1. DESC Action DE0301 & DE0302 (New Project Nexus Allocation Algorithm) 4th April 2012

2. 2 Project Nexus Allocation - Recap Project Nexus proposes move to universal Meter Point Reconciliation Also proposes replacing RbD with industry-wide energy smear –Allocation Scaling Adjustment –Reconciliation Scaling Adjustment Requires an improved allocation process to reduce cross-subsidies at point of allocation

3. 3 Status of Project Nexus Proposed new business rules baselined in Business Requirements Documents (on JO Website) Next step: Impact Assessment (led by PN UNC Workgroup) –High-level Shipper net benefits –Indicative Xoserve net benefits –Views on priorities –Possible Industry re-assessment Scope, timing, priorities Elements may be discarded/parked

4. 4 DESC activities - considerations Need to begin work on new Allocation Algorithm now –Avoids delaying PN implementation due to failure to develop and test solutions Risk that work is redundant/superseded by a change in scope of PN –Is DESC happy to run that risk?

5. 5 DESC Action DESC Action DE0301 : Project Nexus - New allocation algorithm: Option E – Xoserve to provide an example allocation formula DESC Action DE0302 : Project Nexus - New allocation algorithm: Options A and C – Shippers to provide an example allocation formula in respect of each Option.

6. 6 E.On Option A – Dynamic Daily Sampling After the Gas Day Sample Data Derive a “usage factor” for the day Standing Data e.g. AQ Apply to all sites in that “EUC” Repeat for all “EUCs” Perform LDZ smearing Stratify population, determine sample size, select sample Before the Gas Year

7. 7 DESC Action DE0302 Option A – Data Availability Discussion at last DESC meeting about access to Smart meter read data Xoserve reps on Smart Metering Implementation Programme (SMIP) confirm that GT has facility to obtain meter reads for its geographical area from DCC (central comms company) –Reads could be needed for load management or other obligations, e.g. Must Reads GT could set a scheduled 6am read on sample of meters –Data would be available promptly (minutes/hours)

8. 8 DESC Action DE0302 Option A – Example Allocation Formula On a day T in LDZ with n S daily read meters in a sample within a defined EUC Sum the metered demand on the day from the sample set. Take the ratio of this to the flat AQ S /365 amount for the sample Apply that ratio to the AQ EUC /365 for all sites in the EUC Sum all EUCs in the LDZ Apply an adjustment factor to the sum to make the aggregate match the measured throughput in the LDZ Where MD S is the validated metered demand for the sample on the gas day to be allocated Provided by Shippers Amended post- meeting LDZ AQ S Demand T LDZ = [Σ( AQ EUC x MD S ) + Demand 1 T + Demand 2 T ] x AF

9. 9 E.On Option C – No ALP Before the Gas Day Spring Analysis Develop Weather/ demand coefficients e.g. AQ, WSens Apply coefficients to AQ/365 and actual weather Repeat for all “EUCs” Perform LDZ smearing Standing Data Actual weather After the Gas Day Weather factors e.g. temp, wind, rain, sunlight

10. 10 DESC Action DE0302 Option C – Example Allocation Formula On a day T of type WD in an LDZ for n EUCs Where A = (e.g.) Temperature in °C B = (e.g.) windspeed in m/s C = (e.g.) rainfall in mm D = (e.g.) Solar radiation in [units] Etc… Provided by Shippers Amended post- meeting

11. 11 DESC Action DE0302 Option C – Allocation Formula – Notes These variables suggested above should not be taken as exclusive and may include economic factors (e.g. average disposable household monthly income, weighted retail gas cost, consumer confidence). The terms for extended for more than day T-1; i.e. this may extend to T-2, T-3… for as long as an influence is shown significant. WD may be classed as e.g. weekday, weekend, bank holiday, “holiday period”. These groupings should be derived through analysis of demand responses. a, b, c and d are regression derived powers for a given EUC behaviour α, β, γ, δ are regression derived constants for a given EUC behaviour on a day type WD. The terms of (e.g.) may have maximums or minimums derived. K is a constant for a given EUC behaviour AQEU is the annual quantity of gas consumed for an End User. Demand 1 and 2 is the daily read demand for category 1 and 2 meters on day T. AF is the adjustment factor to make the sum of EUC models match the LDZ measured input on day T Provided by Shippers Amended post- meeting

12. 12 Option E – Xoserve Proposal Before the Gas Day Spring Analysis Develop CWV Weather Sens data CWV e.g. AQ, ALP, WSens Estimate Demand Repeat for all “EUCs” Perform LDZ smearing Standing Data Actual CWV After the Gas Day

13. 13 DESC Action DE0301 Option E – Example Allocation Formula SPD t = ((AQ/365) * ALP t * (1 + (DAF t * WCF t ) )* SF t WCF = CWV t - SNCWV t DAF t = WSENS t / SND t (from the EUC Model) Demand Formula Weather Correction Factor Formula Daily Adjustment Factor Formula SF = Total LDZ Actual Demand Total Supply Point Actuals + Estimates Scaling Factor Formula

14. 14 DESC Action DE0301 Option E – Allocation Formula Potential Constraints required in formula –Minimum value for (1 + (DAF t * WCF t ) ) clause Prevents negative overall allocation Could use current minimum value of 0.01 –Maximum value for DAF Set max DAF as 0 – i.e. no increase in demand for warmer weather?

15. 15 DESC Action DE0301 Option E – Format of DAF – options Option 1 –as per previous slide – DAF taken straight from Model – WSENS/SND –Outcome is negative – max value 0 –Preferred option – calculation most simple Option 2 –not shown – DAF converted to +ve value: WSENS/SND x -1 –WCF formula reversed: SNCWV – CWV –Clause outcome unchanged –Alternative option if Shipper/Xoserve systems cannot accommodate –ve DAF values

16. 16 DESC Action DE0301 Option E – Worked Examples

17. Appendix – Principles and Success Criteria

18. 18 Project Nexus New Allocation Algorithm - Principles The following represents a draft set of principles, as discussed at the December 2012 DESC meeting, which should be applied by DESC when considering options for a new allocation algorithm Final methodology selected should…. –be transparent to all Users and Transporters –be future-proof – i.e. calculation is as robust during roll-out as it is in a fully smart world –be evidence-based using statistical measures agreed by DESC –still require the need for a ‘Scaling Factor’ of some description to ensure all parties contribute to ‘unaccounted for’ gas –aim to ensure all sectors are treated equally and not unfairly disadvantaged –ensure outcomes from Nominations and Allocations process are consistent or more consistent with each other –be efficient in terms of costs and benefits realised

19. 19 Project Nexus New Allocation Algorithm – Principles – Success Criteria The following represents a set of updated success criteria to be referred to by DESC when finalising views on a new allocation algorithm –Allocation process results in the same or better accuracy in apportionment of energy across sectors thus reducing levels of reconciliation compared to current regime –Day ahead gas Nominations are as accurate or more accurate for NDM sector –Supported by majority of Users and Transporters within the industry –Solution developed within a reasonable time scale to support Project Nexus –New process still supports other industry processes, e.g. AQ and SOQ derivation