UNC Modification Proposal Daily Metered Elective Action 005: User Pays Proposal Simon Trivella – 4 th November 2008 Development Work Group Millbank

Purpose Action from previous 0224 Development Work Group meeting Background to User Pays Overview of Mod 0213 (User Pays Governance Arrangements) User Pays Mod Proposal Guidance Document Apply principles to Mod 0224 WARNING – All above is Work in Progress

Background User Pays introduced through GDPCR & UNC Mod 0188 a)Code Services (contained within UNC / ACS) b)Non-Code Services (ACS / Framework Agreement / UPUG) UNC Mod 0213 – Governance Arrangements for User Pays a)Code Services only b)Amendments to Modification Process c)Production of User Pays Modification Proposal Guidance Document

UNC Mod Principal aims 1)Proposal states whether it is User Pays a)Introduces User Pays Services / User Pays Charges b)Changes User Pays Services / User Pays Charges 2)Proposal states how User Pays Service is to be funded a)Cost Types i.Analysis Costs (if any) ii.Development Costs (if any) iii.Ongoing Service (Transactional) Costs (if any)

UNC Mod Principal aims 2)Proposal states how User Pays Service to be funded b)Transporter / Shipper User split for each Cost Type (if different) c)Shipper User cost allocation for each Cost Type d)Analysis / Development Cost recovery period (if required) 3)Proposal gives supporting arguments in each case

UNC Mod Principal aims 4)Proposal discussed at appropriate industry forum a)Workstream, Development Work Group or Review Group 5)Transporters required to produce cost estimates a)Rough Order of Magnitude (ROM) i.Part of administrating the UNC process (funded via GDPCR) b)Detailed Cost Analysis i.Funded through appropriate User Pays mechanism

UNC Mod Principal aims 6)Cost estimates recorded in Draft / Final Modification Reports 7)Authority View can be sought on appropriateness of funding a)Uses current arrangements within Modification Rules b)Authority View on current Proposal only 8)Changes to the Modification Proposal pro-forma a)Additional sections to capture User Pays related information

UNC Mod Principal aims 9)Only applies to Mod Proposal raised after implementation a)Does not prevent User Pays Services / Charges being created b)ACS Amendments required to facilitate new Services / Charges c)Further Modification Proposal required 10) Provides for Agency Charging Statement (ACS) amendments a)Draft report on ACS amendments to be considered with FMR b)Indicative User Pays Charges to be reflected within ACS

Guidance Document 1)User Pays Modification Proposal Process Steps a)Guidance for all parties b)Process flow diagrams 2)ROM Analysis Document a)Cost breakdown b)Assumptions / issues

Guidance Document 3)Detailed Cost Analysis Document a)Evaluation Summary b)Key Business Requirements c)Implementation Timescales d)System impacts e)Firm costs f)Assumptions

Guidance Document 4)Costs Allocations a)Industry Cost Allocation Matrix (ICAM) i.Suggested percentage splits for Transporter / Shipper (25% basis) ii.Ability to align with benefits from furthering relevant objectives b)User Cost Allocation Matrix (UCAM) i.Practical examples ii.Targeting costs iii.Default arrangements provided for in ACS (industry ‘as-is’ cost)

Required ACS Amendments 1)User Pays Service for Analysis costs a)Non-Implemented Modifications b)Analysis costs ‘sanctioned’ by Modification Panel / UNCC c)Default ACS ‘industry’ cost recovery over [12] months 2)User Pays Service for Analysis and/or Development Costs a)Implemented Modification Proposals b)Possibility for multiple methodologies to reflect UCAM

Required ACS Amendments 3)Transactional Cost loading a)Incorporates Analysis / Development costs in Transactional Charge b)Targets costs appropriately (cost reflective) c)Recoverable over [x] months d)Potential to ‘skew’ Transactional Charges i.Barrier to service ‘take-up’ ii.Stranded Transporter costs

