DNPC07 Consultation on 100/0 Capacity/Commodity Split Denis Aitchison 26th April 2010

DNPC03 DNPC03, published in July 2007, changed the LDZ System Charges Capacity/Commodity split from 50:50 to 95:5 The 95:5 split was implemented on 1 October 2008 The 5% Commodity element was based on the cost of Shrinkage plus Odorant At the time the volume of Shrinkage was related to throughput,

Cost of Shrinkage Under the Price Control which started in April 2008 Shrinkage volume is fixed, and no longer related to throughput Therefore would be reasonable to treat cost of shrinkage as a fixed cost rather than a commodity cost and reflect it in capacity charges in the same way as other fixed costs Odorant only about 0.25% of DN costs therefore not worth having Commodity charge just for odorant on its own

DNPC07 Proposal It is proposed that the Capacity/Commodity split is changed to 100/0 Within the billing system the commodity charge type would be retained, but set to zero

Advantages of Proposal More cost-reflective than the current structure Reflects the change in the regulatory treatment of Shrinkage Would simplify the charging structure and remove the need for separate LDZ System Commodity Charge functions

Treatment of Interruptibles On the basis of implementation on 1 April 2011 it would be necessary to change the percentage of the Firm Capacity charge paid by Interruptibles from the current 47.37% to 50% This would maintain the discount to Interruptibles at its current level, on average This change would only be necessary for six months because on 1 October 2011 all supply points become Firm

Impact of Proposed Change Commodity element of the LDZ system charges is already small, so unlikely to be any large impacts on supply points General pattern is small increases, generally not exceeding 1.5%, for smaller supply points, and reductions for larger supply points. Detailed analysis by load band provided in the Consultation paper

Impact analysis by Network (1)

Impact analysis by Network (2)

Questions for Consultation Should the Capacity/Commodity split of the LDZ system charges be set to 100:0 Should the proportion of the LDZ Firm Capacity charge paid by Interruptible supply points be changed from 47.37% to 50% Should the change be implemented with effect from 1 April 2011

Next Steps Responses to the Consultation should be sent to enquiries@gasgovernance.co.uk to arrive by close of play on Friday 28th May 2010