Further Credit Modification Proposals Chris Warner/Phil Lucas

To date… Ofgem rejected the following proposals on 26 January 2007: 0109 – Credit Tools 0111 – Approach and breach of CCL 0112 – Aggregation of positions/PCGs 0114 – Value at risk Elements of Ofgem recommended best practice not in place UKD are seeking to achieve this Raise new Proposals where prior proposals rejected, and Refinement of Modification 0113 (Payment History and Independent Assessment) provisions

0109 Credit Tools Reasons for rejection Clarify potential uses of deposit deed and prepayment agreements Payment before delivery of the service Payment before the Invoice Due Date Exclusion of bi-lateral insurance Where pay out limited, the tool can be rated below full value Exclusion of PCGs from non UK parent

0111 Approach and breach of Code Credit Limit Reasons for rejection Required implementation of 0114 Value at Risk The proposal sought to measure indebtedness (which includes accruals) against Code Credit Limit to determine availability of sanctions Best practice is to measure Value at Risk (which excludes accruals) against Code Credit Limit to determine availability of sanctions

0112 Aggregation of positions/PCGs Reasons for rejection Required implementation of 0109 Credit Tools Clarify potential uses of PCG To replace Users credit rating, or As an individual security tool. Where used in addition an Unsecured credit limit assigned to the User based on its stand alone credit limit, the additional amount secured by the Parent must not exceed the parent company’s ability to bear risk.

0114 Value at Risk Reasons for rejection Ambiguity over calculation of Code Credit Limit Legal text retained link to Code Credit Rules Value at risk should be ‘real time’ (charges at that time billed to the User but unpaid) and not based on previous month’s invoiced charges

Points noted in direction to implement 0113 Payment History and Independent Assessments (implemented from 1 May 2007) Points noted in direction to implement Implementation – a User’s payment history (pre 1 May 2007) will be taken into account. National Grid view is that this is an implementation matter and does not merit further Modification. Payment History – missing ‘small’ payments New Proposal advocates soft landing where invoice value <=£250. Only reduces level by 50% but where second occurrence with 12 months 100% Independent Assessment New proposal advocates that where Transporter initiates re-assessment (outside of the initial and annual re-assessment) the relevant Transporter bears 100% of such cost Selection of independent Credit Rating Agency.