Modification 435 Workgroup

1. Modification 435 Workgroup Alternative approaches to NDM Compensation 19 February 2013 www.energy-uk.org.uk t @energyukcomms

2. Mod 435 Workgroup – 19th February 2013 NDM Compensation in the event of involuntary interruption during a GDE • Ofgem SCR proposal – Domestic VOLL set at £20 therm, payable to NDM customers when interrupted and also feeds into cashout prices • Industry concerns – impact on NBP market ; prompt and curve, socialisation of residuals in the event of bankruptcy • Aim of this presentation and associated note is to facilitate discussion of alternative approaches to NDM compensation separate to the cashout arrangements • Based on a discussion with a group of Energy UK Members • Not an Energy UK position paper • Not fully worked up options • Further discussion and development needed

3. Mod 435 Workgroup – 19th February 2013 A Compensation Fund • Funded ex ante or ex post • Ex ante – certainty of payment if ring fenced, but cost to industry, barrier to entry ? • Ex post – how is payment assured? But no upfront cost to industry • Who pays? • Industry wide – collective responsibility, but may not be able to pass costs to customers • Domestic shippers – collective responsibility, likely to be passed onto customers • Individual shippers – may be simpler to administer than collective funds • Targetting • No targetting ? • Short shippers share of fund drawn down first, then other funds? - Adds complexity • Network isolation determined by NEC – not necessarily those customers served by short shippers • Other • May never be used • Where is fund held? oversight of fund – escrow account, letter of credit • What % of customers are covered by the fund ?

4. Mod 435 Workgroup – 19th February 2013 Supplier Licence Condition • Licence condition in domestic supply licence to pay compensation • No upfront costs that may be passed to customers • Simple to implement • Market consequences avoided • Rapid payment to customer, credit on next bill / pay now – any targetting carried out later • Compensation potentially paid by parties not causing emergency • BUT proving fault likely to be difficult and subject to legal challenge • Targetting • Ring fence to the supplier – Responsibility and risk sits with supplier, simple to implement, minimal systems impact but may not be paid if supplier goes bankrupt.... Possibly socialise the residual? • Short shippers – adds complexity, system impact, credit? • Short shippers with extended time line - as above may prevent immediate bankruptcy • Other mechanism ?