Energy Balancing Credit Variation Proposal Modification 0233 Transmission Work Stream 5th March 2009 Mark Cockayne

Background  Presentation of a three proposals at the November Workstream  Following EBCC’s lessons learnt from Lehman’s Brothers Commodity Services Inc, Default  Accrual methodology in section X is too restrictive (MOD0233)  Drafting inconsistencies between section X and V (MOD0234)  Financial neutrality, current methodology for smearing of revenue and recovery of debt creates inequity (MOD0235)

Current Situation  Accrual methodology for the calculation of a Users Outstanding Relevant Balancing Indebtedness and Anticipated balancing Indebtedness too restrictive  Has the potential to either expose the community to avoidable financial loss due to the lag time before actual information available, or  Conversely has the potential to trigger consideration of Termination where the true financial exposure is fully secured

Original Proposal  A two staged response amend the code to allow us to utilise more accurate data than that calculated by the accrual where it is available within the system. Drafting flexible to include the ability to process manual adjustments to Relevant Balancing Indebtedness.  Accommodated in a manual process initially without the need to amend systems it would address both possible extremes but would have to be processed as an adjustment to exposure, so backup data would also need to be provided to allow the user to appeal any resulting cash call. This situation does not fully mitigate the risk as it would have to be triggered by an event e.g. the issue of a cash call or change in financial standing of the company. Has the added advantage of facilitating adjustments being processed in a gas emergency scenario.  Longer term a change to Gemini IMS should be raised to use actual data that is closed out within the system that relates to the relevant period for the users Anticipated Balancing Indebtedness which would then replace those elements and would reflect the exposure of the User more accurately.

Revised Proposal  The revised proposal clearly identifies the trigger to use closed out data where it is available in relation to the period of anticipated balancing indebtedness.  Due to the Nature of the Trigger the revised proposal only considers a manual process without the need to amend systems  It further proposes that instruction should be given by EBCC to use such data upon satisfaction of the trigger  Still addresses both possible extremes and would be processed as an adjustment to exposure, so backup data would also be provided to allow the user to appeal any resulting cash call.