Credit Cover Arrangements provided by ELEXON APEx Conference: Leipzig October 2004

Agenda What is covered and how? How it works Our experience and lessons

What charges? Imbalance Settlement Gross ~€600m /year –Charges for being short –Payments for being long –Surplus or shortfall reallocation (payments and charges) Administration charges ~€100m/y –ELEXON costs –BETTA costs –NETA implementation costs

Mutuality or Credit Cover? Imbalance Charges : Explicit credit cover rules –The Pool - Cash / Letters of Credit / Credit Rating /Parent Company Guarantee – relaxed implementation. One failure and a shortfall. –NETA/BETTA – Cash or LOC only – more rigorous * Required for Consumption AND Generation * Administration Charges : Mutualised risk –Shortfall shared.

How much needs to be covered? 29 days arrears Actual charges not known for all 29 days Pre-set price and volume used where actual data not available Reminder – Imbalance Volume = Contract notification-Meter reading Also payments and charges for balancing action

How does it work? The Party provides cash or LOC to their chosen level This is converted to energy credit cover at the pre-set price The system calculates credit cover percentage each half hour at gate closure The party can provide zero credit cover

Default level 1 80% - Level 1 –24 hour Query Period –1 business day Default Cure Period –Not corrected then in default if ELEXON says so Party notified and posted on website –Out of default when below 75%

Default Level 2 90% - Level 2 –Straight into default if ELEXON says so Notified and posted on Website Contract notifications which do not improve the position are rejected –Out of default below 90%

Experience 2-4 /month in query period 1 – 2 /month into default (level 1 or level 2) Only trivial cases of shortfalls.

Lessons Cash is best –LOC due on demand BUT Case 1 - took a week Case 2 – agreed to pay on the steps of the Court Most defaults are errors Most queries are for rapid shifts in customer base

Lessons We hold an excess of cover (€300m) Credit seems to be duplicated for the same energy in the life cycle LOCs appear to be cheap for most parties Shorter settlement would release some cash The arrangements have worked – supported a graceful exit for ENRON Proved flexible to rapid changes