the fuel security code (designated by the secretary...

THE FUEL SECURITY CODE.DOC

THE FUEL SECURITY CODE

(Designated by the Secretary of State

as at 27th March, 1990

as a condition of licences

granted under section 6

of the Electricity Act 1989)


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CONTENTS

Clause Sub-Clause Heading Page

INTRODUCTION 5

1. CERTAIN POWERS OF THE SECRETARY OF STATE TO ISSUEDIRECTIONS

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51.01 The Electricity Act 1989 51.02 Power to direct operators of certain Power Stations 51.03 Power to direct Transmission Companies 5

2. OBLIGATIONS OF THE INDUSTRY 52.01 Standing Directions 52.02 Compliance with Directions 62.03 Licences 62.04 Licence Conditions 62.05 Inclusion of the Code as a Licence Conditions 62.06 Non-Licensees 62.07 Enforcement of the Code 6

3. OBJECTS AND PURPOSES OF THIS CODE 7

4. AMENDMENTS TO THE CODE 7

5. THE FUEL SUPPLIES COMMITTEE 8

PART 1. INTERPRETATION 9

1. NAME 9

2. DEFINITIONS 9

3. FURTHER INTERPRETATION 24

4. STATUS OF INTRODUCTION 25

5. THE FUEL SUPPLIES COMMITTEE 25

PART 2. GENERAL 27

1. INCLUSION WITHIN LICENCES 27

2. MODIFICATION UNDER SECTION 7(5) OF THE ACT 27

3. ILLEGALITY 28


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4. PRIORITIES 29

5. COMPLIANCE WITH PART XIV OF THE POOLING ANDSETTLEMENT AGREEMENT

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6. NOTICES 30

PART 3. PLANNING FOR A SECURITY PERIOD 31

1. OBLIGATIONS OF NGC 31

2. OBLIGATIONS OF OTHER LICENCE HOLDERS 32

3. COSTS INCURRED IN ANTICIPATION OF A POSSIBLE SECURITYPERIOD

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PART 4. OPERATING AND RECOVERY DURING A SECURITY PERIOD 35

1. OPERATION OF THE NGC TRANSMISSION SYSTEM 35

2. OPERATION OF DISTRIBUTION SYSTEMS 36

3. CLARIFICATION OF DIRECTIONS DURING A SECURITY PERIOD 36

PART 5. SECURITY PERIOD COST RECOVERY 38

1. SETTLEMENT DURING A SECURITY PERIOD 381.01 Pooling and Settlement 38

2. POST SECURITY PERIOD SETTLEMENT FOR GENERATORS 382.01 Preparation of Security Period Statement 382.02 Independent Audit of Security Period Statement 382.03 Information and Assistance 392.04 Assistance by NGC 392.05 Decision of Director as to Recoverable Security Period Costs 392.06 Interim Payments 402.07 Final Payments 412.08 Interest Adjustment 42

3. POST SECURITY PERIOD SETTLEMENT FOR NGC 433.01 Preparation of Security Period Statement 433.02 Independent Audit of Security Period Statement 443.03 Information and Assistance 443.04 Decision of Director as to Recoverable Security Period Costs 443.05 Interest Adjustment 453.06 Over Recovery 45


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4. POST SECURITY PERIOD SETTLEMENT FOR SUPPLIERS 45

4.01 Preparation of Security Period Statement 454.02 Independent Audit of Security Period Statement 454.03 Information and Assistance 464.04 Assistance by NGC 464.05 Decisions of Director as to Recoverable Security Period Costs 464.06 Interest Adjustment 47

PART 6. LONG TERM SECURITY COSTS 48

1.01 Preparation of Claims 481.02 Verification of Claims 481.03 Information and Assistance 481.04 Decisions of Director as to Recoverable Long Term Security Costs 491.05. Recovery by Generators 49

SCHEDULES

1. Illustrative non-exclusive list of information, additional to that specified in theGrid Code, that might be requested by NGC in its consultations with otherLicence Holders.

2. Illustrative non-exclusive lists of additional costs

3. Accounting Policies, Principles and Practices for preparation of SecurityPeriod Statements

4. Audit Reports

5. Form of Payment Instruction

6. Calculation of Notional Security Period Profit

7. Accounting Policies, Principles and Practices for preparation of Claims


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INTRODUCTION

1. CERTAIN POWERS OF THE SECRETARY OF STATE TO ISSUEDIRECTIONS

1.01 The Electricity Act 1989. Under section 34 and section 35 of the Act, the Secretaryof State has power to issue directions, for the purposes specified, to operators ofcertain Power Stations and to Transmission Companies (respectively).

