Project Nexus Analysis of impacts and next steps

1. Project Nexus Analysis of impacts and next steps Cesar Coelho Ofgem Project Nexus UNC Workgroup 03 April 2012

2. Agenda • High-level principles for conducting an impact assessment (IA) • Costs and benefits • Next steps

3. High-level principles Main areas to cover in IA Topics • 1) Distributional impacts on market participants • For example, changes that improve the allocation of wholesale energy and distribution charges, less opportunity for gaming AQs • 2) Impact on prices • For example, the costs of implementing new systems (for transporters and suppliers) or the benefits from improved efficiency, lower AQ review costs, balancing charges, system management • 3) Other impacts • For example, on sustainable development

4. High-level principles Steps for conducting the IA Identify appropriate baseline counterfactual(s) Design the analysis to assess impacts Identify costs and benefits against each of the main areas in the IA Collect data on the costs and benefits for each of the possible counterfactuals and scenarios Undertake analysis in line with best practice Undertake analysis in line with best practice

5. High-level principles Dealing with uncertainty Potential sources Data availability Conduct of market participants Rules in flux • Quantify costs using scenarios • Prioritise assessment of benefits • Which benefits can be quantified? • Where are the biggest wins? • Be clear about approach to qualitative impacts • What is the effect? • Is this sensitive to the scenarios? Approach

6. High-level principles Standard of evidence required Standard Industry to use best judgement when providing data Document sources and findings when conducting research to inform analysis Use best practices in conducting analysis and modelling work Provide an audit trail for figures in final report

7. PN Impacts – Costs and benefits Assessment of PN – potential costs We need to understand total costs to the industry under a range of scenarios

8. PN Impacts – Costs and benefits Assessment of PN – potential benefits We need to better explain benefits and their materiality

9. PN Impacts – Costs and benefits Assessing the impacts: An example Baseline Path/period of implementation Uptake of settlements products Options Etc. System upgrades GDN/NTS costs Metering costs? Costs Scenarios Individual modifications/BRD Pack of BRDs implemented Some BRDs implemented Others Incremental benefits Efficiency gains More accurate allocation of energy & network costs Lower balancing costs Etc.

10. Next steps Indicative timetable

11. Next steps Roles and responsibilities • Joint Office to facilitate the development of robust analysis • Through project management • Through analytical support • PN workgroup is recalled to undertake analysis: • Ofgem to outline best practice at first meeting in April • JO provides first draft of a project plan at first meeting in April • JO pulls together strawmans in advance of PN Workgroup meetings to inform discussion • Industry, through PN workgroup, undertakes analysis and submits report to UNC Panel (in summer)