xoserve Services Workgroup xoserve Funding Arrangements Model Comparison

xoserve Services Workgroup

xoserve Funding Arrangements - Model Comparison Model Baseline Services (Core) Volume Driven & Commercial Service (User Pays) Key Benefits User Pays Model A User Pays Model B • GTs have service level obligations under UNC ü • Ensures all stakeholders in the loop • No value added by GTs involvement • Potential for increased delay or reduced service levels • Increased risks between GTs and Agent • Shippers do not have X direct recourse under UNC • Shipper to Agent direct relationship means better service level and increased leverage for shippers X ü

Models Compared Model A (Regulated) Model B (Commercial) Baseline/Core Traditional Price Control Monopoly • Strong incentive to minimise • Limited User protection costs • No incentive to respond to demand • Vanilla service • Liabilities incentivise delivery User Pays/Volume Driven Incentive Scheme • Revenue and costs vary with activity • Incentive to respond to demand • Risk of perverse incentives • Short term windfall gain or loss • Potentially complex User Choice • Flexible • Good for service variation • Lacks transparency

User Choice Model • Users approach xoserve to request services • xoserve quote and charge on normal commercial basis • Scope for negotiation • Users can take-it or leave-it • No visibility of service, charges or costs • Outside price controls • Adjust allowed revenue every five years

User Choice Assessment Strength • Flexible – No constraints to meeting User requirements • Commercial – Benefits from standard commercial incentives Weakness • Governance – No visibility of costs, charges or services offered • Discriminatory – Not available to all

User Choice Refinements • xoserve publish pricing principles • Audit of performance – Internal and external, plus periodic Ofgem audit • User Group/Board Oversight

User Choice Services • Used by some Users only – One off, individual services – Varied service level • Commercially driven – Users perceive an advantage

User Choice Service Lines – – Provide Query Management User Admission & Termination Must Reads Provision of Services in Relation to Obligations under GT licence – Provision of user reports and information

Incentive Scheme Model • • • Services set out in UNC Users pay depending on usage Inside price controls Allowed revenue flexes with usage Potentially complex – Charging structure – Targets – Sharing factors

Incentive Scheme Assessment Strength • Incentives aligned – xoserve benefit by meeting User demands • Flexible – Automatic revenue adjuster • Governance – Transparent Weakness • Incentives may be perverse – Focus on what is measured • Complex – Operating costs increased • Creates windfall gain or loss – Match between cost and revenue change imperfect

Incentive Scheme Services • Available to all Users – Defined in UNC • Volume driven – Those who use most pay most

Incentive Scheme Service Lines – – Provide Query Management User Admission & Termination Must Reads Provision of Services in Relation to Obligations under GT licence – Provision of user reports and information

Incentive Scheme Example - AMR • Introduce charge per meter read received • More reads means more revenue • xoserve choose how to provide service – Capex and/or opex funded by additional revenue

Price Control Options • Meter read income excluded – Allowed Revenue = Target – Assumed Excluded Revenue • Incentive Scheme – Target Revenue set by Ofgem – Variations shared e. g. 50: 50 – Caps and collars set by Ofgem

Incentive Scheme Issues • Incentive not to submit reads – User liabilities to offset? • Charge by category – DM v NDM, monthly v annual read, AMR? • Charge variations within price control period – Level, structure, new charges • Administrative costs – More charge items to monitor and invoice

What Might Users Pay for? • • Meter Reads Submitted? Queries Submitted? Supply Point Transfers? Invoices Issued? Information Requests? Admission/Termination? UNC Modification Proposals Raised/Implemented?