1.02 Power to direct operators of certain Power Stations. The power under section 34of the Act enables the Secretary of State to direct an operator of any Power Stationwith a capacity of not less than a stated capacity (and which is fuelled otherwise thanby waste or manufactured gases) to make contingency arrangements with respect tolevels of fuel stocks and other materials. These powers enable him, inter alia, to directsuch an operator as to the manner in which it is to use such fuel stocks and othermaterials and also as to the manner in which it is to operate its Power Stations. Undersection 34(5)(d) and section 34(6) of the Act the Secretary of State may designateanother person to specify such matters in such manner as may be specified. Therecipient of a direction from the Secretary of State under section 34 of the Act neednot necessarily be licensed under the Act.

1.03 Power to direct Transmission Companies. The power under section 35 of the Actenables the Secretary of State, inter alia, to direct any Transmission Company notonly to consult with other persons and provide the Secretary of State with informationand advice for purposes connected with the Secretary of State's functions undersection 34 of the Act, but also, when a direction under section 34(4) of the Act is inforce, to operate its transmission system in a specified manner or with a view toachieving specified objectives.

2. OBLIGATIONS OF THE INDUSTRY

2.01 Standing Directions. The Secretary of State has given, with effect from the TransferDate, standing directions under (A) sections 34(3), 34(4)(x), 5(d) and (6) of the Actand Schedule 2 to the Energy Act 1976 in conjunction with section 35(7) of the Actand (B) section 35(1) of the Act for the purpose of making arrangements with respectto the levels of fuel stocks and other materials. The standing directions under sections34(3), 34(4)(a), 5(d) and (6) of the Act and Schedule 2 to the Energy Act 1976 inconjunction with section 35(7) of the Act are applicable to all Generators with PowerStations having a capacity of 10MW or higher.

Under section 34 and section 35 of the Act the Secretary of State may also at any timein the future issue further directions, as he sees appropriate, as to the creation andmaintenance of fuel stocks and as to related matters.


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2.02 Compliance with Directions. By virtue of section 107(1) of the Act, any person towhom a direction is given under the Act has a duty to give effect to that direction.Under section 35(5) of the Act, contravention of or failure to comply with a directionof the Secretary of State under section 34 or section 35 of the Act without reasonableexcuse is an offence carrying (on summary conviction) a fine not exceeding thestatutory maximum or (on conviction on indictment) a fine of an unlimited amount.

2.03 Licences. Under section 6 of the Act the Secretary of State after consultation with theDirector (or the Director with the consent of, or in accordance with a general authoritygiven by, the Secretary of State) may grant Licences authorising any persons togenerate, transmit or supply electricity. Under section 4 of the Act it is an offence fora person to generate, transmit or supply electricity unless he is authorised to do so bya Licence or is exempted under section 5 of the Act. An exemption has been grantedto all Generators exporting not more than 10MW, although any such Generator willbe at liberty to apply for a Licence should it wish to do so.

2.04 Licence Conditions. Under section 7(1) of the Act, a Licence may include suchconditions (whether or not relating to the activities authorised by the Licence) asappear to the grantor to be requisite or expedient having regard to the duties imposedby section 3 of the Act. Section 3 of the Act sets out the duties of the Secretary ofState and the Director in exercising the functions assigned or transferred to each ofthem by the Act. Section 7(4)(b) of the Act permits conditions authorised by section7(1)(a) of the Act to be included in Licences by way of reference to provisions set outin documents designated for that purpose.

2.05 Inclusion of the Code as a Licence Condition. The provisions of the Code havebeen and will be incorporated as conditions of Licences granted under section 6 of theAct through the operation of section 7(1)(e) of the Act in conjunction with section7(4)(b) of the Act.

2.06 Non-Licensees. The corollary is that the Code will not apply to any person whogenerates, transmits or supplies electricity without a Licence, even if such person isthe recipient of a direction from the Secretary of State under section 34 of the Act(e.g. an operator of a Power Station of more than the stated capacity) or even if suchperson is a party to the Pooling and Settlement Agreement (e.g. an operator of aPower Station that is exempt under section 5 of the Act). Any such person isrecommended to consider fuel security planning and operating in his contractualarrangements with other industry participants.

