1. Place your chosen image here. The four corners must just cover the arrow tips. For covers, the three pictures should be the same size and in a straight line. UNC Mod Proposal 0440 – CSEPS Shrinkage Chris Warner – 10 th June 2013

2. 2 UNC Mod Proposal 0440 – CSEPS Shrinkage  Relevant provisions currently set out in LDZ CSEP NExA Annex A Part 9 “CS Shrinkage” and iGT UNC Part F - Daily and Annual quantities and Shrinkage  Obligation on CSOs/iGTs to estimate “CS Shrinkage Factor”and pass value to GDN together with assessment and detail sufficient that GDN can verify the basis of the estimate  Caveat provisions that Part 9 are undergoing further review and may require further amendment  Shrinkage Factors have never been received by GDNs since inception of CSEP NExA neither have provisions been reviewed  Reasonable to assume that issue not deemed to be significant within industry?

3. 3 CSEPS Shrinkage  Proposed Mod 0440 regime features new iGT Arrangements Document (ITAD). CSEP NExA rendered redundant  Lawyers creating relevant provisions. Part F provisionally ‘reserved’ for iGT shrinkage.  We need a decision on whether such a section should be included, and if so what would be included?  NGD’s opinion is that that the low materiality, issues and complexity of including arrangements suggest that CSEP Shrinkage can be discarded  NGD estimates that the total CSEP leakage is around 13 GWh p.a. across all networks assuming that the CSEP systems leak at the rate that NGD assumes for its PE pipes

4. 4 CSEPS Shrinkage  Likely to be an overestimate as NGD’s rates would nominally reflect pipe laid in the 1980s through to 2002/03 whereas the CSEP systems would have been laid from the mid 1990’s onwards with new jointing methods and a greater range of coiled pipe being available  Unlikely to be cost effective for iGTs to determine their own leakage rates. 13GWh of gas is currently worth about £325,000 (wholesale). Nine major iGTs, so this would be £36,000 per iGT  NGD’s Shrinkage procurement costs are of a similar order

5. 5 CSEPS Shrinkage  No real economies of scale with regard to reduced volume (if anything, the opposite would be true in that parties would be likely to obtain a better deal on a procurement service by trading a larger volume),  NGD believes it would cost as much for the iGTs to procure the gas as the gas itself is worth  An option would be for iGTs not to nominate (i.e. put no gas into the system at all) and simply cash-out at the end of each day. However, this could this mean that a customer on an iGT site would be likely to pay more for Shrinkage than a customer on a GDN’s network?

6. 6 CSEPS Shrinkage  Issue is for Shippers and iGTs to determine/agree on way forward – resolution required now  If it is determined CSEPS Shrinkage is needed there would need to be:  A Shrinkage proposals process (governance?)  Estimation of CSEPs Shrinkage for the coming year  A Shrinkage assessment and adjustment (post year)  Adjustment for ‘actual’ Shrinkage  Purely financial adjustment  Would require 13 x Shrinkage Quantities per iGT to be submitted to Xoserve each year (117 values)

7. 7 CSEPS Shrinkage  No incentive mechanism for iGTs to reduce CS Shrinkage  Costs would simply pass through to Users  Xoserve would need to process CS Shrinkage