Modification Proposal 115 – ‘Correct
Apportionment of NDM Error’
Contents
•
•
•
•
•
Process Walkthrough
Overview of Measurement Issues & Incentives
Reconciliation
EUC charging bands
Next steps
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End to End Process Walkthrough
1
2
3, 4
5
6
7
Supplier
Inputs
• Throughout the supply chain there are a number of areas where
inaccurate measurement can occur.
1.
2.
3.
4.
5.
6.
7.
LDZ Off-take metering
System leakage
End user Theft
Unregistered sites
Supply point metering
Supplier inputs e.g. AQ Review process
Deeming algorithms
3
Overview of Measurement Issues and
Incentives
Potential
Measurement Issue
Measurement
risk borne by
SSP sector
Evidence of
Measurement
more prevalent in
SSP sector
Incentives
LDZ Off-take Metering
Yes
No
Incentive on GDNO’s to
gain reward by maximising
throughput.
System Leakage
Yes
No
Shrinkage cost incentive
on GDNO’s. Rewards
under estimation of
shrinkage methodology.
End User Theft
Yes
No
Perverse incentive on LSP
shippers. Penalises
detection of theft.
Unregistered Sites
Yes
No
No incentive upon LSP
Shippers to identify
unregistered sites.
Supply Point Metering
Yes
No
There are stronger
incentives on SSP
shippers.
Supplier Inputs
e.g. AQ Review
process
Yes
No
Greater perverse
incentives on LSP shippers
to use inappropriate
behaviours.
Deeming Algorithms
Yes
No
4
Reconciliation
• The normal effect of a reconciliation is to correct a discrepancy
between deemed energy (derived from AQ’s) and actual usage
(derived from meter readings).
• The net effect of LSP NDM reconciliations over the past 9 years
have consistently resulted in net debits to RbD. Figures relating to
last three years are:
• 2006 13.62 TWH
• 2005 11.03 TWH
• 2004 11.80 TWH
• This supports a view that there is a tendency for AQ’s to be over
deemed.
• There are NO known reasons why SSP AQ’s would not be at least as
over deemed as LSP AQ’s
• There is however stronger incentives on the SSP sector to prevent
under deeming – because of the RbD mechanism itself
• There is no evidence of any under deeming of AQ’s in the SSP sector
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Reconciliation (continued)
• The effect of a reconciliation to the SSP sector should be the
application of a credit and not a charge.
• The RbD charge is a consequence of the various measurement
deficiencies described earlier.
• The output from Domestic Monitor Panel, suggested that for gas
years 2002/3, 2003/4 and 2004/5 there was c500 kwh per customer
verification variance. This equates to c2.5% to 3% of underlying
unverified SSP volumes being allocated each year.
• This is consistent with the results of our own analysis which we have
undertaken internally.
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Key Messages
•
Throughout the supply chain there are multiple potential measurement
failure points.
•
The consequences of such measurement failures are borne by the SSP
sector.
•
There is no reason why the SSP sector should bear any more risk or reward
than the LSP sector.
•
There are numerous perverse incentives prevalent in the current
arrangements.
•
There is no evidence whatsoever that the outcome of any SSP
reconciliations would result in the application of a charge to the SSP sector.
•
On the contrary, DMP data, market sector analysis and extensive Centrica
portfolio analysis all support the view that RbD should be borne equally by
both the LSP and SSP sector.
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EUC Charging Bands
•
Transportation charges comprise a comparatively small proportion of the
charges associated with RbD
•
Three options where considered viable and analysis was undertaken, for
the application of these charges to the LSP sector:
1. Charge all sectors the same rate (i.e. SSP charge)
• This would have be consistent with the application of charges under the
Mod 640 mechanism
• All sectors would receive equal treatment
2. Charge the LSP sector an average of all SSP and LSP charging rates
3. Charge the LSP sector an average of all LSP charging rates
• Initial analysis suggested that the vast majority of the LSP market
would receive a rate equal or lower than it’s average charge rate.
• Centricas initial preference is for option (1) but is prepared to support either
of the 3 options should a clear preference from the group exist.
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Next Steps
• Completion of Workstream Report at March Distribution
Workstream.
• Provision of Workstream Report to April Modification
Panel for consideration and issue for consultation.
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