2.07 Enforcement of this Code. Under sections 25 to 28 of the Act, a regime isestablished to enable the Director to secure compliance with Licence conditions byway of orders (provisional and final).


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3. OBJECTS AND PURPOSES OF THE CODE

The principal objects and purposes of the Code are:

(A) To describe the arrangements that will apply from the Transfer Date for LicenceHolders to co-operate in strategic contingency planning in respect of fuel stocks.

(B) To describe the arrangements for the modification of the merit order despatch systemunder the Grid Code during a Security Period, with a view to conserving stocks offuel and other materials.

(C) To describe the basis upon which payments will be made for electricity during aSecurity Period.

(D) To provide for the identification, audit and recovery of certain costs incurred byLicence Holders in anticipation of a Security Period, during a Security Period andafter a Security Period.

(E) To ensure that, generally speaking, Generators will not be in a materially better orworse position in terms of profitability as a result of a Security Period.

(F) To ensure that, generally speaking, Suppliers and NGC will be able to recover bymeans of increased charges to their respective customers (to such extent as theDirector considers requisite or appropriate), costs which the Director has determinedunder the provisions of the Code should be so recovered.

4. AMENDMENTS TO THE CODE

4.01 Section 11 of the Act sets out a mechanism whereby the Director may modify theconditions of a Licence (in the absence of any direction from the Secretary of Statenot to make any modifications) if the holder of the Licence consents to the proposedmodifications. This requires the Director to publish a notice setting out variousmatters and to serve a copy of that notice on the holder of the Licence and alsorequires the Director to consider any representations or objections with respect to theproposed modifications which are duly made and not withdrawn.

4.02 Where a report of the Monopolies and Mergers Commission under section 13 of theAct on a reference to it by the Director under section 12 of the Act concludes, interalia, that modifications of conditions of Licences could remedy or prevent any effectsadverse to the public interest which matters relating to the generation, transmission orsupply of electricity in pursuance of a Licence have or may be expected to have, thenthe Director must under section 14 of the Act (having regard to modificationsspecified in the report) make such modifications to the conditions of that Licence asappear to him requisite for the purpose of remedying or preventing the adverse effectsspecified in the report. Before doing so the Director must publish a notice specifyingvarious matters and serve a copy of that notice on the holder of the Licence and mustalso consider any representations or objections with respect to the proposedmodifications which are duly made and not withdrawn.


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4.03 Under section 15 of the Act the Secretary of State may, in certain circumstances whenexercising certain powers under the Fair Trading Act 1973 and the Competition Act1980, provide for the modification of the conditions of a Licence to such extent asmay appear to him to be requisite or expedient for the purpose of giving effect to ortaking account of any provision made in exercise of those powers.

4.04 As permitted by section 7(5) of the Act, Clause 2 of Part 2 of this Code provides afurther mechanism for modifications to be made to the provisions of this Code.

5. FUEL SUPPLIES COMMITTEE

5.01 It is envisaged that NGC will be required to undertake activities fo r and on behalf ofthe Secretary of State under section 34(5)(d) and section 34(6) of the Act. Thisresponsibility will be in addition to any obligation imposed upon NGC by theSecretary of State by a direction under Section 35 of the Act.

5.02 In order to assist NGC in fulfilling such responsibilities and also to enable otherindustry participants to have access to a forum in which their views can be presented,it is envisaged that NGC will chair an informal committee (the "Fuel SuppliesCommittee"), composed of representatives of such industry participants, which will,inter alia, prepare and review plans, manuals and other arrangements to assist in theorderly conduct of the industry in planning for, and operating and recovering during, aSecurity Period.


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PART 1

INTERPRETATION

1. NAME

This Code shall be known as the "Fuel Security Code".