Required ACS Amendments 4)Methodology for Development / Transactional Cost Ratio a)Prevent prohibitive charges b)Transactional Charges to contain Analysis / Development costs i.Limited to an increase of [40%] in Transactional Charge ii.Limited to an ‘ceiling price’ (e.g. max Transactional Charge of [£100] ) iii.Set recovery period of [12] months iv.‘Stranded’ costs recovered in accordance with ACS default arrangements

Mod Proposal 0224 and User Pays RG175 ROM Analysis provided range of estimated costs Supply Point Number Core System Change Costs Offline System Replacement Costs Analysis Costs (included within Core Change Costs) Xoserve Direct Project Delivery Costs <25,000£270K - £395K£40K - £60K£40K£70K - £95K Supply Point Number Operational Costs per annum System Invoicing & Adjustment Capability <25,000£135K - £348K£40K - £60K

Mod Proposal 0224 and User Pays Cost Types (estimates) 1.Analysis Costs ~ £50k 2.Development Costs ~ £500k 3.Ongoing Service Costs ~ £450k p.a. Transporter / Shipper User Split of 0% : 100% Proposed recovery period of [12] months (not in 0224)

Mod Proposal 0224 and User Pays Ongoing Estimated Service Costs (full demand of 25,000) Total of £450k to be recovered £18 per supply point per annum [40%] increase in first 12 months for Development Costs = £25.20 p.a Potential for additional charges Additional services Service ‘misuse’ / cost targeting

Mod Proposal 0224 and User Pays Ongoing Estimated Service Costs (demand of 5,000) Total of £450k to be recovered £90 per supply point per annum [40%] increase in first 12 months for Development Costs = £126 p.a Potential for additional charges Additional services Service ‘misuse’ / cost targeting

Mod Proposal 0224 and User Pays Ongoing Estimated Service Costs (demand of 500) Total of £450k to be recovered £900 per supply point per annum [40%] increase in first 12 months for Development Costs = £1,260 p.a Costs may outweigh Benefits Analysis / Development Costs recovered in line with ACS

Mod Proposal 0224 and User Pays Analysis / Development Estimated Costs (any demand) £550k total cost Recovery over [12] months Reduction due to Transactional / Service Cost loading of [40%] £370k to be recovered LSP Supply Points (~450,000) = £0.82p per Supply Point All Supply Points (~24m) = £1.54p per 100 Supply Points Group of Shippers [4] = £92,500 per Shipper

Mod Proposal 0224 and User Pays Analysis / Development Estimated Costs Ceiling Price of [£100] for Service Costs Demand of <4,500 would cause under recovery All Analysis / Development Costs would be recovered separately

Mod Proposal 0224 and User Pays Analysis / Development Estimated Costs Ceiling Price of [£200] for Service Costs Demand of <2,250 would cause under recovery Demand of 25,000 All Analysis / Development costs recovered through Service Costs Ceiling not reached, Service Cost of £40 per Supply Point

Mod Proposal 0224 and User Pays Analysis / Development Estimated Costs Demand of 5,000 All Analysis / Development costs recovered through Service Costs Ceiling reached, Service Cost of £200 per Supply Point Demand of 3,000 Ceiling reached, Service Cost of £200 per Supply Point £150k of Analysis / Development costs recovered through Service Costs £400k of Analysis / Development costs to be recovered separately

Mod Proposal 0224 and User Pays Analysis Costs (Non-Implementation) As Proposal is pre 0213, analysis costs would not be recovered If recoverable under ACS, £50k over [12] months All Supply Points (~24m) = £0.21p per 100 Supply Points

Next Steps Modification Proposal 0213 to November Panel Request to go out to Consultation Guidance Document to be developed in parallel [DCA] to be produced for Mod 0224 Transporters to propose ACS amendments Transporters to raise further UNC Modification

UNC Modification Proposal Daily Metered Elective Action 005: User Pays Proposal Simon Trivella – 4 th November 2008 Development Work Group Millbank