Credit Cover Seminar The Proposed Way Forward Peter Bucks 25 April 2003

Credit Cover Seminar Industry Working Groups  Objective –Identify best practice in mitigating and managing NWO credit risk, in keeping with principles set out in Ofgem’s February 2003 document, to provide effective, transparent arrangements at an efficient cost  Deliverables –Recommend best practice guidelines (which will inform Ofgem’s criteria for price control treatment of bad debt) –Identify necessary changes to codes and agreements to ensure conformity with best practice guidelines  Timeframe –Deliverables from working groups in 6 months(?), aiming for revised arrangements (including Ofgem pass through criteria) to be effective from 1 st April 2004

Credit Cover Seminar Configuration of working groups  Overall steering group reported to by sub-groups  Each sub-group to focus on all parties in both the electricity and gas industries Steering group Mutualisation ?Remedies for payment default Payment terms & billing and collection procedures Protection of credit exposure Identification and assessment of credit exposure

Credit Cover Seminar Membership of working groups  Steering group –Chaired by Ofgem –Members to comprise the chairmen of the sub-groups –A representative from any industry group not represented by chairmen of sub-groups will be invited to the umbrella group  Sub-groups –Individuals willing to chair the sub-groups have already been identified –Membership to be at the discretion of the chairman of the sub- group –Ideally all industry groups to be represented on each of the sub- groups (but numbers need to be manageable)

Credit Cover Seminar Chairmen of sub-groups  John Downing – Identification and assessment of credit exposure  Laurence Poel – Remedies for payment default  Chair to be provided by Centrica - Protection of credit exposure  Malcolm Sugden - Payment terms & billing and collection procedures

Credit Cover Seminar Terms of reference for working groups  Steering group –Develop recommended best practice guidelines which will be inform Ofgem’s bad debt pass through criteria  Sub-groups –Deliver to the steering group recommendations on best practice guidelines in their respective areas  Recommendations must give consideration to: –Ofgem Principles –Being workable in practice –Achieving suitable protection at an efficient cost –Not being unduly discriminatory –Flexible billing and collection procedures to mitigate level of credit risk

Credit Cover Seminar Working of the groups  Process anticipated to be completed in 6 Months  Ofgem representative to be observer on the sub-groups  Sub-groups to decide on frequency of meetings and nature of work to be undertaken to fulfil its objectives  Sub-groups to decide on whether and to what extent external expertise should be engaged in order to fulfil its objectives (costs to be borne by industry)  Terms of reference, action points from meetings, minutes and recommendations to be published

Credit Cover Seminar Interim Arrangements  Parties need to comply with contractual requirements of the day –should not breach contract in anticipation of what workgroups may recommend –should modify behaviour to the extent possible under contractual arrangements  Determinations or incremental improvements proposed to be considered/progressed as usual and considered against the relevant objectives and Ofgem’s Statutory Duties –Helpful if future credit proposals take into account the workgroup deliberations  Pass through to be handled as previously

Credit Cover Seminar Promoting choice and value for all gas and electricity customers