1. Mod 0194 Presentation on the conclusions reached by British Gas Nick Wye On behalf of the I&C Group

2. Introduction  RbD was introduced in 1998  Main drivers behind its introduction include: Permit roll-out of domestic supply competition Recognise the infrequency of domestic reads to permit dynamic meter point reconciliation Overcome the exponential increase in workload for all parties Significant impact on systems for all parties Costs of requiring individual meter point reconciliation would outweigh the benefits  The mechanics of RbD is well understood by the Group and we do not intend to cover this

3. Review of the performance of RbD  Verification analysis performed by xoserve cross-checks the performance of RbD against a small sample of read domestic meters  Analysis is presented to industry and has been presented on the 0194 Group  The outputs of the findings from this analysis forms the basis of the British Gas proposals  On a national level the confidence level attributed to the analysis is 1.3% based on 5,000 sites

4. Data sampling to support validation  Domestic Monitor Panel provide weekly reads Sample size currently @5000 customers  Data recorders used for demand estimation not currently used Sample size currently @3400 customers  Combined use of samples would give a confidence level of 1.06%  In our view data recorders provide more representative sample data than the DMP DMP requires active participation on the part of the consumer. Active involvement ensures that customers will closely monitor consumption and are more likely to seek to employ energy saving measures. (note AMR evidence later) Anectodal evidence from British Gas that contributors to the sample are likely to be from a limited social banding, which may produce a systematic bias.

5. Declining DMP Sample Size: Data Recorders  Identify billed values and actual value for recorders (replicate DMP analysis)  Data recorder analysis shows a different trend to DMP  DMP indicates SSP Billed >Actual (over): DR indicates SSP Billed < Actual (under)  Further investigation required, data available May Cumulative Billed, Actual & Difference (Billed-Actual) Per DR Customer

6. RbD Verification Analysis Analysis period reflective of MOD152V timescales (Apr-04 to Mar-08) Trend – avg. cumulative over bill per DMP customer of 1,293 kWh for the period (323 / year) BUT: Recent trend indicates an under bill per SSP customer (cumulative difference) Pending analysis and receipt of further reconciliation and DMP data (up to 6 months) Per DMP Customer: Cumulative Billed, Actual & Difference (Billed-Actual)

7. Validation findings LDZ March 2008 (>Apr04)September 07 (>Oct 03)February 2007 (>Feb98) Current Balance Summary No Return Summary Yet To Flow Remaining Balance % of Throughput Remaining Balance % of Throughput Remaining Balance % of Throughput EA 2.862.370.230.290.24%0.340.27%2.660.93% EM 2.88-0.400.282.991.91%3.752.29%3.350.89% NE 2.720.830.211.681.73%1.581.57%3.151.37% NO 0.160.620.14-0.60-0.70%-0.52-0.58%-0.38-0.19% NT 2.43-1.920.523.832.45%4.712.91%13.003.50% NW 3.890.830.322.751.43%3.431.72%4.901.07% SC 2.660.410.182.071.61%1.841.38%2.780.91% SE0.08-0.640.36-0.360.21%2.361.33%7.601.87% SO 3.963.890.17-0.11-0.10%-0.19-0.17%3.761.49% SW 0.380.550.14-0.32-0.37%0.070.08%1.010.48% WM 1.460.110.281.070.78%2.201.55%2.190.67% WN 1.861.450.040.362.29%0.241.47%1.844.92% WS 1.090.340.090.661.12%1.191.99%2.081.51% Wales 3.061.790.141.130.8%5.573.70%5.411.6% Total 27.288.562.9715.761.04%21.641.38%47.301.31%

8. Sampling Errors  Current DMP sample size of 5,094 has an error of 1.37% as provided by xoserve  The average of last 4 years throughput as provided by xoserve in RbD April 08 sub-group is 379TWh. From 2007 10Yr Statement demand for 2006 is 383TWh  Using a 95% confidence test around the true mean with a 1.37% error this would provide a range of +/- 5.2TWh  If we assumed 15.76TWh is equally apportioned across all years then this provides an average of 3.94TWh/year  This is within the sampling error range  If we assume 15.76TWh per year then 10.4TWh can be associated with sampling error

9. RbD Overview - Conclusions  Concerns over validation sampling Sample too small and inherent bias? Data recorders more accurate  Level of error in the sampling is significant  Recent trend of SSP being underbilled Suggests LSP market being overbilled oHigh Prices oEconomic factors e.g. downturn, exch. rates, credit crunch oBetter informed customers e.g. AMR technology (now supported by BERR) oGovernment environmental policy e.g. carbon abatement and efficiency plans  In relative terms are LSPs reducing consumption at a faster rate than SSPs?  Is it clear that RbD is not working/reflective of actual consumptions? RbD provides a robust reapportionment process? Not clear that “theft” is a correct balancing factor

