CAP089/090/091 Working Group Report Ben Graff Electricity Code Development Manager National Grid plc

Introduction Background Existing CUSC Provisions The Original Proposal - Step through the 5 main elements The Working Group Discussions The 5 Working Group Alternative Amendments Next Steps

Background CAP089 and CAP090 proposed by National Grid; amalgamated at June Panel CAP091 proposed by BizzEnergy; merged with CAP089/090 at July Panel CAP089/090/091 contains 5 distinct elements, discussed at the CAP088-091 Working Group over the last 3 months

Existing CUSC Provisions Currently no concept in the CUSC of a maximum unsecured Credit Limit Have to provide 29 days of BSUoS (Gens) Have to provide 32 days BSUoS + 10% TNUoS (Suppliers) But only if below BBB-

Original Proposal (5 Elements) 1. Maximum unsecured credit limit of 2% of RAV 2. Credit allowances for companies with an Approved Credit Rating (ACR) of BB- or above – 15% to 100% of maximum unsecured limit 3. Default credit allowance for companies without an ACR based on their Payment Record 4. Option for companies without an ACR to gain a credit allowance based on an Independent Credit Assessment 5 Replacement of 10% TNUoS Value at Risk (VAR) with an amount based on each User’s forecasting performance in the previous year

What Elements 1 and 2 Mean in Practice - Credit Rating Route to 2% RAV Unsecured Credit Up to 2% of RAV Securing 29 days BSUoS (Gens) 32 days BSUoS (Suppliers) 10% of TNUoS AAA = 100% (approx £102m) A = 40% (approx £41m) BBB+ = 20% (approx £20m) If credit Rating is below BB-, still need to secure the relevant BSUoS/TNUoS in full. - These proposal s not relevant BBB = 19% (approx £19m) BBB- = 18% (approx £18m) If above BB-, entitled to % of unsecured credit BB+ = 17% (approx £17m) Must secure rest via Parent Guarantee etc BB = 16% (approx £16m) BB- = 15% (approx £15m) Below BB- = 0

Element 3 - Default Credit Allowance for Companies without an Approved Credit Rating, based on their payment record Allowance based on payment record, climbing by 0.4% of maximum unsecured Credit Limit a year (escalating on an evenly graduated basis each month within year) Potential to achieve 2% of maximum unsecured Credit Limit after 5 years of perfect payment history

What Elements 1, 2 and 3 Mean in Practice - Credit Rating + Payment History Routes to 2% RAV Unsecured Credit Up to 2% of RAV Securing 29 days BSUoS (Gens) 32 days BSUoS (Suppliers) 10% of TNUoS AAA = 100% (approx £102m) A = 40% (approx £41m) BBB+ = 20% (approx £20m) If Credit Rating is below BB-, still need to secure the relevant BSUoS/TNUoS in full, but can progressively secure 0.4% a year through payment history. BBB = 19% (approx £19m) BBB- = 18% (approx £18m) If above BB-, entitled to % of unsecured credit BB+ = 17% (approx £17m) Must secure Credit not secured by Credit Rating/ Payment History via Parent Guarantee etc BB = 16% (approx £16m) BB- = 15% (approx £15m) 2% (approx £2m) – 5 years of perfect payments 0% – no on-time payments

Element 4 - Default Credit Allowance for Companies without an Approved Credit Rating, based on Independent Assessment Independent Assessment can be sought from a Panel of 3 Independent Credit Agencies, appointed by Network Operators Annual Assessment, paid for by National Grid Assessment results in a score of 0 – 10 Score of 10 entitles you to 20% of the maximum unsecured Credit Limit (i.e. the 2% of RAV) Score of 1 entitles you to 31/3% of the maximum unsecured Credit Limit

Element 4 – Credit Scoring Credit assessment Credit allowance as % of Approximate score maximum credit limit Allowance 10 20 £20.4m 9 19 £19.4m 8 18 £18.4m 7 17 £17.3m 6 16 £16.3m 5 15 £15.3m 4 13-1/3 £13.6m 3 10 £10.2m 2 6-2/3 £6.8m 1 3-1/3 £3.4m 0 0 £0.0m

What Elements 1, 2, 3 and 4 Mean in Practice Credit Rating Credit Score 100% (approx £102.0m) AAA/AA 40% (approx £40.8m) A 20% (approx £20.4m) BBB+ 10 19% (approx £19.3m) BBB 9 18% (approx £18.4m) BBB- 8 17% (approx £17.3m) BB+ 7 16% (approx £16.3m) BB 6 Unsecured Credit up to 2% of RAV 15% (approx £15.3m) BB- 5 131/3% (approx £13.6m) 4 10% (approx £10.2m) 3 62/3% (approx £6.8m) 2 31/3% (approx £3.4m) 1 2% (approx £2.0m) 5 years of perfect payments 1.6% (approx £1.6m) 4 years of perfect payments 1.2% (approx £1.2m) 3 years of perfect payments 0.8% (approx £0.8m) 2 years of perfect payments 0.4% (approx £0.4m) 1 year of perfect payments 0% (£0m) No on-time payments or Credit Score of 0

Element 5 - Replacement of 10% VAR for TNUoS Demand Reconciliation Charges with an amount of within year TNUoS Security based on each User’s forecasting performance in the previous year The Value at Risk (VAR) is referred to as the “Security Requirement” in the proposed CUSC legal text The Security Cover required is equal to the Security Requirement less the User’s Allowed Credit (which has been set by elements 1-4 of CAP089/090/091) Currently the VAR is: for Generators, 29 days’ of BSUoS Charges; or for Suppliers, 32 days’ of BSUoS Charges and 10% of TNUoS charges for TNUoS Reconciliation charges CAP089/090/091 proposes removing the cover for TNUoS Reconciliation charges, and replacing it with cover for within year TNUoS charges The cover for BSUoS would not be changed

Element 5 - Replacement of 10% VAR for TNUoS Demand Reconciliation Charges with an amount of within year TNUoS Security based on each User’s forecasting performance in the previous year (cont’d) (1) Within year TNUoS charges are determined by Users’ forecasts (2) These are Initially reconciled using settlement data in May y+1 (3) They are Finally reconciled using settlement data in June y+2 10% currently covers risk between (2) and (3) CAP089/090/091 proposes replacing this with within year cover to cover the risk between (1) and (2) The amount of cover required for each User would be based on their forecasting performance in the previous year

Working Group Discussions Calculation of RAV Frequency of Monitoring of Users Allowed Credit Cover Scoring 0 - 10 v 0 - 100 Who pays for assessments? Forecasting Performance Transitional Issues

Working Group Alternative Amendments Forecasting Performance +2.5% 0-100 User pays  WGAA4  VAR 0-10 NG pays Independent Assessment Payment Record ACR RAV WGAA5 WGAA3 WGAA2 WGAA1 Original Proposal

Views of Working Group Majority of Working Group believed CAP089/90/91 or one of the Alternatives better facilitated the Applicable Objectives All Working Group Members Agreed CAP089/90 ready to proceed to wider Consultation