MOD506 – Gas Performance Assurance Framework and Governance Arrangements

1. MOD506 – Gas Performance Assurance Framework and Governance Arrangements

2. Background • The Gas Performance Assurance Workgroup (PAW) have been meeting since early 2013 • Over that time they have considered: • the means of identifying the key elements to assure settlement accuracy • reporting required to underpin future accuracy • the framework and tools necessary for the assurance regime • the need for policing and administering the regime • Progress to date has been slow but two workshops were held in April 2014 to consider the three key aspects in detail as a means of formulating a modification proposal for the Performance Assurance Framework (PAF): • independent study/incentives • the framework • the administration/policing function

3. The Framework..... Guiding Principles • Ofgem is keen to ensure that any framework does not require continual and complex modifications to bring in performance monitoring or implement behavioural changes • Whilst primary focus of the PAF is settlement accuracy, it has also been suggested that incentives are needed around data quality, which can impact customer service/experience • It has been the view of the majority of the group that the Performance Assurance Framework applies to Shippers, Transporters and Xoserve. It was also the view of the group from early in the process that administration of the scheme should be by an independent party (administrator/agent), as Xoserve would be subject to the regime • Some Shippers expressed a desire not to be accountable to their peers and it was discussed that the PAF should be: • Transparent • Proportionate • Predictable • Supports continued improvement/development • Fit for purpose • Fair

4. What aspects should be included? • Using the guiding principles to shape the arrangements the PAW considered other Codes and the different aspects of what should be included in the Gas PAF • These aspects included – market entry, performance monitoring/assurance, peer comparison, market exit, qualification, disputes/error resolution, breach/default and error monitoring • The group also looked at different techniques to achieve assurance. These included detection (assessment, analysis), incentives, preventative measures, education, risk register, reporting/monitoring (e.g. serials), improvement plans, escalation and audit • Through early discussion it was agreed that incentives and risk register should be included and form the cornerstone of the framework, however through the April workshops it became apparent that PAW members would like quite a lot of the “control” of the shaping arrangements to reside with a Performance Assurance Committee MOD506 represents discussions held at the PAW meetings, but will require further work by the Performance Assurance Workgroup to finalise requirements – aiming for a consensus, where possible

5. MOD506 – Why Change? • In contrast to other markets the gas market has no means of monitoring performance and assuring settlement accuracy – whilst Project Nexus is expected to improve allocation and settlement, moving to a new approach introduces an element of risk and there is no guarantee that benefits can be realised • The introduction of Project Nexus therefore seems like an ideal opportunity to address performance assurance and answer the numerous calls from Ofgem and some industry parties for a gas PAF to be introduced • Xoserve are also currently working on performance reporting under the existing regime and hope to have this ready for October 2014. This should give the first view to the industry of performance • MOD506 seeks to introduce a Gas Performance Assurance Framework to be used to facilitate assurance and incentivisation of settlement accuracy post-implementation of Project Nexus, although the PAW does recognised that there may be an opportunity to review the data currently being collated by Xoserve on the existing regime

6. MOD506 - Solution • The modification represents discussions and consideration of the most appropriate model for a gas Performance Assurance Framework, which took place at the PAW • The resultant structure of the Framework is outlined below:

7. MOD506 – Solution Framework Principles • There will be a Performance Assurance Committee (PAC), but members will be subject to strict confidentially provisions • There will be a Performance Assurance Framework Administrator (PAFA), which will be tendered for by the PAC and contracted by the Gas Transporters • There will be a Performance Assurance risk based methodology created, which will be consulted upon on an annual basis, but is expected to be updated monthly • The PAC will be a Sub-Committee of the Uniform Network Code Committee

8. MOD506 – Recommended Next Steps • The PAW has created outline Business Rules to support this Modification, but further consideration is needed around a number of aspects, due to differing views emerging: • Independent Administrator • Tender process/procedure for the Administrator • The role of Xoserve • Transporter inclusion • ScottishPower has worked with all parties at the PAW to try and gain a consensus view of the framework and wants to continue in this way in finalising MOD506 • It is recommended that the Panel agrees that this Modification is not subject to self-governance and that is referred to the PAW for assessment • Given the linkages to MOD483 it is proposed that the Panel consider requiring MOD506 to report back to them in October 2014 (in line with MOD483)