading is loaded by the 10 th business day of the month (Close-Out Day) the MPRN will be included in the Monthly AQ Review  A file submitted to the Shipper notifying of the revised AQ (Notified AQ) 5 business days prior to the end of the month (Notification Day)  File will contain: MPRN, Current AQ, Notified AQ (AQ calculated as a result of the Monthly AQ Review), Consumption Period Start & End Date and Start & End Reading  The AQ (Notified AQ) will be effective from the 1 st day of the following month

4. 4 Version 1.0 Summary of Mod 0209 cont.  Validation  Systematised validations carried out to ensure the calculated AQ is correct prior to being issued to the Registered User  There are two general categories for validation failures;  Data missing or inconsistent  Calculated AQ out of tolerance  Where validations fail a rejection file will be issued to the Shipper & the current AQ will apply. For the following month (month +2);  If the calculated AQ is an increase on the current the calculated AQ will apply unless the User confirms that it is incorrect. Where no confirmation received the Notified AQ will apply on the 3rd month.  If the calculated AQ is a decrease on the current the calculated AQ will only apply if the User confirms it is correct.  Where the Registered User anticipates that a calculated AQ will fail validation but believes it to be correct, a Validation Override Flag can be set by the User.  By setting the Validation Override Flag an AQ will be calculated & Notified

5. 5 Version 1.0 Summary of Mod 0209 cont.  Appeals process  Users can submit a new meter reading or a replacement meter reading (correction of asset data may also be required)  Where there is a manifest change in consumption the User submits an estimate of the AQ & supporting evidence of consumption  For valid/accepted appeals the AQ & EUC, where applicable, will be included in the following months review  Thresholds  Where the Notified AQ of a NDM Supply Meter Point is greater than 58,600,000 kwh, the Daily Read Requirement will apply from the AQ Effective Date.  Where the Notified AQ of a Supply Meter Point rises & remains above 732,000 kWh for 3 months a Convertor will be installed.  Where the Notified AQ of a Supply Meter Point falls below 732,000 kWh the Convertor will not be removed but the requirement to have a Convertor will lapse  Supply Point Offtake Quantities (SOQs)  When an AQ for an NDM is revised the SOQ will also be revised  When the AQ is revised the SOQ will use the applicable Load Factor

6. 6 Version 1.0 Summary of Mod 0209 cont.  Annual Parameter Changes  The WARs will be updated on 1 st October each year  AQs & SOQs will reflect any Supply Meter Point cross-over in WAR bands at the first AQ Effective Day following the update in WAR  Following a revision to the Seasonal Normal Composite Weather Variables, the AQ & SOQ will be revised at the first AQ Effective Day following the update in Weighted Average Annual Load Profile  Monitoring/Reporting  Reports published showing;  Number of Supply Points that have a re-calculated AQ  Number of Supply Points that failed validation  Number of Supply Points that have a Validation Flag set  Total movement of AQ  Total Appeals for an increase & decrease in the Notified AQ  In kWh, change of AQ in aggregate

7. 7 Version 1.0 Summary of Representations Received  8 representations received;  3 Supported  2 Qualified Support  2 Did Not Support  1 Offered Comments  Implementation Timescales  5 supported implementation in Project Nexus  1 supported prior to Project Nexus  2 did not state a preference

8. 8 Version 1.0 Comments made in the Representations - Against  One of the main arguments for the Mod was that AQs have been too high & the process too slow to react. However, AQ overstating may also be due to CWVs which will not change as a result of Rolling AQ (SSE)  Important that any significant changes to the existing AQ Review regime is managed in a cost & resource efficient way as possible (SGD)  Claims that the average AQ is 18 months old at the time it is used, this is the maximum time not average as the process takes the most recent reading therefore AQ could be less than 2 months old (SSE)  Rolling AQ may not encourage more valid readings to be submitted or place additional incentives on Suppliers above those already present however will ensure more accurate AQs are registered (EDF)  Significant number of customers do not change their gas demand on an annual basis so the changes in allocation amongst shippers under Mod 209 is likely to be very small (SSE)

9. 9 Version 1.0 Comments made in the Representations – Against  Revised Load Factors would only be applied to those Supply Points where a Meter Reading has been provided and an AQ re-calculated. This would lead to differences in deemed peak demands for loads with the same AQ within a load category (NGD)  Current Annual AQ review is a tried & tested process which has worked well for over a decade (SSE)  Industry don’t currently have the necessary information to determine what the benefits are given the industry drive for the introduction of SMART & AMR technologies (npower)  Concerns over treatment of DM sites, DMs are not mentioned in any detail. Changes to the AQ will not be reflected in SOQ, SHQ & BSSOQ for upto 12 months (Total)  Shippers will have less time than currently to validate the AQ’s before it goes ‘Live’ (SSE)  The potential costs associated with development could outweigh the benefits (npower, SSE)

10. 10 Version 1.0 Comments made in the Representations – Against  Updating AQ values more often would not give any benefit to transporters as planning decisions are taken often years in advance and are based on actual gas throughputs and demand models rather than being a summation of current AQ values (SSE)  Commodity costs reflect only a very small amount of the total transportation charges and any benefits due to reductions in reconciliation volumes would be very small (SSE)  Marginal administrative benefits in moving to a monthly process although it is possible that the increased number of AQ changes per meter & monthly validation processes could require an increase in resources (SGN)  Inconsistency between AQ Validation increases & decreases. Increases takes effect without challenges whereas decreases only take affect following a challenge. This practice could encourage shippers to focus on increases only & adds complexity to the process (npower & Total)

11. 11 Version 1.0 Comments made in the Representations - For  Time & resources required during the annual AQ review would be smoothed out over the 12 months (e.on)  Improvement in accuracy of AQs will ensure that energy is allocated more accurately, reduce Rec. values & minimise movement of energy between market sectors (SGN, SGD, NGD, EDF)  Under the current arrangements the impact of an erroneous meter reading is not realised until the annual review. Under a Rolling AQ this will be identified quicker & shippers able to respond & correct the data in a timely manner (EDF)  Rolling AQ principle is similar to the arrangements in electricity (Workgroup)  Provides Shippers with the opportunity to challenge inaccurate AQ values in subsequent months rather than waiting a whole year (npower)  Monthly AQ review encourages submission of more timely & accurate reads and so improves data quality (Workgroup)  Rolling AQ helps to ensure that more up-to-date AQs are used to allocate costs between domestic shippers & reduce unfair cost burden upon RbD shippers (npower)

12. 12 Version 1.0 Comments made in the Representations - For  Current bulk validation masks data issues & allows inaccurate AQs to go live. The proposed changes will provide focus on data accuracy & lead to improved data having benefits across the system (e.on)  Significant benefit to the accuracy of the AQ by removing the ‘backstop’ requirement allowing each read to update the AQ (e.on)  Improving the accuracy of AQs will fundamentally improve the ability of GT’s to operate the pipeline system in an efficient & economic manner (e.on)  Implementation of this proposal would enable AQs to be updated on a monthly basis essentially providing a basis to improve this key information as long as sufficient and regular reads were provided by Shippers (SGN)  More accurate AQs may improve the operation of the pipe-line system in an efficient and economic manner although the extent to which they benefit the planning process is still not clear (SGN).  Idea of a Monthly AQ Review makes sense & should enable more accurate AQs to be used and a gradual change of a portfolio rather than a step change at 1 st October (npower)