EBCC MEETING

24th November 2014

AGENDA

• 1.0 Introduction• 2.0 Minutes and Actions• 3.0 Operational Update• 4.0 Modifications• 5.0 Significant Code Review Update• 6.0 Bank Ratings• 7.0 Letter concerning Non Registrable Deposit Deed• 8.0 Review since April 2014• 9.0 Risk Register• 10.0 Team Structure• 11.0 AOB• 12.0 Dates of meetings for next 12 months

Operational Update

October 2014

Operational Update

• October 2014– 2 Cash Call issued which were appealed and withdrawn– Cash Collection 100%– Rolling 12 Months 99.98%– No Failure to pay notices issued– No Further Security Request Notices Issued

No Failure to Pay notices issued

Cash Collection

100.00% 100.00% 100.00% 100.00% 100.00%99.75%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

97%

98%

98%

99%

99%

100%

100%

% O

f Cas

h C

olle

cted

Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

Monthly Breakdown Of Cash Collected At Payment Due Date

Target PDD Collected PDD

Cash Collection

98%

99.61%

98%

99.36%

98%

99.26%

98%

99.73%

98%

99.90%

98%

99.98%

95%

96%

97%

98%

99%

100%

% O

f Cas

h Co

llect

ed

2009 2010 2011 2012 2013 2014

Yearly Cash Collection Targets Payment Due Date

Target PDD Collected PDD

Cash Call Issued

Yearly Total Of Cash Calls Issued

56

64

55

14

103

0

20

40

60

80

100

120

2010 2011 2012 2013 2014

No.

Of C

ash

Cal

ls

Value of Cash Call Issued

Yearly Total Value Of Cash Calls Issued

£13,034,000

£42,595,000

£20,582,000£17,998,000

£3,000,000

£0

£5,000,000

£10,000,000

£15,000,000

£20,000,000

£25,000,000

£30,000,000

£35,000,000

£40,000,000

£45,000,000

2010 2011 2012 2013 2014

Valu

e (£

's)

FTPCCN’s – issued & paid

Yearly Total of FTPCCN's Issued & Paid

4

1 1

2

00

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2010 2011 2012 2013 2014

No.

of C

ash

Cal

ls

Modifications

Significant Code Review Update

Security of Supply Significant Code Review

• OFGEM published their final proposal on 12th February 2014.• EBCC response provided to Ofgem on 11th April 2014.• Work is currently underway to put in place operational procedures as

per the mind maps previously discussed on the following slides. • OFGEM published their Notice of implementation on 23rd September

2014.• Project underway. Analysis commences 5/1/14 (23 wk Project)• Implementation to be effective from 05.00 hrs on 1st October 2015.

Mind Maps - SCR

• The following mind maps were put together to address areas where it was identified that additional work is required to operate. We are currently working through items highlighted as red.– Operating Process– Priority of Scoring for EBCC meetings– EBCC Operation– Relaxing Current arrangements EBCC

Operating Process

Delegation of Authority

Shipper information

System accessSuspension of

all services

Emergency MOD

Resource Cost Banking Services

Review sign off of credit payments

Reporting to ofgem/EBCC special arrangements

Review current rules

Succession + capability

MOD 233?

Skill set Exclude EBI availability

Availability

Suspension of holidays WLB of key staff

Daylight Limit

NGD Daily limits

Operating limits

Availability of CEO due to increased values

Contact list

Temporary shared area

Box account for communication

Delegated Authority levels

Operating Process

• Suspension of all Services

– As a committee we need to address the areas currently within the powers of the EBCC

– Review existing timescales and conclude what would be reasonable to suspend / relax? It was agreed by Committee to suspend the FSR process. All other processes would be business as usual.

• System Access

– existing rules for access require 5 day SLA need to agree special arrangements for identified resource – (On hold)

• Cost

– increase cost of resource consider how budget affected / may need to agree recovery via neutrality possible modification? This would need modification and careful drafting.

Operating System continued

• Modification 0233V - Changes to Outstanding Energy Balancing Indebtedness Calculation

- Xoserve have engaged with National Grid to review redrafting of modification.- Ofgem are aware of these proposals and will consider if the reasons for non

implementation have been addressed.

• Banking Services- We have discussed possibilities of increasing current overdraft facilities to

establish if feasible and to what maximum limit. From initial discussions the possibility of extending credit does not look possible, however further analysis is taking place to assess the potential values.

