1. Distribution Commercial Group Billing & Collection Management and Remedies Richard Smith Chair- EA Distribution Commercial Group

2. Distribution Commercial Group Ofgem Proposal ‘ The management and control of credit risk should as far as possible emulate best commercial practice in comparable competitive industries, taking into account the nature of gas and electricity supply’ ‘Ofgem...to work with the industry...to establish...best practice guidelines’

3. Distribution Commercial Group Proposed Framework Distributors Operate ‘Best Practice’ Debt Management Processes Suppliers Provide Credit Cover Commensurate With This Ofgem Permit ‘Pass Through’ of Bad Debt

4. Distribution Commercial Group What Do Distributors Want? Risk Reward Balance Regulatory Certainty Flexibility Simple To Manage Non Discrimination

5. Distribution Commercial Group Expectations Data For Billing is Provided on Time Distributors Issues Invoices in a Timely Manner Suppliers Pay Invoices on Time Suppliers and Distributors Establish a Good Working Relationship Over Invoices and Payments

6. Distribution Commercial Group Purpose of Guidelines To Create a Good Working Relationship To Procure Timely Payment of Invoices To Provide Evidence to Ofgem of Debt Follow-up Procedure

7. Distribution Commercial Group Skeleton Guideline Defined Follow-up Procedure –Phone –e-mail –Letter –legal Proceedings Defined Timescales

8. Distribution Commercial Group Flexibility On Occasions a Supplier May Request to Pay an Invoice a Day Late. Do We Say Yes? –Previous Payment Record –Any Current Credit Agency Issues –What is Occasional? Flexibility and Regulatory Certainty

9. Distribution Commercial Group Flexibility Don’t want to exacerbate or otherwise increase the threat to continuity and security of supply from financial failure Minor variations acceptable where recorded subject to good payment record Major variations acceptable where Ofgem involved - no micro management

10. Distribution Commercial Group Escalation Appropriate remedies at each stage of escalation - more later Contract the follow-up timetable for repeat offenders –Need to discourage those who ‘pay on red’ Proportionate and Progressive

11. Distribution Commercial Group Remedies Suspension of Registrations Name & Shame Punitive Interest Legal Action De-energisation If and when to use

12. Distribution Commercial Group Suspension of Registrations Once a supplier has a debt over x days, suspension should be automatic. Relatively mild remedy Short term suspension not significant impact to supplier Should/could suspension extend beyond rectification for a persistent offender

13. Distribution Commercial Group Name & Shame

14. Distribution Commercial Group Punitive Interest ‘Normal’ Interest if overdue up to x days A higher ‘punitive’ Interest on amounts overdue beyond x days

15. Distribution Commercial Group Legal Action County Court Statutory Demand Notice

16. Distribution Commercial Group De-energisation Normal commercial markets have the ability to restrict supply Ofgem do not support the de-energisation of customers as remedy for bad payment by supplier - this severely distorts the market Need to have effective alternatives to restore market balance –Suspension of registrations –Customer transfer (SoLR)

17. Distribution Commercial Group SoLR Ofgem can initiate SoLR in certain circumstances SoLR moves customer from one supplier to another - effectively restricting further supply of UoS to the first supplier. Could SoLR be initiated earlier or partially

18. Distribution Commercial Group Anticipating Default (Won’t Pay/Can’t pay) Won’t Pay –Suspension of registrations –legal Action Can’t Pay –SoLR - as quickly as possible The more often a supplier fails to respond to the earlier stages of debt follow-up, the greater the likelihood of becoming a can’t pay

19. Distribution Commercial Group Credit Cover If Ofgem permit ‘pass through’ of any bad debt efficiently incurred then no need for any credit cover If not Ofgem need to indicate what proportion of the bad debt they will cover Credit Cover/Credit Score has possible use as part of debt follow-up escalation process

20. Distribution Commercial Group Credit Score Credit rating agencies Payment history - what about new supplier Other How to use credit score?

21. Distribution Commercial Group Use of Credit Score Vary Follow Up Timescales Vary Payment Terms –Weekly –Prepayment –Direct Debit But, how do you apply to a supplier who has negative movement?

22. Distribution Commercial Group ‘Pass Through’ Recovery Formula built in to price control –Still no recovery of Enron debt –Recovery must be timely Special arrangements for large failures

23. Distribution Commercial Group Way Forward Workstreams to develop ‘best practice’ debt follow-up Development of ‘pass through’ mechanism as part of DPCR4 work

24. Distribution Commercial Group Billing & Collection Management and Remedies Richard Smith Chair- EA Distribution Commercial Group