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 1st 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