• Shipper Information:-- We will be writing out to all Users to confirm contact details with an ongoing 12

month review. Discussions have been held with our Analytical Team. – Still in progress.

Powers and Duties of EBCC

http://www.gasgovernance.co.uk/sites/default/files/EBCR%20Rules%20V3.20%20v1%20Approved%20

01.08.2014%20Master.pdf

Relaxing current arrangements Business rules

Security

Cash collectionMarket Operator

EBCC Meetings

Cash calls

No changes proposed.

Existing rules apply- due to arrangements drafting + under UK termination process S.1.7.

timing for convention of meeting

Appeal ProcessResource issues

Extend time?

Reduce or suspend appeal notice

No appeal criteria

Still issue

Payment terms extend ?

Timing extend?- 4pm – end of gas day

Agree with EBCC members no validation

FSR

Consider suspension for a period beyond invoices issued and paid

Validate cash call suite

System solution for manual adjustment

Manually update letters/notices as we do currently

Cost of funding change

Communication of delivery

Faxes? Scan, email or file interface

Aggregate exposure

Accepting LOC from lower rated organisations

% of exposure underwriting

Process going forward

Suspending/ excluding peak SAP calc

Priority of Scoring EBCC meetings

• Risk Categorising all parties to establish how to manage volumes of potential EBCC meetings in the event of an Emergency taking into account various sources of information.

• Example on following slide provides a suggested template to identify High, Medium or low risk customers.

• Aspiration to have this in place for all customers before Winter14.

• Reviewed monthly through monthly Operational Meetings and we will give some consideration on reporting requirements.

Priority of ScoringFor EBCC meetingsPortfolio

growth

Communication interactioncommercialintelligence reporting

Downgrade riskfactor risk

Security arrangements

Party underwriting

Payment trends

Over or under delivery trends

FSRs numberof cash calls over previous

period

Level of helpfulness

How they act in market

Ability to pay

Graydons

Moody’s

S + P

Priority Scoring - Low Risk Categorisation

XShipper B

XShipper C

XShipper A

lowMediumHigh

Always responds to communication.

Customer does not respond to communication within agreed time scales.

Yes – All in place prior to or on Renewal Date.

Security in place on Renewal Date

All paid on due date.Energy Balancing Invoices Paid on due Date

NoneCash Call Notices Issued last 12 months

Shipper A

Priority Scoring - Medium Risk Categorisation

XShipper B

XShipper C

XShipper A

lowMediumHigh

SometimesCustomer does not respond to communication within agreed time scales.

No – In place D+2Security in place on Renewal Date

No - 2 Occurrences over last 12 months

Energy Balancing Invoices Paid on due Date

NoneCash Call Notices Issued last 12 months

Shipper B

Priority Scoring - High Risk Categorisation

XShipper B

XShipper C

XShipper A

lowMediumHigh

FrequentlyCustomer does not respond to communication within agreed time scales.

No – Repeated Calls

Security in place on Renewal Date

4 Occurrences over last 12 months

Energy Balancing Invoices Paid on due Date

3 Failure to Pay Cash Calls

Cash Call Notices Issued last 12 months

Shipper C

Profiling Analysis

16151Further Security

Request

140198Cash Calls

3033104Cash Collection

121406Securities

LowMediumHighTotal = 167

Risk Profiling Results

6

104

8 1

40

33

19 5

121

30

140161

0

50

100

150

200N

umbe

r

High Medium Low

Risk Category

Risk Profiling ResultsSecurities

CashCollection

Cash Calls

FurtherSecurityRequest

Risk Profiling Commentary

• Cash Collection - although there are a large number of parties highlighted as highrisk. The risk is based upon a timing issue in responses from shippers and the pro-active approach of the CRM team. This results in the perception of risk rather than actual risk.

• Securities – 100% securities maintained. However, the medium to high categories reflect delayed responses, incomplete or altered security documents returned from parties and queries which further delay the completion of the security process.

• Cash Call – Anticipated relatively low volumes to be reflected within the medium to high categories. This is in most part due to maintaining sufficient security levels, pro-active cash call indebtedness monitoring and combined with advance warnings to parties of high indebtedness levels. Thereby, allowing them to address their indebtedness position.

• Further Security Requests – Driven by the cash call process. Anticipated low volumes within the two higher categories. It follows that the lower the number of cash calls issued the lower the likelihood of further security requests.

