New gas shipper licence arrangements Gas Transmission Workstream

New gas shipper licence arrangements Gas Transmission Workstream 2 December 2010

Summary After months of consultation in September 2010 the New Application Regulations and the Updated Guidance Document were published*: Ø Introduction of new risk-based, three tier licence application process Ø Changes to the Revocation Schedule of all future licences Ø Discussion: should “traders” be required to have a licence? * These can be found on Ofgem website at http: //www. ofgem. gov. uk/Licensing/Work/Pages/Work. aspx 2

Why change the application process? Changes are designed to: Ø Mitigate risk of potentially fraudulent licence applications Ø Make the application process clearer and easier Ø Strike a balance between additional administrative burden on applicants and need to verify their serious intentions 3

Tiered application – information requirements Tier 1 (All applicants) • Applicants Details • Applicants Directors details • Service address (if non GB) • Legal Status (Plc, Ltd, etc) • Holding/Parent Co details and Director details • Disqualifications statements • Criminal Convictions Statement • >20% shareholder details • Details of persons in control (if not body corp. ) • Details of previous licences held/revoked/refused • Proposed arrangements to use licence for purpose • Certified copy of Certificate of Incorporation and Vat registration Tier 2 • Proof of contact with the relevant Code Administrators • Certified copies of any documents that verify infos • Details of any licence/authorisation refused/revoked/terminated by other regulatory body • Applicants bank, Auditors, Solicitors details. Tier 3 • Original ID Documents • Interview with Ofgem Existing New Information burden on applicant increases with Risk 4

How to determine move to tier 2 and 3 Key areas that the risk assessment will take into account Ø unexplained omissions/discrepancies in the information (Ofgem will always take into account applicant’s explanation) Ø difficulty verifying information provided Ø any information relevant to our decision to grant a licence which comes to our attention during the application process Ø readiness/intent to use licence for purpose for which granted All licence applications will be scored against these criteria in order to decide the move to tier 2 and if necessary to tier 3* * For more details, refer to the tables on p. 16 -17 of “Guidance for gas and electricity licence applications” 5

Licence Revocation Ø The Revocation Schedule has been changed to better address the issue of unused and dormant licences. Ø All future gas shipper licences may be revoked if unused for 1 year (longer if licensee has physical assets) Ø In case of the licensee having ceased the activity the licence may be revoked immediately Ø Ofgem will not automatically revoke an unused licence and will always give the licensee the possibility for representation 6

Distinction between “traders” and shippers Ø Currently the UNC makes no distinction between physical and non-physical traders and both are required to have a licence Ø A shipper is a person that “arranges with a gas transporter for gas to be introduced into, conveyed by means of or taken out of a pipeline system operated by the transporter”* Ø A non-physical trader (“trader”) does not arrange to convey gas across the GB transportation network * As defined under s 5(1)(c) of the Gas Act 1986 7

Ofgem view Ofgem consider that there is merit in making changes to the industry contracts to differentiate between “trader” and shipper Ø Removal of an entry barrier: greater competition Ø Consistency across all gas and electricity licences/Codes Ø Reduction in numbers of dormant licences BUT is the proposed change proportionate? We look forward to industry parties views on the matter 8

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