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Mod 0194 Presentation 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
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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 Cumulative Billed, Actual & Difference (Billed-Actual) Per DR Customer • 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
RbD Verification Analysis Per DMP Customer: Cumulative Billed, Actual & Difference (Billed-Actual) • 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)
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 • High Prices • Economic factors e.g. downturn, exch. rates, credit crunch • Better informed customers e.g. AMR technology (now supported by BERR) • 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 • Due to uncertainty of offtake size and need to ensure network can support load • Typically I&C AQs are 6% higher than consumption • 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 • See points raised previously concerning economic climate etc.. and IGT overstatement • AMR sites evidence suggests over 10% immediate reduction in annual consumption • 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