Industry Dialogue on xoserve Services 14 th September 2007

Five Key Areas Covered by Workgroup  Features of xoserve’s Systems  Cost Requirements  xoserve Funding Arrangements  Service Standards  Governance

Conclusions & Recommendations  UK Link Replacement  Shippers considered that they would not be in a position to assess the reasonableness of costs  Fund the high level features as agreed by the workgroup via traditional price control allowances, efficient costs established by Ofgem  Undertake more extensive consultation prior to 2010  Utilise a mechanism for funding any agreed additional regime changes

Conclusions & Recommendations  Ongoing Change  Recognised importance of funding ongoing change so that barriers are not created to the further development of the commercial regime  If transporters are not allowed revenue at the start of the price control period, then a mechanism is required to recover incremental costs from users  Standards of Service  No change proposed

Conclusions & Recommendations  User Pays Services  Workgroup developed a more detailed understanding of the governance and charging framework required, however recognised that significant additional development work will be required  Concerns that additional complexity and cost of introducing transaction charges may outweigh the benefits  Workgroup recommended an impact assessment accompanies any proposal to introduce user pays charges

What Has Happened Since Then?  UK Link Replacement  Meetings planned for later this year  Ongoing Change  Little progress  User Pays Services  Ofgem requested information to feed into an impact assessment  GDPCR Initial Proposals published  Ofgem requested service line cost information from transporters/xoserve as part of PCR process  Draft changes to GT licence conditions  Further thoughts on framework

User Pays for Existing Services  Key Features of GT Licence Changes  Charges derived from user pays services will be treated as excluded revenues  A joint Agency Charging Statement, detailing the methodology for deriving user pays charges, the charges and the scope of core services and user pays services  Ofgem will have the right to not approve the charging statement  Charges should, as far as reasonably practicable, reflect the costs in providing the service and shall not unduly discriminate  “The licence drafting will develop once there is further visibility of the proposals”

LicenceGTASAAgency user UNC Contract LicenceGTASAAgency user Obligations to Service Provision Service Provided on Behalf Flow of Revenue Framework

Other Considerations  Users would generally be shippers, but could also be other parties, eg MAMs, end users, Energywatch, traders  No changes planned to the services delivered  At commencement of regime, user pays services will be broadly similar for all users requiring the service  Where the nature of user pays services are defined in existing governance regimes, they could remain within those regimes  Existing arrangements for users to obtain bespoke services will continue

User Pays Services  Provision of Information  Reporting  User Admission  Must Reads  AQ Amendments & Appeals  Shipper Agreed Reads

What Needs to be Put in Place?  Refinement of Framework  Confirmation of Service Lines  Transporter Licence Conditions  UNC Modification  Agency Charging Statement  Contracts between xoserve and users  Invoicing and Cash Collection Processes

Draft High Level Timeline SEPOCTNOVDECJAN 08 FEBMARAPR User Pays Implementation Discussions MAY 01/04/08 – Start of Formula Year 24/09/07 – Ofgem – Updated Proposals Published Joint Agency Charging Statement Publication 12/07 – Ofgem – Final Proposals Published 21/02/08 – Panel - Issue Recommendation 20/12/07 – Panel Issue for Consultation Agency Framework Agreement Draft +28 days

Agency Change Funding Model Further Relevant Objectives ? Partial MOD xoserve GT Pay (Class 2) GT & Users Share Costs (Class 3 & 2 Mixed) No No MOD User pays if wanted Use Assets for Regulated Services? Yes Report and Share Benefit Continue No Degree to Which Furthers Relevant Objectives and Doesn’t Meet User Pays Criteria ? Fully To some extent Change

Next Steps Proposal  Establish an implementation group with two key objectives:  Implementation of user pays for a limited set of existing Agency services, to operate from 1 st April  Development of a proposal for the application of user pays to ongoing change. To be completed by 31 st March 2008.