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7 December 2006 Ritchard Hewitt

Modification Proposal UNC0125 - “ Introduction of new Balancing Neutrality charge for cost of Residual Balancer collateral on the OCM”. 7 December 2006 Ritchard Hewitt. Background to Proposal :. APX (OCM System Operator) applied for FSA authorisation

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7 December 2006 Ritchard Hewitt

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  1. Modification Proposal UNC0125 -“Introduction of new Balancing Neutrality charge for cost of Residual Balancer collateral on the OCM” 7 December 2006 Ritchard Hewitt

  2. Background to Proposal : • APX (OCM System Operator) applied for FSA authorisation • Requires all OCM participants to be fully collateralised • Residual Balancer required to put in place FSA approved securities • Residual Balancing role completed on behalf of and funded by the community through Neutrality mechanism • Seeks to pass Residual Balancer cost of collateral for activity on OCM through Neutrality mechanism

  3. Minimising cost of collateral required for Residual Balancing activity on the OCM • Cost of securities not significant (current protection £30/50k per Annum) • Proposal seeks to ensure costs kept to minimum. • Costs recovered through Neutrality mechanism based on each day of the billing month such costs are incurred. • Minimises the level of interest payment borne by community • The level of collateralisation may vary through the year • Ability to account for fluctuations in the level of risk by adjusting securities through the year may reduce cost.

  4. Assuring economic and efficient approach to Collateralisation of the Residual Balancer on the OCM • Licence Condition • Ofgem information request • Undertaking to provide General reporting of costs • External audit annually that the cost have been incurred efficiently (part of SMPS and PG audit).

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