Mod 0194Presentation on the conclusions reached by British Gas

Nick Wye

On behalf of the I&C Group

Introduction RbD was introduced in 1998

Main drivers behind its introduction include:

• Permit roll-out of domestic supply competition

• Recognise the infrequency of domestic reads to permit dynamic

meter point reconciliation

• Overcome the exponential increase in workload for all parties

• Significant impact on systems for all parties

• Costs of requiring individual meter point reconciliation would

outweigh the benefits

The mechanics of RbD is well understood by the Group and we do not

intend to cover this

Review of the performance of RbD

Verification analysis performed by xoserve cross-checks the performance of RbD against a small sample of read domestic meters

Analysis is presented to industry and has been presented on the 0194 Group

The outputs of the findings from this analysis forms the basis of the British Gas proposals

On a national level the confidence level attributed to the analysis is 1.3% based on 5,000 sites

Data sampling to support validation Domestic Monitor Panel provide weekly reads

• Sample size currently @5000 customers Data recorders used for demand estimation not currently used

• Sample size currently @3400 customers

Combined use of samples would give a confidence level of 1.06%

In our view data recorders provide more representative sample data than the DMP• DMP requires active participation on the part of the consumer. • Active involvement ensures that customers will closely monitor

consumption and are more likely to seek to employ energy saving measures. (note AMR evidence later)

• Anectodal evidence from British Gas that contributors to the sample are likely to be from a limited social banding, which may produce a systematic bias.

Declining DMP Sample Size: Data Recorders

Identify billed values and actual value for recorders (replicate DMP analysis) Data recorder analysis shows a different trend to DMP DMP indicates SSP Billed >Actual (over): DR indicates SSP Billed < Actual (under) Further investigation required, data available May

Cumulative Billed & Actual Consumption per Customer Using I&C Rec Data - Weighted to Domestic Portfolio - National

October 2005 to July 2007

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Cumulative Billed, Actual & Difference (Billed-Actual) Per DR Customer

RbD Verification Analysis

• Analysis period reflective of MOD152V timescales (Apr-04 to Mar-08)

• Trend – avg. cumulative over bill per DMP customer of 1,293 kWh for the period (323 / year)

• BUT: Recent trend indicates an under bill per SSP customer (cumulative difference)

• Pending analysis and receipt of further reconciliation and DMP data (up to 6 months)

Per DMP Customer: Cumulative Billed, Actual & Difference (Billed-Actual)

April 2004 to March 2008Using I&C Rec Data - Weighted to Domestic Portfolio - National

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Validation findings

LDZ

March 2008 (>Apr04) September 07 (>Oct 03) February 2007 (>Feb98)

Current Balance

Summary No Return

Summary Yet To Flow

Remaining Balance

% of Throughput

Remaining Balance

% of Throughput

Remaining Balance

% of Throughput

EA 2.86 2.37 0.23 0.29 0.24% 0.34 0.27% 2.66 0.93%

EM 2.88 -0.40 0.28 2.99 1.91% 3.75 2.29% 3.35 0.89%

NE 2.72 0.83 0.21 1.68 1.73% 1.58 1.57% 3.15 1.37%

NO 0.16 0.62 0.14 -0.60 -0.70% -0.52 -0.58% -0.38 -0.19%

NT 2.43 -1.92 0.52 3.83 2.45% 4.71 2.91% 13.00 3.50%

NW 3.89 0.83 0.32 2.75 1.43% 3.43 1.72% 4.90 1.07%

SC 2.66 0.41 0.18 2.07 1.61% 1.84 1.38% 2.78 0.91%

SE 0.08 -0.64 0.36 -0.36 0.21% 2.36 1.33% 7.60 1.87%

SO 3.96 3.89 0.17 -0.11 -0.10% -0.19 -0.17% 3.76 1.49%

SW 0.38 0.55 0.14 -0.32 -0.37% 0.07 0.08% 1.01 0.48%

WM 1.46 0.11 0.28 1.07 0.78% 2.20 1.55% 2.19 0.67%

WN 1.86 1.45 0.04 0.36 2.29% 0.24 1.47% 1.84 4.92%

WS 1.09 0.34 0.09 0.66 1.12% 1.19 1.99% 2.08 1.51%

Wales 3.06 1.79 0.14 1.13 0.8% 5.57 3.70% 5.41 1.6%

Total 27.28 8.56 2.97 15.76 1.04% 21.64 1.38% 47.30 1.31%

Sampling Errors

Current DMP sample size of 5,094 has an error of 1.37% as provided by xoserve

The average of last 4 years throughput as provided by xoserve in RbD April 08 sub-group is 379TWh. From 2007 10Yr Statement demand for 2006 is 383TWh

Using a 95% confidence test around the true mean with a 1.37% error this would provide a range of +/- 5.2TWh

If we assumed 15.76TWh is equally apportioned across all years then this provides an average of 3.94TWh/year

This is within the sampling error range If we assume 15.76TWh per year then 10.4TWh can be associated

with sampling error

RbD Overview - Conclusions

Concerns over validation sampling

• Sample too small and inherent bias?

