Modification Proposal UNC0125 -“Introduction of new Balancing Neutrality charge for cost of Residual Balancer collateral on the OCM”

7 December 2006

Ritchard Hewitt

Background to Proposal :

APX (OCM System Operator) applied for FSA authorisation

Requires all OCM participants to be fully collateralised

Residual Balancer required to put in place FSA approved securities

Residual Balancing role completed on behalf of and funded by the community through Neutrality mechanism

Seeks to pass Residual Balancer cost of collateral for activity on OCM through Neutrality mechanism

Minimising cost of collateral required for Residual Balancing activity on the OCM

Cost of securities not significant (current protection £30/50k per Annum)

Proposal seeks to ensure costs kept to minimum. Costs recovered through Neutrality mechanism based on

each day of the billing month such costs are incurred. Minimises the level of interest payment borne by community

The level of collateralisation may vary through the year Ability to account for fluctuations in the level of risk by adjusting

securities through the year may reduce cost.

Assuring economic and efficient approach to Collateralisation of the Residual Balancer on the OCM Licence Condition Ofgem information request Undertaking to provide General reporting of costs External audit annually that the cost have been

incurred efficiently (part of SMPS and PG audit).