Funding UKLink Process changes (User Pays)

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Purpose of Presentation

Review of User Pays

Principles

Application to date

National Grid NTS observations for discussion

Views on next steps

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User Pays - the story so far

NTS PCR GDPCR ACS Mod 0213

The concept of “User Pays” applies solely to those services provided by xoserve (i.e. UK Link systems incl. Gemini), the Transporters Agent

Concept was first discussed in October 2006

User Pays principles developed over a number of years and its application is based on a number of key developments

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NTS Price Control Review – Costs of ongoing Industry Framework Changes

Transmission Price Control Review (TPCR) process

Ofgem set NGG Transmission’s price control allowance for xoserve funding for 2007/08 only.

GDPCR

Ofgem set funding from 1 April 2008 until 31 Mar 2012 and divided costs in to two categories.

Ofgem suggested future Gemini system development costs should be paid for by parties that value the change the greatest (8.14 GDPCR)

Exit Reform and Entry Capacity Arrangements

Fixed allowance provided

Future developments

Funded by those who value it most

xoserve Funding

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Gas Distribution Price Control Review (GDPCR)

User Pays Implementation Group (UPIG) set up in Sept 2007.

Examined how to implement the Ofgem GDPCR proposals to introduce "User Pays" arrangements for defined services (not future change)

The User Pays arrangements proposed that xoserve's services be split between:

“Core” / PCR proposed services, to be funded through the Transporters’ price control, and

"user pays" services which would be funded by those users who most value them, shippers, transporters or both. 

User pays services were further classified

“Code" services, those already detailed within the UNC - continue to be governed by the existing UNC arrangements

“Non-code" services - provided via a contract between xoserve and the customer and not detailed in the UNC.

Users are charged for the non-code services they use by xoserve

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Agency Charging Statement (ACS)

GDPCR introduced changes to SSC A15 (“Agency”) of the Transporters' licence

Obliges Transporters to produce and publish an Agency Charging Statement (ACS)

ACS

Contains the scope of core and user pays services, the charging methodology for user pays services and the charges themselves

Proposed changes to the ACS must be sent to Ofgem for a minimum period of 28 days in accordance with A15

Charges ‘as far as reasonably practicable, reflect the costs of providing the service’ charges can include xoserve margin (6%)

Mod 0188 introduced concept of ACS into UNC

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UNC Modification Proposal 0213V: “Introduction of User Pays Governance Arrangements into the UNC”

EDF Energy raised UNC Modification Proposal 0213V as a means of revising the UNC

Mod Process, so that a Mod must state if it contains a User Pays element

All proposals to say whether User Pays or not if Users Pay it should state:

Who should fund the xoserve costs, e.g. transporters or shippers, and in what proportion, e.g. transporters 50%, shippers 50%

How costs should be apportioned - transactional basis, or by market share, or per new report etc.

When a User Pays proposal is sent to Consultation

GTs should provide a high level cost estimate (ROM) with the draft Mod report

A more robust cost estimate can be requested by the Modification Panel

Assumption is that all User Pays modifications will have a ROM unless the Panel determine otherwise. (Business Rule 9 of 0213V)

User Pays costs should be included in the FMR and an accompanying revised ACS

A direction from the Authority to implement the Modification Proposal would also be deemed to be a non-veto of the ACS amendment.

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Detailed Cost Analysis (DCA)

Who can request a DCA?

Modification Panel

Gas & Electricity Markets Authority

Workstream

All DCA requests are required to be submitted to xoserve via a GT

Cost recovery

DCA are chargeable and would be defined in the ACS and recovered accordingly.

Non implemented proposals which have had DCA are also chargeable and would be defined in the ACS and recovered

accordingly

Therefore consideration should be given to the economic implications of requesting numerous DCAs

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Observations for discussion

Although user pays is still in its infancy, National Grid NTS suggests a discussion on the following;

Rough Order of Magnitudes (ROM) and Detailed Cost Analysis (DCA)

Production of the IS scoping document(s) Who, where, when, who pays?

Timing and timeframe

Impact of Modification Proposals with multiple Alternatives

Roles and Responsibilities

Modification Panel

UK Link Committee

Change to UNC Governance Rules?

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ROMs & DCAs: Timescales Implications

Timescales are potentially longer and the industry should be mindful of this when raising

Modification Proposals.

Steps may include;Workstream – development of business rulesROM requiredDCA requiredUK Link committee

Jan Feb Mar April May June July Aug Sept Oct Nov DecWorkstream ConsultationDCA FMR/vote Authority

ROM

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Roles and Responsibilities

How effective is the

Modification Panel in judging,

prior to consultation, that

Business Rules (BR) are

sufficiently detailed to enable

system development costs to

be accurately determined?

Does the Modification Panel

have this skills set?

Is the UK Link Committee

better placed to judge this/

Mod Panelreceive aproposal

recommendingit go to

consultation

UK Link committee

Yes IS detailsufficient

No BR detailinsufficient

Mod Panel Mod Panel

ConsultationWorkstream orReview Groupto work up BR

detail

UK linkcommittee

Mod Panel

No IS detailinsufficient

Yes BR detailsufficient

Consultation

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User Pays - Application to date

User Pays Principle Mod 0246 Mod 0224

Proposal a core service

funded through PCR?

No No

Proposal User Pays? Yes Yes

Proposal a Non-Code

Service (ASA)?

No No

Proposal a Code

Service (UNC)?

Yes Yes

Who should fund

proposal?

100% Shippers – rationale

provided (no benefit to GTs)

100% Shippers

How should costs be

apportioned?

All shippers with QSEC

capacity - based on their

proportion of the overall value

of capacity Y2-Y16 on

implementation

Development cost - all shippers, based on

eligible Meter Points.

Ongoing services – all participating meter

points pay a daily charge + transactional

charge for Cons. Adj.

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National Grid NTS’ observations

Observations

Lack of clarity with efficiency on multiple DCAs for the same modification

proposals.

Role of Panel and User Pays Modifications

Role of UK Link committee

Timescales

Potential need for governance scheduling discussions