• Data recorders more accurate Level of error in the sampling is significant Recent trend of SSP being underbilled

• Suggests LSP market being overbilled

o High Prices

o Economic factors e.g. downturn, exch. rates, credit crunch

o Better informed customers e.g. AMR technology (now supported by BERR)

o Government environmental policy e.g. carbon abatement and efficiency plans

In relative terms are LSPs reducing consumption at a faster rate than SSPs? Is it clear that RbD is not working/reflective of actual consumptions?

• RbD provides a robust reapportionment process?

• Not clear that “theft” is a correct balancing factor

Apportioning Energy

I&C should be exposed to some costs if it can be established that the benefits of doing so outweigh the costs

• Costs should include direct costs associated with implementation; indirect costs associated with absorbing financial uncertainty within varying portfolios; opportunity costs of associated with operating individual meter point reconciliation and effectively RbD.

As a general rule we are not convinced that % allocations are reasonable as there is no clear linkage between RbD volume and volume of incidents

To assume a correlation between the level of the RbD smear and the % attributed to each issue will not properly target costs between sectors. It is our view that this will discriminate against I&C as there are far fewer supply points. This is particularly true in the cases of:

• Late confirmations

• IGTs The above are supply point driven and the relative volumes per supply point in the

NDM are significant when compared to domestics.

IGT allocation

Overly simplistic methodology

• British Gas propose a total share of 7.14% i.e. Based on a % share of the RbD smear

• Shares of 88%SSP and 12%LSP based on relative throughput

• This assumes that “issues” are equally shared between the sectors

Anecdotal evidence suggests

• AQs provided by UIP for I&C tend to be initially oversized

o Due to uncertainty of offtake size and need to ensure network can support load

• Typically I&C AQs are 6% higher than consumption

o Based on evidence

Late Confirmations/Shipperless sites

Data from xoserve is “real”, however, issues with application• Invalid to apportion on the basis of a % for reasons established before i.e. no

correlation between RbD smear and number of late confirms etc...• Not cost reflective

Orphaned sites based on real evidence – I&C should contribute• But assumption that gas is being consumed with reference to AQ on “Not yet

confirmed (i.e. Unregistered sites)” Non-orphaned sites it is assumed that gas is being consumed in accordance with AQ.

Therefore, it is likely that the volume apportioned is excessive• AQs are likely to be overstated• Site works tend to take longer than domestic, sites may not be connected

Xoserve should do further investigations into “unoccupied sites” to determine whether deemed AQs are reflective of consumption

• Could be done on a sample basis Magnitude of problem associated with “0152 sites” i.e those sites which have not been

confirmed for 4-5 years?• Is this significant?

Theft British Gas approach is to use a weighted average of detection rates and

allegations• We fail to see any clear relationship between this measure and undetected

theft• I&C is more likely to detect theft due to frequency of reading and site visits• Use of weighted AQ allegations is highly questionable as they do not relate to

actual theft and more likely to be skewed by a small number of higher volume sites

• We see more credence in using valid detections as a benchmark British Gas assumes that Theft provides the “balancing factor”

• This is highly questionable as it assumes that there is no sampling error and that all of the other issues are correctly allocated their “share” of the RbD pot

We believe that the introduction of AMR will have a real impact on theft detection. This is not recognised in the proposals

The proposed split is based on assumptions which are likely to discriminate against I&C sector

Shrinkage and Other

Again similar issues concerning apportionment

Shrinkage is throughput related, no relation to RbD smear

“Other” category is not defined and we are unable to comment on the proposal• Understand that this will probably be removed

Other issues

AQ issues

• I&C AQs are potentially too high, particularly in recent times due to numerous reasons

o See points raised previously concerning economic climate etc.. and IGT overstatement

• AMR sites evidence suggests over 10% immediate reduction in annual consumption

o AMR AQ overstated and will increase market share

• Domestic AQs are overstated, but possibly not as much as I&C (it is the relative change which is important)

• Results of 2007 AQ review, xoserve reported that 4m domestic AQ results failed to recalculate. Are they accurate?

Should also note

• Confidence in demand estimation profiles?

• Recognition that AQ process needs improving e.g. Mod 209

• Implementation of Mod 204 to improve calculation of WCF in response to concerns over initial allocations

Conclusions

RbD brings significant benefits to domestic shippers primarily through cost savings against individual meter point reconciliation

Cost savings are not shared by I&C players which must continue with individual meter point reconciliation

It is not clear due to sampling that there is a misallocation of energy• Sampling error is greater than the “remaining balance”• Potential bias in the sampling• Recent trends show SSP under billing• Confidence in suppliers own billing systems, are they robust enough to provide a

sense check? Although efforts have been made to assess I&C contributions they are at best

arbitrary Relationship between RbD smear and “issues” has not been established

• A relationship between throughput and “issue” may be reasonable e.g. shrinkage

AMR will grow rapidly in future (see BERR conclusions) Unintended consequence of implementation of this proposal is a cross subsidy from

I&C to domestic sector

I&C Group Members

Corona Energy ENI Gazprom M&T Retail GDF Energy Shell Gas Direct Statoil/Hydro Total Gas & Power Wingas