EBCC Operation

National Gridinput

Establish who from Xoserve

required Conflict of

interest

INCIDENTROOM

Ofgem’s role

Chair Availability

Quoracy

Gemserve members

appointment

Communication

Agree Adhoc appointment

process

Consider membership ofgem/another party

Priorities on orderOf discussion

Factors

Minutes

ChecklistsRecording

Review timing

Resources

EBCC Operation

• Conflict of Interest• Minutes – We would get additional Resource to support• Quoracy – Would we still require 3?• Ofgem’s role – Ofgem have provided a contact for SCR• National Grid’s role – Awaiting NG to confirm contact

Bank Ratings

Current Position

• Since April 2014 whilst the Banking outlook has been stable, there have been political developments in particular to EU and US sanctions applied against Russia.

• This has affected an existing User and New User wishing to enter the market. Both of these have been discussed at previous EBCC meetings.

• In July 2014 Deutsch Bank were downgraded by Moody's from A2 to A3, 8 Users would have been affected however the aggregate level remained in the same banding.

• In November Rabobank Netherlands were also downgraded by Standard and Poor's from AA- to A+ affecting 4 Users who have been.

• The following chart provides a summary of customers exposures to each rating category.

FI Risk Profile

• 8% of all FIs currently providing Security have been subject to a downgrade change during the previous 6 months by Standard and Poors and Moody’s Ratings Agencies.

• Currently 80% of FIs are in the lowest categories of investment grade rating. This reflects an 1% increase from the last reported figures. This is in part due to a movement within the same rating band.

FI Ratings Sept' 2014 4%0%16%

44%

32%

4%

>AA+/Aa1

>AA/Aa2

>AA-/Aa3

>A+/A1

>A/A2

>A-/A3

Aggregate secured credit by rating band

£5,3

45,0

00

£114

,347

,000

£24,

550,

000 £5

5,71

2,00

0

£56,

580,

000

£3,5

00,0

00

£128

,442

,500

£101

,415

,000

£61,

845,

000

£50,

210,

000

£3,5

00,0

00£25,

605,

000

£91,

622,

000

£148

,853

,000

£99,

025,

000

£0 £3,5

00,0

00

£1,7

75,0

00

£135

,123

,000

£76,

854,

000

£128

,942

,000

£0 £0£0£0

£20,000,000

£40,000,000

£60,000,000

£80,000,000

£100,000,000

£120,000,000

£140,000,000

£160,000,000

A3/

A-

A2/

A

A1/

A+

Aa3

/AA-

Aa2

/AA

>Aa1

/AA+

Apr-13Sep-13Apr-14Sep-14

Spread of FI Exposure

£62,000,000£25,605,000

Current Outlook

• Moodys undertook a rating review in June 2014. Since this review no FI’s are on Watch with Moody’s.

• S&P we previously reported 58% which were on Negative outlook. Since having commenced a significant review across a large number of FIs, this has increased to 77% showing a negative outlook.

S&P

20%

80%

stable

negative

Deposit Deeds

• Value of credit secured via Deposit Deed and LOC – comparison between Sept’2012 to Sept’ 2014

£332

,941

,500

£21,

407,

000

£342

,394

,000

£30,

761,

250

£362

,385

,000

£33,

474,

000

£345

,462

,000

£36,

006,

500

£357

,905

,000

£38,

579,

000

£0£50,000,000

£100,000,000£150,000,000£200,000,000£250,000,000£300,000,000£350,000,000£400,000,000

Sep-12 Apr-13 Sep-13 Apr-14 Sep-14

LOC

Deposit Deed

Summary

• Whilst we have seen a slight increase in the overall value of security during the period Sept’ 12 to Sept’ 14, there is a consistent move to lower rated financial institutions within each rating category.

• We continue to monitor those FI’s which are currently on possible negative outlook with Standard & Poors

Review since April 2014 Update

Review since April 2014

• Cash Collection figures on rolling 12 month performance remain the highest over the past 5 years.

• Cash Collection Monthly figures 100% over the past 12 months on 11 occasions.

• Continued pro-active engagement with Users reaching 70% of indebtedness to minimise Cash Calls. Which has resulted in the lowest quantity of Cash Calls issued over the previous 5 years.

• No Terminations managed - No financial losses• Security Renewals 100%• Energy Balancing Credit Rules were revised 1st August 2014 to provide more

clarity in respect of the calculation for existing users Security Requirements whereby funds held in the Cash Call Account are excluded from the calculation of peak indebtedness over the previous 12 months.

