Review Group 0221

1. Review Group 0221 Session 4: 28th October 2008

2. Introduction • Agenda item 4.1 Focus Session: “Who/What capacity holders should be captured by these requirements and how should this be assessed?” ie: • by incremental capacity only; • all new capacity bookings, including obligated; • all new and existing capacity holdings based on a credit risk assessment; or • a combination of the above • Who/How would such a credit assessment be completed and what would be the route for appeal? • Agenda item 4.3 Question: Should any revision to security arrangements be applied to previous auction allocations that are yet to reach the capacity release date?

3. Who/What capacity holders should be captured by these requirements and how should this be assessed? • The Authority delivered its decision to reject CUSC Amendment CAP131 on 13th October. • The decision paid particular attention to the issue of undue discrimination between new & existing generators where undue discrimination consists of treating relevantly similar parties differently or relevantly different parties in the same way without objective justification. • In this case the Authority did not consider that sound reasons for the apparent discrimination between new and existing generators had been demonstrated. • In this context does the Group consider that the decision assists in answering this question i.e. does this suggest that bullet point 3 is the most appropriate? • If not, what are the objective differences between parties and types of capacity?

4. Who/How would such a credit assessment be completed and what would be the route for appeal? • UNC Section V: Security required is based on = VAR – Unsecured Credit Limit • VAR = Aggregate amount invoiced but unpaid (excluding EB Charges) + 20 * daily average rate invoiced in previous month. • Unsecured credit limits are based on ‘Best Practice Guidelines for Gas and Electricity Network Operator Credit Cover’ and include the following elements.

5. Who/How would such a credit assessment be completed and what would be the route for appeal? • Credit Assessment • There already exists a number of measures which could be used to develop a methodology to assess security requirements at, or around, the QSEC auction time. • Are there any other measures which could be included in the assessment? • What issues need to be addressed if this assessment is to be carried out at or around this time? • Proxy for VAR ahead of invoice period. e.g. value of auction bids. • What should the security requirement cover? e.g. auction bid values (4 yrs, 8yrs or other) over period from Capacity Allocation to Release Obligation? • Potential reassessment of levels of unsecured credit i.e. is it currently too high/low? • Who should make the initial assessment? If its near to or within the Incremental Capacity Allocation Proposal process could this be part of the Authority’s assessment? • How should ongoing assessment of security requirement be carried out? Role for National Grid/Xoserve? • Appeals against initial assessment could be to Authority but for appeals arising after the initial period is there a role for National Grid/Xoserve similar to current dispute processes?

6. Incremental Capacity – Relevant QSEC auctions for various implementation options QSEC auction (option c) QSEC auction (option a) Capacity release option c Changes implemented Capacity release option b QSEC auction (option b) Time 4.3 Question: Should any revision to security arrangements be applied to previous auction allocations that are yet to reach the capacity release date? • Options available for re-allocation of financial risk in respect of entry capacity could include: