Credit Modification Proposals Update Phil Lucas

State of Play Discussion of draft Proposals at last Workstream Ofgem subsequently clarified the nature of the Value at Risk mechanism as defined in its Conclusions Document (58/05) Such clarification has not warranted significant change to National Grid Distribution’s VAR proposal as outlined at Feb and Mar 2007 Workstreams Only change is in respect of calculation of additional 15 days proxy Mod 0728 – Ofgem rejected on the basis that movement of obligations did not facilitate the relevant objectives of the code (as defined in the GT licence). Ofgem drew analogy with the Interruptible contacts regime recognising that the quality of this information is good due to the incentives (penalties for failure to interrupt etc) and encouraged consideration of incentivisation of the provision of emergency contact info. Credit Mod Proposals – 9 in all (5 Transco, 4 User). Covers unsecured credit, third party provided cover, penalties for non payment and non rectification of credit position following downgrade, invoice amount set off, calculation of value at risk (code credit limit) Primes and Subs – National Grid position communicated externally re: ownership of downstream network. Ofgem acknowledge but ask Transco to evaluate options to enable User to withdraw from Primary Meter with no load. UKD Representation to Transmission Mods – (AR to add speaker note). Provision of Interruption information (DNs > UKT) Extension of sunset clauses (following delay to commencement of enduring regime) Emergency Cash Out SPAA – potential transfer of certain Supply Point related activities from UNC to SPAA, concerns over dual governance, I&C suppliers not signed on to SPAA etc. UNC Development Forum – monthly meetings held (from Aug 2005) to discuss gameplans for UNC change from a UKD perspective.

15 Day Proxy Draft Proposal worked on the assumption that average days duration for a calendar month is 30 days. (365/12 = 30.4 days)/(366/12 = 30.5) Thereby multiplying the outstanding amounts by 1.5 added the 15 days proxy Provided an ‘economic’ implementation option Mod 0728 – Ofgem rejected on the basis that movement of obligations did not facilitate the relevant objectives of the code (as defined in the GT licence). Ofgem drew analogy with the Interruptible contacts regime recognising that the quality of this information is good due to the incentives (penalties for failure to interrupt etc) and encouraged consideration of incentivisation of the provision of emergency contact info. Credit Mod Proposals – 9 in all (5 Transco, 4 User). Covers unsecured credit, third party provided cover, penalties for non payment and non rectification of credit position following downgrade, invoice amount set off, calculation of value at risk (code credit limit) Primes and Subs – National Grid position communicated externally re: ownership of downstream network. Ofgem acknowledge but ask Transco to evaluate options to enable User to withdraw from Primary Meter with no load. UKD Representation to Transmission Mods – (AR to add speaker note). Provision of Interruption information (DNs > UKT) Extension of sunset clauses (following delay to commencement of enduring regime) Emergency Cash Out SPAA – potential transfer of certain Supply Point related activities from UNC to SPAA, concerns over dual governance, I&C suppliers not signed on to SPAA etc. UNC Development Forum – monthly meetings held (from Aug 2005) to discuss gameplans for UNC change from a UKD perspective.

15 Day Proxy Amended legal text refers to the duration of the billing month concerned VAR = a+(15*(a/b)) a is the aggregate value of all charges which at that time have been billed to such counterparty (but not necessarily due) but remain unpaid, and b is the number of calendar days in the relevant income accrual month Mod 0728 – Ofgem rejected on the basis that movement of obligations did not facilitate the relevant objectives of the code (as defined in the GT licence). Ofgem drew analogy with the Interruptible contacts regime recognising that the quality of this information is good due to the incentives (penalties for failure to interrupt etc) and encouraged consideration of incentivisation of the provision of emergency contact info. Credit Mod Proposals – 9 in all (5 Transco, 4 User). Covers unsecured credit, third party provided cover, penalties for non payment and non rectification of credit position following downgrade, invoice amount set off, calculation of value at risk (code credit limit) Primes and Subs – National Grid position communicated externally re: ownership of downstream network. Ofgem acknowledge but ask Transco to evaluate options to enable User to withdraw from Primary Meter with no load. UKD Representation to Transmission Mods – (AR to add speaker note). Provision of Interruption information (DNs > UKT) Extension of sunset clauses (following delay to commencement of enduring regime) Emergency Cash Out SPAA – potential transfer of certain Supply Point related activities from UNC to SPAA, concerns over dual governance, I&C suppliers not signed on to SPAA etc. UNC Development Forum – monthly meetings held (from Aug 2005) to discuss gameplans for UNC change from a UKD perspective.

Implications At certain points in the month invoices may be due from different months Requires calculation of individual daily implicit rates: Mod 0728 – Ofgem rejected on the basis that movement of obligations did not facilitate the relevant objectives of the code (as defined in the GT licence). Ofgem drew analogy with the Interruptible contacts regime recognising that the quality of this information is good due to the incentives (penalties for failure to interrupt etc) and encouraged consideration of incentivisation of the provision of emergency contact info. Credit Mod Proposals – 9 in all (5 Transco, 4 User). Covers unsecured credit, third party provided cover, penalties for non payment and non rectification of credit position following downgrade, invoice amount set off, calculation of value at risk (code credit limit) Primes and Subs – National Grid position communicated externally re: ownership of downstream network. Ofgem acknowledge but ask Transco to evaluate options to enable User to withdraw from Primary Meter with no load. UKD Representation to Transmission Mods – (AR to add speaker note). Provision of Interruption information (DNs > UKT) Extension of sunset clauses (following delay to commencement of enduring regime) Emergency Cash Out SPAA – potential transfer of certain Supply Point related activities from UNC to SPAA, concerns over dual governance, I&C suppliers not signed on to SPAA etc. UNC Development Forum – monthly meetings held (from Aug 2005) to discuss gameplans for UNC change from a UKD perspective. Invoice Month Days in Accrued Month Invoice Type Invoice Value VAR - Principal VAR – 15 day proxy VAR - Total Feb 31 Com £2,000 ((2000/31)*15) £968 £2,968 Mar 28 CSEP ((2000/28)*15) £1,071 £3,071 £6,039

Next Steps Make relevant changes to Legal Text VAR – as described Other cosmetic (non-material) changes Formally raise proposals in time for discussion at the 17 May 2007 Modification Panel Mod 0728 – Ofgem rejected on the basis that movement of obligations did not facilitate the relevant objectives of the code (as defined in the GT licence). Ofgem drew analogy with the Interruptible contacts regime recognising that the quality of this information is good due to the incentives (penalties for failure to interrupt etc) and encouraged consideration of incentivisation of the provision of emergency contact info. Credit Mod Proposals – 9 in all (5 Transco, 4 User). Covers unsecured credit, third party provided cover, penalties for non payment and non rectification of credit position following downgrade, invoice amount set off, calculation of value at risk (code credit limit) Primes and Subs – National Grid position communicated externally re: ownership of downstream network. Ofgem acknowledge but ask Transco to evaluate options to enable User to withdraw from Primary Meter with no load. UKD Representation to Transmission Mods – (AR to add speaker note). Provision of Interruption information (DNs > UKT) Extension of sunset clauses (following delay to commencement of enduring regime) Emergency Cash Out SPAA – potential transfer of certain Supply Point related activities from UNC to SPAA, concerns over dual governance, I&C suppliers not signed on to SPAA etc. UNC Development Forum – monthly meetings held (from Aug 2005) to discuss gameplans for UNC change from a UKD perspective.