Customer Charge On behalf of all DNs 19 November 2010

1. Customer ChargeOn behalf of all DNs19 November 2010

2. Customer Charge Background______________________________________________________________________________________________________________________________ • Originally determined by Transco • Designed to recover particular costs, mainly relating to provision of emergency services, and the repair, maintenance, replacement and depreciation of service pipes funded by transporter • Generate ~30% of Collected Revenue • Over 90% is collected from SSPs (c.£30/SSP annually)

3. The current Customer Charge______________________________________________________________________________________________________________________________ • SPs with AQ > 732MWh operate on a capacity based power function • SPs with AQ between 73.2MWh and 732MWh operate on a linear capacity based function and an additional per supply point function. • SPs with an AQ of less than 73.2MWh operate on a linear capacity based function. • All current DN charges are based on these original National basis charging structures

4. Why change?______________________________________________________________________________________________________________________________ • The Customer Charge has not been fundamentally reviewed since the original charge was determined by Transco/Ofgas • Ofgem report “Conclusions on the review of the structure of has distribution charges” – costs underlying the Customer Charge should be reviewed • DNs required to ensure charges are cost reflective • Need to rebase charges on a network rather than national specific basis

5. Recent activity______________________________________________________________________________________________________________________________ • Final areas of methodology in the 2006 Ofgem report • Relevant costs identified in PC05 • DNs seeking to consult on this area to enable potential change at April 2012 in line with other planned changes • DNs wish to engage input and opinion from shippers at special DCMFs (19th November & 17th December)

6. Potential timeline______________________________________________________________________________________________________________________________

7. Costs underlying the Customer Charge______________________________________________________________________________________________________________________________ • Emergency costs • All costs associated with emergencies on service pipes and supply points • Service pipe costs • Pipe replacement costs and depreciation • Indirect costs • Allocation of support and employee overheads

8. Potential Customer Charge methodology______________________________________________________________________________________________________________________________ • A single fixed daily charge per supply point for each network • A two-rate fixed daily charge for SSPs and LSPs for each network • A derived capacity charge • No change • Another method

9. Potential Customer Charge methodology______________________________________________________________________________________________________________________________ • A single fixed daily charge per supply point for each network • Emergency costs show no strong correlation with supply point size • No increased likelihood that a larger supply point will have a gas emergency • No significant difference in cost to deal with an emergency at a large supply point than at a small one • Simplest possible charging outcome

10. Potential Customer Charge methodology______________________________________________________________________________________________________________________________ • A two-rate fixed daily charge for SSPs and LSPs for each network • Service pipes can be divided into domestic and non-domestic supply point related costs, broadly corresponding to <73.2MWh (SSP) and >73.2MWh (LSP) • “10 metre allowance” element of service depreciation allocated across domestic supply points only or allocated across all supply points

11. Next steps______________________________________________________________________________________________________________________________ • Views of Shippers and others sought on: • Likely shipper implementation impacts and timescales for either of the two options • Other options for the structure of the customer charge which should be considered • Pros & Cons of aligning a change to the customer charge structure with other planned changes for April 2012 • Other implementation issues • Other Questions / Discussion Points / Feedback • Next DCMF – 15th December 2010