New gas shipper licence arrangements

Gas Transmission Workstream2 December 2010

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Summary

After months of consultation in September 2010 the New Application Regulations and the Updated Guidance Document were published*:

Introduction of new risk-based, three tier licence application process

Changes to the Revocation Schedule of all future licences

Discussion: should “traders” be required to have a licence?

* These can be found on Ofgem website at http://www.ofgem.gov.uk/Licensing/Work/Pages/Work.aspx

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Why change the application process?

Changes are designed to:

Mitigate risk of potentially fraudulent licence applications

Make the application process clearer and easier

Strike a balance between additional administrative burden on applicants and need to verify their serious intentions

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Tiered application – information requirementsTier 1 (All applicants)

• Applicants Details • Applicants Directors details• Service address (if non GB)• Legal Status (Plc, Ltd, etc)• Holding/Parent Co details and Director details• Disqualifications statements• Criminal Convictions Statement• >20% shareholder details• Details of persons in control (if not body corp.)• Details of previous licences held/revoked/refused• Proposed arrangements to use licence for purpose• Certified copy of Certificate of Incorporation and Vat registration

Tier 2

• Proof of contact with the relevant Code Administrators • Certified copies of any documents that verify infos• Details of any licence/authorisation refused/revoked/terminated by other regulatory body•Applicants bank, Auditors, Solicitors details.

Tier 3

•Original ID Documents•Interview with Ofgem

Information burden on applicant increases with Risk

Existing

New

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How to determine move to tier 2 and 3

Key areas that the risk assessment will take into account

unexplained omissions/discrepancies in the information (Ofgem will always take into account applicant’s explanation) difficulty verifying information provided any information relevant to our decision to grant a licence which comes to our attention during the application process readiness/intent to use licence for purpose for which granted

All licence applications will be scored against these criteria in order to decide the move to tier 2 and if necessary to tier 3*

* For more details, refer to the tables on p. 16-17 of “Guidance for gas and electricity licence applications”

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Licence Revocation The Revocation Schedule has been changed to better address the issue of unused and dormant licences.

All future gas shipper licences may be revoked if unused for 1 year (longer if licensee has physical assets)

In case of the licensee having ceased the activity the licence may be revoked immediately

Ofgem will not automatically revoke an unused licence and will always give the licensee the possibility for representation

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Distinction between “traders” and shippers

Currently the UNC makes no distinction between physical and non-physical traders and both are required to have a licence

A shipper is a person that “arranges with a gas transporter for gas to be introduced into, conveyed by means of or taken out of a pipeline system operated by the transporter”*

A non-physical trader (“trader”) does not arrange to convey gas across the GB transportation network

* As defined under s5(1)(c) of the Gas Act 1986

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Ofgem view

Ofgem consider that there is merit in making changes to the industry contracts to differentiate between “trader” and shipper

Removal of an entry barrier: greater competition

Consistency across all gas and electricity licences/Codes

Reduction in numbers of dormant licences

BUT is the proposed change proportionate?

We look forward to industry parties views on the matter

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