SGN’s April 09 Mod 186 Report

DCMF Meeting – April 27th 2009

Scotland Revenue Data

SCOTLAND 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14

Core Allowed 170.4 166.2 169.5 174.3 178.4 180.6Cost Pass Through 17.6 17.5 17.46 17.4 17.37 17.3Incentives (Shrinkage) 6.3 5.0 4.9 4.7 4.6 4.5

Final Allowed Rev per PCR 194.3 188.7 191.8 196.4 200.4 202.4

Inflation Assumed 1.06 1.11 1.15 1.126 1.15 1.18 1.22

Final Allowed Rev per PCR at prices of year 206.7 208.9 220.5 221.2 230.1 239.5

Cost Pass through Movements -1.7 -1.6 -1.6 2.0 0.8 0.8Incentives Movement 1.2 -2.9 -0.1 2.1 2.7 3.0K Movement 6.3 3.1 -3.2 -1.9 0.0 0.0

Final Allowed Revenue Latest Forecast 212.5 207.5 215.7 223.4 233.6 243.3 250.6% of previous year 117.2% 97.7% 103.9% 103.6% 104.6% 104.2% 103.0%

Forecast Collected Revenue 209.6 210.5 217.5 223.4 233.6 243.3 250.6

Forecast Under / Over Recovery ( K ) -2.9 3.0 1.8 0.0 0.0 0.0 0.0

Arithmetical Price level change needed for Collected to = Allowed (April 10 then every subsequent April)

24% 3.2%* -2.2%** 4.7% 5.5% 5.1% 4.0%

Previous Price Level Changes Reported Oct 07 Oct 08 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13Definitive Levels 23.9% 3.2% -2.2% n/a n/a n/a n/aJan 09 Mod 186 Levels n/a n/a -2.3% 5.9% 5.6% 5.1% n/a

Scotland – Commentary (1)

2007/08• Pass through movement is due to a reduction in Formula Rates and Licence Fees

• The increase in the Mains Replacement allowance has outweighed the decrease in the Shrinkage allowance

• K movement is an under recovery from 2006/7

• The under recovery in 2007/08 is mainly due to the under recovery being brought forward from 2006/07 - this effect being reduced by the higher than forecast throughput

2008/09• Pass through movement is due to a change in Formula Rates, NTS Pension and

Licence Fees

• K movement is an under recovery from 2007/08

• Incentive movement is primarily driven by decreases in the Shrinkage and Mains Replacement allowances offsetting increases in Innovation Funding allowance

• 95/5 Capacity/Commodity methodology implemented from 1 October 2008

Scotland – Commentary (2)

2009/10 - 2012/13• Pass through movement is due to a change in Formula Rates, NTS Pension,

Licence Fees and the Traffic Management Act (from 2010/11 onwards)• Incentive movement includes increases in the Environmental Emissions and

Innovation Funding Incentive mechanisms, and the Discretionary Reward Scheme from 2010/11. From 2008/09 to 2009/10 the shrinkage allowance decreases from the inflated PCR shrinkage - however from 2010/11 onwards the shrinkage allowance increases.

2009/10 - 2012/13• Due to 2013/14 being in a period of a yet undetermined Price Control Review - a

working assumption has been made of total allowed revenue being 2012/13 allowed revenue with forecast RPI applied

Sensitivity Analysis – Refer to published report

Further Information• * This is an increase to new rates under 95/5 methodology, not an increase to

Oct 07 rates• Disclaimer - Refer to published report

Southern Revenue Data

SOUTHERN 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14

Core Allowed 359.6 385.4 399.2 398.5 404.1 411.4Cost Pass Through 56 55.9 55.81 55.7 55.6 55.5Incentives (Shrinkage) 16.8 13.4 13.1 12.7 12.4 12.0

Final Allowed Rev per PCR 432.4 454.7 468.1 466.9 472.1 478.9

Inflation Assumed 1.06 1.11 1.15 1.13 1.15 1.18 1.22

Final Allowed Rev per PCR at prices of year 460.0 503.4 538.0 525.9 542.2 566.5

Cost Pass through Movements -0.9 -0.8 -0.4 10.3 12.0 12.2Incentives Movement -0.5 -12.9 1.1 7.5 6.1 6.9K Movement 7.9 -4.2 -19.6 -11.3 0.0 0.0

Final Allowed Revenue Latest Forecast 466.5 485.5 519.1 532.4 560.3 585.6 603.2% of previous year 121.2% 104.1% 106.9% 102.6% 105.2% 104.5% 103.0%

Forecast Collected Revenue 470.5 503.8 529.9 532.4 560.3 585.6 603.2

Forecast Under / Over Recovery ( K ) 4.0 18.4 10.7 0.0 0.0 0.0 0.0

Arithmetical Price level change needed for Collected to = Allowed (April 10 then every subsequent April)

31% 8.5%* -2.7%** 2.3% 6.2% 5.5% 4.0%

Previous Price Level Changes Reported Oct 07 Oct 08 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13Definitive Levels 30.8% 8.5% -2.7% n/a n/a n/a n/aJan 09 Mod 186 Levels n/a n/a -2.7% 5.5% 4.3% 5.4% n/a

Southern – Commentary (1)

2007/8

• Pass through movement is due to a reduction in Formula Rates and Licence Fees

• The decrease in the Shrinkage allowance has offset increases in Mains Replacement and Exit Incentive allowances

• K movement is an under recovery from 2006/7

• The over recovery is due to higher than forecast volumes

2008/9

• Pass through movement is due to a change in Formula Rates, NTS pension and Licence Fees

• K movement is an over recovery from 2007/08

• Incentive movement is primarily driven by decreases in the Shrinkage and Mains Replacement allowances offsetting increases in Innovation Funding, Exit Incentive and Environmental Emissions allowances

• 95/5 Capacity/Commodity methodology implemented from 1 October 2008

Southern – Commentary (2)

2009/10 - 2012/13• Pass through movement is due to a change in Formula Rates, NTS Pension,

Licence Fees and the Traffic Management Act (from 2010/11 onwards)• Incentive movement includes increases in the Environmental Emissions, Exit

Incentive and Innovation Funding Incentive mechanisms, and the Discretionary Reward Scheme from 2010/11. From 2008/09 to 2010/11 the shrinkage allowance decreases from the inflated PCR shrinkage - however from 2011/12 onwards the shrinkage allowance increases.

2009/10 - 2012/13• Due to 2013/14 being in a period of a yet undetermined Price Control Review - a

working assumption has been made of total allowed revenue being 2012/13 allowed revenue with forecast RPI applied

Sensitivity Analysis – Refer to published report

Further Information• * This is an increase to new rates under 95/5 methodology, not an increase to

Oct 07 rates• Disclaimer - Refer to published report