1. 1 Performance Assurance Workgroup January 2014 A proposal by Xoserve for a Performance Assurance methodology

2. 2 Questions to aid understanding of the proposal will be taken during the presentation Questions / discussions regarding the principle of the proposal will be taken at the end of the presentation Please be aware that……..

3. Background to Xoserve’s proposal Xoserve has attended a number of the PAF workgroup meetings and has studied the documentation published on the Joint Office website. From our assessment we have developed what we believe to be the requirements of a performance assurance methodology and have developed a trial model using live data Xoserve’s approach has been to assess the requirement, to determine what needs to be measured, to define what needs to be reported, to monitor industry performance Xoserve has not, as will be seen, made any suggestions for a target setting or incentive scheme – the industry is best placed to do this. 3

4. Definitions In this proposal the following terms are used: –Methodology means the system, data, formulas and analysis to measure and monitor industry performance at participant level –Scheme means overall framework incorporating the Methodology and any performance regime (targets, incentives, rewards, penalties etc.) and management activity Xoserve is proposing a Methodology The industry is responsible for developing a Scheme 4

5. A Scheme A Scheme can comprise: –The goal and objectives (what is to be achieved) –Key performance indicators (risk assessment) –Targets –Incentive regime –Methodology to assess and / or predict performance against target* –Output from the methodology and supporting evidence* –Reporting* –Organisation structure of the Scheme –Mechanisms for penalty / reward and the exchange of money, if appropriate –Scheme review events 5 * Items within scope of Xoserve’s proposal

6. Xoserve proposal The proposed Methodology applies to pre and post Mod 432 arrangements and can be implemented quickly. The proposal allows for refinement of the Methodology as more information and experience becomes available. Xoserve considers the Scheme is an evolutionary development whereby initial rules are naturally subject to review and enhancement. 6

7. Goal The industry requirements are stated in many different ways. Xoserve considers the requirements can be summed up as: Goal: A demonstrably effective settlement regime for the gas industry where no one party adversely impacts another party as a result of its failure to operate to the defined effective settlement regime 7

8. Objectives Objectives to meet the goal: –To define what is meant by “settlement regime” and to identify the factors behind its effectiveness –To determine what data needs to be measured to determine performance –To delivery the necessary Methodology (data and analysis) to enable the Scheme to work –To provide performance (and other) reporting for the Scheme –To enable evolution of the Methodology and Scheme as knowledge and understanding increase –To develop an overarching Scheme (an industry activity) 8

9. What do we mean by settlement regime? Settlement encompasses the allocation of energy and its subsequent reconciliation to actual usage by meter point. All energy is allocated each day either by actual read* (daily read sites) or by an allocation routine (NDM sites). After the day for LSP supply points the allocated energy is reconciled to actual usage and for SSP currently no individual reconciliation is performed the RbD process is applied. So for the purpose of the Methodology, settlement regime means the allocation and subsequent reconciliation of energy at meter point level. *Note: whilst an actual daily read is provided this is derived from a datalogger which can “drift” from the actual volume of energy passing through the meter, this point is addressed later. 9

10. Goal So in our goal we have defined “settlement regime”: A demonstrably effective settlement regime for the gas industry where no one party adversely impacts another party as a result of its failure to operate to the defined effective settlement regime Now we need to consider what we mean by effective and the factors that determine effectiveness 10

11. Effectiveness The two factors that define the settlement regime are Allocation and Reconciliation. The basis of the operation of these is: Allocation is based upon AQ (for NDM meter, reads for DM meters) Reconciliation is based upon read Effectiveness is determined by the quality of the AQ for Allocation and the timeliness of the read for Reconciliation. The quality of the AQ is ultimately dependent upon the frequency and accuracy of the meter read submission. So we have our primary determinant of effectiveness – Meter Read – frequency and accuracy - the secondary determinants are covered later 11

12. Effectiveness We can now work on the word “effective” which will lead us towards some of the objectives to achieve the goal Effective is an AQ (forecast) that closely matches the sites usage (actual) Effective is a prompt reconciliation of allocated to actual energy With our Primary determinant of effectiveness – Meter Reads – we can now say: Effectiveness is determined by the frequency of the Meter Read in accordance to the site’s meter reading read requirement (daily metered, monthly, six- monthly, annual) which is a function of the site’s Class, AQ and Shipper choice 12

13. Read is the primary measure of effectiveness 13 Meter Read FrequencyNumber of Meter PointsApprox. total AQ (kwhrs) DailyFewer than 160085,000,000,000 MonthlyBetween 100,000 and 140,000100,000,000,000 Six MonthlyBetween 8m and 12m160,000,000,000 AnnuallyBetween 8m and 12m165,000,000,000 TotalApprox. 21,800,000510,000,000,000

14. Goal So in our goal: We now have: A demonstrably effective settlement regime for the gas industry where no one party adversely impacts another party as a result of its failure to operate to the defined effective settlement regime Now we have to work on demonstrating each Shipper’s performance against the primary effectiveness measure of meter reads i.e. the start of the Methodology development 14

15. Methodology Xoserve’s proposal is to: -Monitor, at individual meter point level, read performance against read requirement (as currently defined in UNC) -report on performance over the relevant period -provide trends in historical performance -provide forecast reports of potential future performance to enable parties to act before it is too late Targets are not suggested here as that is a matter for the Scheme 15

16. Methodology Monitoring will be at individual meter point level. The read requirement is known for each meter point – daily, monthly, six monthly and annually Therefore for any historical or current period [month] performance can be measured For future periods the number of meters for which a read is required or can be expected can be assessed, and Shipper performance predicted 16