• The Credit Team recently undertook training with the Institute of Credit Management with 100% pass rate.

Focus for 2013/14 addressed at April 2013 meeting

• From the meeting held in April 2014, the following key areas were identified to focus on :-

– Increase the profile of the committee– Emergency Credit Rules – Watching brief on EU Reform

• Members to review if there are any other significant areas that they would like the committee to focus on.

Focus for 2014/15 Update

EBCC Customer Satisfaction (Nov 13)

EBCC Customer Satisfaction (Nov13)

96.67%

96.67%

90.00%

100.00%

93.33%

100.00%

96.67%

90.00%

93.33%

93.33%

100.00%

90.00%

95.00%

84.00% 86.00% 88.00% 90.00% 92.00% 94.00% 96.00% 98.00% 100.00% 102.00%

Accountability

Customer Focused

Delivery of Commitments

Expertise

Flexibility

Professionalism

Partnership

Quality of Deliverables

Skill

Strategic Objectives

Trust

Value Added

Overall Average

EBCC Customer Satisfaction Year on Year Comparison

EBCC Customer Satisfaction Overall Average

85.00%

92.50%

93.33%

95.00%

80.00% 82.00% 84.00% 86.00% 88.00% 90.00% 92.00% 94.00% 96.00%

2010

2011

2012

2013

Nov-13Nov-12Nov-11Nov-10

Focus for 2014/15

• Carried forward from 2013

– Increase the profile of the committee– Significant Code Review– Watching brief on EU Reform

• Focus for 2014/15

– Gemini Consequential change (UK Link Replacement programme)– Feedback from Customer Satisfaction (November 2013)– Exploitation of synergies with Neutrality finance

• Members to review if there are any other significant areas that they would like the committee to focus on.

AOB

EU Third Energy Package

Update

Team Changes

• Effective From 1st December 2014

– Sarah Blewer will be moving to the Credit Risk Team to replace Loraine O’Shaughnessy for 12 months secondment.

• Effective from 1st January 2015– Loraine will be moving over to manage the Energy Balancing

Invoicing Team.– Sandra Dworkin will be the lead on EBCC – James Sweeney will be moving over to Operational Change to

support UK Link.

Risk Register

Update

Register Part 1

Risk Register as at 24/11/13 :

3

Pre Gemini IMS this used to stop PIMS jobs running – since introduction of Gemini IMS this has not happened – once in 5 years. Controls and monitors are now in place to ensure files are received.

APX Gas files containing system prices and trades arrives late.H3

Suggest move

from a 3 to a 5

Has happened in Dec 05 and also recently when during Oracle OS upgrade UAT it was found that accruals not included in a D-1 or D-2 recalculation – twice in last 6 to 7 years – once in 5 years. April 08 data was uploaded incorrectly. Recent issues identified on the 7th of March and 6th April following batch job issues.

Calculation for IMS is found to be incorrect.H2

Suggest move

from a 2 to a 3

Once in 10 years – to date Gemini over 2 years Gemini has had 1 short overnight outage. Also due to Oracle Software Upgrade, Gemini affected between 22nd and 25th October. Loss of Gemini on 14th and 15th May due to Server problems. GRP implementation planned 9th June.

loss of Gemini system - sustained loss for 1 working day or moreH1

Likelihood Likelihood - commentsRisk

Register Part 2

Risk Register as at 24/11/13 :

4

Moody’s are currently have a schedule to review all FI’s current rating in June 2012. Moody’s review of FIs completed over the summer of 2012, S&P now anticipate conducting their own review.

Due to the current European financial climate, there is a risk that the number of FI’s meeting the relevant criteria to provide security could reduce significantly. H10

Suggest move from 3

to 4

Due to SCR Mod 233 this was put on hold to await outcome of SCR consultations. Potential implementation of OFGEM SCR proposal has the potential to increase the likelihood and impact of this issue.

In the absence of being unable to adjust the ABI calculation the industry could be unduly exposed to avoidable financial debt. Should NGD be aware of more up to date information. H9

Likelihood Likelihood - commentsRisk

3This happened once on 13/03/07 – Once in 5 years. Controls in place that would receive notification from CVA.

User’s unable to provide CVA data due to the CVA system / website being downH8

Voluntary Discontinuance

AOB

• Questions/ Any further business?