© Energy UK April 2012

Modification 435 Workgroup Alternative approaches to NDM Compensation 19 February 2013

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© Energy UK April 2012

NDM Compensation in the event of involuntary interruption during a GDE

Mod 435 Workgroup – 19th February 2013 2

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 MembersNot an Energy UK position paperNot fully worked up options Further discussion and development needed

© Energy UK April 2012

A Compensation FundMod 435 Workgroup – 19th February 2013 3

Funded ex ante or ex postEx 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 customersDomestic 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 creditWhat % of customers are covered by the fund ?

© Energy UK April 2012

Supplier Licence Condition Mod 435 Workgroup – 19th February 2013 4

Licence condition in domestic supply licence to pay compensationNo upfront costs that may be passed to customers Simple to implementMarket consequences avoidedRapid payment to customer, credit on next bill / pay now – any targetting carried out laterCompensation potentially paid by parties not causing emergencyBUT 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 ?