17. Energy impact Using the AQ it is possible to use the outstanding (but within target period) and / or overdue reads and associated AQ values to assess the extent of the unreconciled energy and therefore the risk created by each Shipper for the industry at any point in time. This can be further refined by an assessment of shippers average reconciliation variance (the difference between actual and allocated energy) 17

18. Performance measurement The reporting of performance is straight forward, The performance targets can be set, performance against targets measured and reported. Note that Scheme targets need to be absolute so X% of meters to be read within Y period and 100% of meters to be read within Z period. If any target does not reach 100% this will not lead to an effective settlement regime. 18

19. Forecast performance Forecast performance reports can be prepared to highlight potential future performance issues. Allowing action to be taken to prevent potential future performance failure against the Scheme targets. Each Shipper can be advised of their forthcoming read requirement (although Shippers probably already do this better than Xoserve can as Xoserve’s analysis is based on UNC rules and shippers often exceed this minimum requirement). Xoserve can track a rolling historical performance and forecast future performance based on this – is a shipper performing better or worse month on month. What is the individual performance forecast compared to the industry target. What performance trend is the Shipper exhibiting 19

20. Example of read targets, performance and forecast performance 20 For the purpose of the next few slides the following apply: –The meter read frequency is monthly –The number of meters (and hence reads) varies month on month –The example target performance is 80% of sites to be read in the required month, the remaining 20% to be read by month +2.

21. 21 JanFebMarAprMayJunJul Total Number Of Reads Reqd For January This slide shows the total number of meters required to be read in January by the Shipper. The example target is 80% of meters are to be read in January, 100% of meters are to be read by month +2 i.e. the end of March (as shown by the dashed lines) Performance monitoring – current and future

22. 22 JanFebMarAprMayJunJul This slide shows the actual read performance for the Shipper as measured in mid-February – this is the green line (above the dashed target line). It will be known at this time if read submission performance has met the 80% target Performance monitoring – current and future

23. 23 JanFebMarAprMayJunJul This slide shows the read performance as measured in mid-April – this is the green line. It will be known at this time if read submission has met the 100% target (as shown by the dashed line). In this example 100% of reads were read within January + 2 month target Performance monitoring – current and future

24. 24 JanFebMarAprMayJunJul This is the previous slide but without including the number of reads required, it simply shows the January performance line against the reads required in January Performance monitoring – current and future

25. 25 JanFebMarAprMayJunJul This slide shows the January, February, March and April performance lines. Green indicates the target has been met – 80% in target month and / or 100% by month +2. Red dashed line indicates any of the targets that have not been met Performance monitoring – current and future

26. 26 JanFebMarAprMayJunJul In this example the shipper has failed to achieve every target – 80% within the month and 100% within month + 2 (red dashed line). The extent of future failure of performance can be assessed and reported. Forecast information will be available on a rolling basis – period to be determined, as required. Performance forecasting

27. Goal So in our goal we now have: A demonstrably effective settlement regime for the gas industry where no one party adversely impacts another party as a result of its failure to operate to the defined effective settlement regime Next is to look at the secondary determinants of an effective settlement regime 27

28. Secondary determinants of an effective settlement regime These topics are reporting on current position, there may be a requirement to establish performance targets. Confirmed no asset – gas is being allocated on the opening AQ of the meter point but is not being reconciled. The AQ is not be maintained in line with consumption DM Datalogger resync performance against target. Check reads should occur every 12 months. If required the kit is resynchronised and a reconciliation processed. 28

29. Secondary determinants of an effective settlement regime RGMA file rejections – rejections mean an asset record may not be correct and therefore reads will not load. The meter point but is not being reconciled. The AQ is not be maintained in line with consumption. Retro update facility usage – may suggest shippers are not maintaining correct data in a timely manner Meters flagged as faulty – gas is being allocated based upon the current AQ, reads are not being provided the meter point but is not being reconciled. The AQ is not be maintained in line with consumption Read rejections 29

30. Goal Now to look at our goal A demonstrably effective settlement regime for the gas industry where no one party adversely impacts another party as a result of its failure to operate to the defined effective settlement regime Xoserve’s proposal goes as far as providing the Methodology. To complete the goal the industry may now want to consider how to develop the remaining elements (the Scheme). 30

31. Other topics that impact settlement and may be included in a regime Unregistered sites Shipperless sites Gas theft (Note: several initiatives are already underway to address these topics) 31

32. Pre Mod 432 methodology The Methodology proposed so far needs the addition of further activities to be monitored. Read submission monitoring can be provided for all meter points (as described) In addition there is a need to monitor: – USRV performance in a more risk assessed manner – Request For Adjustment queries – Consumption Dispute queries AQ review – performance is already monitored and reported but needs some refinement. 32

33. Xoserve’s proposal Methodology works at meter point level, no meter avoids the performance measurement Does not require any UNC or other governance to permit use of the data – Xoserve already holds the industry data Short development time for the Methodology Requires funding, simplest to use the Code User Pays mechanism Makes use of the central industry service provider (Ofgem aspiration Xoserve are used more by the wider industry) 33

34. Xoserve’s proposal Can be implemented now, allowing time for evolution of the Methodology prior to 432 implementation Enables the Scheme to be developed and tested using real data and real results to enable agreed performance targets Create the opportunity for a “soft landing” between now and 432 implementation Allows time for any unintended consequences or perverse incentives to surface and be resolved before 432 implementation 34

35. Example timeline 35 Dotted line indicates tasks that could run in parallel

36. Questions –Firstly on understanding of the proposal –Secondly on the principle of the proposal 36