The Proposed Way Forward

1
The Proposed Way Forward

• Peter Bucks
• 25 April 2003

2
Industry Working Groups

• Objective
• Identify best practice in mitigating and managing
  NWO credit risk, in keeping with principles set
  out in Ofgems February 2003 document, to provide
  effective, transparent arrangements at an
  efficient cost
• Deliverables
• Recommend best practice guidelines (which will
  inform Ofgems 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 1st
  April 2004

3
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

4
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)

5
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

6
Terms of reference for working groups

• Steering group
• Develop recommended best practice guidelines
  which will be inform Ofgems 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

7
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

8
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
  Ofgems Statutory Duties
• Helpful if future credit proposals take into
  account the workgroup deliberations
• Pass through to be handled as previously

9
Promoting choice and value for all gas and
electricity customers