Shrinkage Forum Tuesday 8 March 2011, 31 Homer Road

2 Agenda  1.0 Introduction  2.0 Review of Minutes and Actions from previous meeting (08 March 2007)  3.0 Incentive Regimes – DN Presentation  4.0 Leakage Model – DN Presentation  5.0 Shrinkage Proposal Process – DN Presentation  6.0 Theft of Gas – Open Discussion  7.0 Any Other Business  8.0 Diary Planning  Agree agenda items and actions for next meeting

Incentive Regimes

4 Incentive Regimes - Shrinkage  Shrinkage Incentive - Special Condition E8  Target volume baselines by LDZ  Incentive – reduce shrinkage volumes  Performance ‘valued’ at day-ahead gas price  Incentive – procure gas cheaper than day-ahead price  No cap or collar  Performance has a direct impact on DN costs and leads to a better distribution of costs under RbD

5 Incentive Regimes - Environment  Environmental Emissions Incentive – Special Condition E9  Target volume baselines by LDZ  Incentive – reduce leakage volumes  Performance ‘valued’ at social cost of carbon  10% cap and collar regime  Performance has a direct impact on DN revenue

Leakage Model

7  Methodology developed in the early 1990s  Currently a spreadsheet model  ‘Controlled’ by Special Condition E9 in Gas Transporter Licences  Five main elements  LP Leakage  MP Leakage  AGI Leakage  AGI Venting  Interference Damage

8 Leakage Model E9 Obligations  The Leakage Model shall facilitate the achievement of the following objectives –  The accurate calculation and reporting of gas leakage  Being consistent with, and where reasonably practicable, identical to Leakage Models used by other DN Operators.  Report the actual leakage volume (LVt,i) together with any new information obtained by the licensee regarding leakage rates, including data derived from leakage tests.  Annually review the Leakage Model to ensure that it continues to achieve the objectives and  Consult with shippers and other interested parties to seek their views  Propose such modifications (if any) as are necessary for the purpose of better achieving the objectives.

9 Leakage Model E9 Modification Process  Propose revised baselines  Consult with the industry  Appoint an ‘Independent Expert’ to review and report on the proposal  Submit report on the consultation to Ofgem  Implement the modification if approved by Ofgem

10 Leakage Model Elements & Main Input Parameters  LP Leakage  Pipe Asset  No. Services & Replacement  Average System Pressure  MEG Saturation  MP Leakage  Pipe Asset  AGI Leakage  Asset Numbers  AGI Venting  ‘Fixed’  Interference  Number of incidents  Reportable incidents

11 Low Pressure Leakage Model  Approximately 80% of all leakage  Leakage rates for 11 diameter/material bands, based on a national survey carried out in 2002/03  > 2000 low pressure networks nationally  Average System Pressure - determined via recorded source pressure data and network analysis  MEG Saturation (where used) – determined from recorded data and network analysis  Pipe asset lengths (replacement of metallic mains has greatest impact)  No. of services

12 Medium Pressure Leakage Model  Approximately 8% of all leakage  Calculated at LDZ level  Pipe asset lengths

13 AGI Leakage Model  Approximately 7% of all leakage  Calculated at LDZ level  5 leakage rates for AGI asset types, based on a national survey carried out in 2002/03:  Holders  NTS Offtakes  LTS Offtakes  District Governors  Service Governors

14 AGI Venting Model  Approximately 5% of all leakage  Fixed values based on a national value from the 2002/03 AGI leakage test report apportioned by relative number of ‘venting’ AGI asset at time of Network Sales

15 Interference Damage Model  Approximately <0.5% of all leakage  Based on:  >500kg release incidents  Actual release value where recorded/estimated  Number other recorded incidents  Split by LP/MP (95/5)  Split by Puncture/Fracture (50/50)  Assumed leakage rates and response/fix times

Shrinkage Proposal Process

17 Shrinkage Proposal Process

Theft of Gas Open Discussion