UNC Modification Proposal 0380 Periodic Annual Quantity Calculation

1. UNC Modification Proposal 0380 Periodic Annual Quantity Calculation Calculation of Daily Supply Point Capacity Alan Raper – DNCMF 26th September 2011

2. Background • UNC Mod Proposal 0380 raised by NGD in May 2011 • Under development within the remit of Project Nexus Workgroup • Business & validation rules based on those developed under UNC Modification Proposal 0209 ‘Rolling AQ’ in 2008/9 • Developed in the context of other Project Nexus principles i.e. revised allocation, settlement and reconciliation arrangements • Business Requirements Definition (BRD) approaching completion. • Outstanding issue – requirements for calculation of Supply Point Capacity (NDM SOQ)

3. Rationale for Periodic AQ review requirement • Changes in consumption are not immediately reflected in the AQ • Current AQ is based on historic consumption data, does not accurately reflect current consumption • Unable to appeal SSP AQ’s • Manually labour intensive during the summer • Approx. 3.5 months to validate AQ’s on portfolio • Impacts on other processes during the processing & updating the annual AQ review • Current process does not provide an incentive to submit reads more frequently

4. Summary of Project Nexus products

5. Periodic AQ calculation in new regime • AQ calculated following receipt of a valid read; estimates used for AQ calculations except for process 4 • Monthly process; MPRN included in the monthly AQ review where a valid read is received • If more than 1 read loaded during the period, the last read loaded before the 10th business day will be used for the AQ calculation • For daily read sites; AQ calculated monthly (last 365 reads) • No appeal/amendments process due to erroneous reads loaded unless due to incorrect standing data • Shipper can update incorrect standing data & re-submit a read. The AQ will be re-calculated the following month • Incorrect AQ value only valid for 1 month • The incorrect read can be flagged to ensure it is not used for future AQ calculation • Where an AQ calculation is rejected the current AQ will be carried over • Assumptions: • Automated meter reading will provide a more robust read • Proposed read validations will ensure any significantly erroneous reads are rejected • SOQs are not revised to provide certainty of income?

6. How Rolling AQ would Work for each Process • Process 1 & 2: • Calculate AQ monthly based on last 365 days of reads (actual reads & estimates) • Process 3 & 4: • Use last valid read (estimates not permitted) received on the 10th business day to calculate the AQ (back to previous read used for AQ calculation)

7. Scope of AQ Determination • Determination of the AQ, SOQ, SHQ & BSSOQ for • all directly connected sites. Submit Meter Reading to GT Timing & Calculation of AQ Notification of AQ Challenges to the AQ Calculate SOQ/SHQ Calculate BSSOQ

8. Mod 0209 SOQ principles • Supply Point Offtake Quantities (SOQs) • When an AQ for an NDM is revised the SOQ would also be revised • When the AQ is revised the SOQ would use the applicable Load Factor • Annual Parameter Changes • The WARs would be updated on 1st October each year • AQs & SOQs would 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 would be revised at the first AQ Effective Day following the update in Weighted Average Annual Load Profile

9. SOQ Considerations • Transportation charges take effect from 1st April annually. • DNOs are required to provide 2 months notice of revised distribution charges • During January DNOs must predict the aggregate level of SOQ, per day and by load band, from 1st April through to the following 31st March, in order to forecast revenue from charges • Under the current capacity regime the SOQ remains largely unaltered between January, when setting charges, and September each year. • However the impact of the AQ review and the NDM load factor re-estimation on SOQs from October onwards is difficult to forecast. This uncertainty creates revenue forecast uncertainty and hence can lead to large K volatility in ongoing transportation charge levels. • An Annual Review for SOQs at December, for implementation from the following April, would help to reduce charging volatility to the benefit of shippers and consumers.

10. Rolling or Static SOQ? • Aspiration for changes to consumption levels to be reflected at the earliest opportunity in quantities used to determine transportation charges? • Rolling AQ process would naturally lead to a ‘Rolling SOQ’ process but still with a step change at October due to Load Factor redetermination then. • Smooth ‘Rolling SOQ’ is dependent on a stable monthly read frequency which may not be obtained in the short to medium term pending rollout of smart / automated meter reading? • Uncertainties around ‘Rolling AQ’ levels likely to lead to charge volatility and uncertainty for consumers with cost pass-through supply arrangements • Static SOQ for charging purposes, set at December for following April to March period, would give better forecastability of charge and revenue levels and lead to more stable charges, to benefit of shippers and consumers • However, Static SOQ likely to require more complex systems development.

11. Next steps • Views/recommendations of the DNCMF to be considered by the next meeting of the Project Nexus (AQ) Workgroup. • AQ Workgroup will endeavour to agree relevant business rules.