10. Apportioning Energy  I&C should be exposed to some costs if it can be established that the benefits of doing so outweigh the costs Costs should include direct costs associated with implementation; indirect costs associated with absorbing financial uncertainty within varying portfolios; opportunity costs of associated with operating individual meter point reconciliation and effectively RbD.  As a general rule we are not convinced that % allocations are reasonable as there is no clear linkage between RbD volume and volume of incidents  To assume a correlation between the level of the RbD smear and the % attributed to each issue will not properly target costs between sectors. It is our view that this will discriminate against I&C as there are far fewer supply points. This is particularly true in the cases of: Late confirmations IGTs  The above are supply point driven and the relative volumes per supply point in the NDM are significant when compared to domestics.

11. IGT allocation  Overly simplistic methodology British Gas propose a total share of 7.14% i.e. Based on a % share of the RbD smear Shares of 88%SSP and 12%LSP based on relative throughput This assumes that “issues” are equally shared between the sectors  Anecdotal evidence suggests AQs provided by UIP for I&C tend to be initially oversized oDue to uncertainty of offtake size and need to ensure network can support load Typically I&C AQs are 6% higher than consumption oBased on evidence

12. Late Confirmations/Shipperless sites  Data from xoserve is “real”, however, issues with application Invalid to apportion on the basis of a % for reasons established before i.e. no correlation between RbD smear and number of late confirms etc... Not cost reflective  Orphaned sites based on real evidence – I&C should contribute But assumption that gas is being consumed with reference to AQ on “Not yet confirmed (i.e. Unregistered sites)”  Non-orphaned sites it is assumed that gas is being consumed in accordance with AQ. Therefore, it is likely that the volume apportioned is excessive AQs are likely to be overstated Site works tend to take longer than domestic, sites may not be connected  Xoserve should do further investigations into “unoccupied sites” to determine whether deemed AQs are reflective of consumption Could be done on a sample basis  Magnitude of problem associated with “0152 sites” i.e those sites which have not been confirmed for 4-5 years? Is this significant?

13. Theft  British Gas approach is to use a weighted average of detection rates and allegations We fail to see any clear relationship between this measure and undetected theft I&C is more likely to detect theft due to frequency of reading and site visits Use of weighted AQ allegations is highly questionable as they do not relate to actual theft and more likely to be skewed by a small number of higher volume sites We see more credence in using valid detections as a benchmark  British Gas assumes that Theft provides the “balancing factor” This is highly questionable as it assumes that there is no sampling error and that all of the other issues are correctly allocated their “share” of the RbD pot  We believe that the introduction of AMR will have a real impact on theft detection. This is not recognised in the proposals  The proposed split is based on assumptions which are likely to discriminate against I&C sector

14. Shrinkage and Other  Again similar issues concerning apportionment  Shrinkage is throughput related, no relation to RbD smear  “Other” category is not defined and we are unable to comment on the proposal Understand that this will probably be removed

15. Other issues  AQ issues I&C AQs are potentially too high, particularly in recent times due to numerous reasons oSee points raised previously concerning economic climate etc.. and IGT overstatement AMR sites evidence suggests over 10% immediate reduction in annual consumption oAMR AQ overstated and will increase market share Domestic AQs are overstated, but possibly not as much as I&C (it is the relative change which is important) Results of 2007 AQ review, xoserve reported that 4m domestic AQ results failed to recalculate. Are they accurate?  Should also note Confidence in demand estimation profiles? Recognition that AQ process needs improving e.g. Mod 209 Implementation of Mod 204 to improve calculation of WCF in response to concerns over initial allocations

16. Conclusions  RbD brings significant benefits to domestic shippers primarily through cost savings against individual meter point reconciliation  Cost savings are not shared by I&C players which must continue with individual meter point reconciliation  It is not clear due to sampling that there is a misallocation of energy Sampling error is greater than the “remaining balance” Potential bias in the sampling Recent trends show SSP under billing Confidence in suppliers own billing systems, are they robust enough to provide a sense check?  Although efforts have been made to assess I&C contributions they are at best arbitrary  Relationship between RbD smear and “issues” has not been established A relationship between throughput and “issue” may be reasonable e.g. shrinkage  AMR will grow rapidly in future (see BERR conclusions)  Unintended consequence of implementation of this proposal is a cross subsidy from I&C to domestic sector

17. I&C Group Members  Corona Energy  ENI  Gazprom M&T Retail  GDF Energy  Shell Gas Direct  Statoil/Hydro  Total Gas & Power  Wingas