2. DEFINITIONS

In this Code, except where the context otherwise requires:

"Act" means the Electricity Act 1989;

"Active Energy" means the electrical energy produced, flowing or supplied by anelectrical circuit during a time interval, and being the integral with respect to time ofthe instantaneous power, measured in units of watt-hours or standard multiplesthereof, that is:

1000 Wh = 1 KWh1000 kWh = 1 MWh1000 MWh = 1 GWh1000 GWh = 1 TWh;

"Allowed security cost" means:

(A) in relation to a particular Supplier, all or any part of a cost which has becomedue and payable by that Supplier and which forms part of:

(i) (a) that proportion (if any) of the Recoverable Anticipatory Costs(if any) of each Generator;

(b) that proportion (if any) of the sum calculated in relation to eachGenerator for a particular Security Period by adding (i) theaggregate of the Recoverable Security Period Costs of thatGenerator for that Security Period and (ii) the Notional SecurityPeriod Profit of that Generator for that Security Period; or

(c) that proportion (if any) of the Recoverable Long Term SecurityCosts (if any) of each Generator for a particular SecurityPeriod,

which has been incurred by that Supplier in its Distribution Business or itsSupply Business or its Second Tier Supply Business, together with anySecurity Interest (which is a positive amount) for each Generator in relation toa particular Security Period; or


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(ii) (a) that proportion (if any) of the Recoverable Anticipatory Costs(if any) of NGC;

(b) that proportion (if any) of the Recoverable Security PeriodCosts (if any) of NGC for a particular Security Period; or

(c) that proportion (if any) of the Recoverable Long Term SecurityCosts of NGC for a particular Security Period,

which has been incurred by that Supplier in its Distribution Business or itsSupply Business or its Second Tier Supply Business, together with anySecurity Interest (which is a positive amount) for NGC in relation to aparticular Security Period; or

(iii) insofar as such cost does not form part of any of the costs referred to insub-paragraphs (A)(i) and (A)(ii) of this definition:

(a) the Recoverable Anticipatory Costs (if any) of that Supplier;

(b) the Recoverable Security Period Costs (if any) of that Supplierfor a particular Security Period; or

(c) the Recoverable Long Term Security Costs (if any) of thatSupplier for a particular Security Period,

together with any Security Interest (which is a positive amount) foreach Supplier in relation to a particular Security Period; or

(B) in relation to NGC, all or any part of a cost which has become due and payableby NGC and which forms part of:

(i) the Recoverable Anticipatory Costs (if any) of NGC; or

(ii) the Recoverable Security Period Costs (if any) of NGC for aparticular Security Period; or

(iii) the Recoverable Long Term Security Costs (if any) of NGC fora particular Security Period,

together with any Security Interest (which is a positive amount) for NGC inrelation to a particular Security Period;

"Anticipatory Cost" in relation to a particular Licence Holder, means a cost which theDirector has agreed under Sub-clause 3.01 of Part 3 should be incurred by thatLicence Holder (in the case of a Generator, in carrying on its Generation Business or,in the case of NGC, in carrying on its Transmission Business or, in the case of aSupplier, in carrying on its Distribution Business or its Supply Business or its SecondTier Supply Business) in anticipation of a possible Security Period (whether or notsuch contemplated Security Period subsequently commences);


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"Apparatus" means all equipment in which electrical conductors are used or supportedor of which they may form a part;

"Audited Security Period Profit" (or loss) in relation to a particular Generator for aparticular Security Period, means an amount (which, in the case of a loss, shall beexpressed as a negative figure) calculated by deducting the aggregate of allRecoverable Security Period Costs of that Generator for that Security Period from theAudited Security Period Revenue of that Generator for that Security Period;

"Audited Security Period Revenue" in relation to a particular Generator for aparticular Security Period, means the total revenue (excluding interest income and anyrelief, allowance or credit in respect of any taxes on gross or net income, profits orgains or any deduction in computing income, profits or gains for the purposes of anysuch taxes) earned by that Generator in respect of that Security Period in carrying onits Generation Business (including, for the avoidance of doubt, all amounts recoveredin respect of any Anticipatory Cost of that Generator the due date for payment ofwhich fell on or after the commencement of that Security Period but before the expiryof that Security Period) and, in the case of any Generator operating a nuclear powerstation pursuant to qualifying arrangements (as defined in Section 33(8) of the Act)made in pursuance of the order (Statutory Instrument 1990 No. 263 as amended byStatutory Instrument 1990 No. 494) made by the Secretary of State pursuant toSection 32 of the Act, adding the amount by which there has been any underpaymentof amounts due in respect of the Premium Payment and deducting the amount bywhich there has been any overpayment of amounts due in respect of the PremiumPayment, as reported by the Independent Auditor;

"Auditors" of a Licence Holder, means:

(A) in relation to a company, that Licence Holder's auditors for the timebeing holding office in accordance with the requirements of theCompanies Act 1985; and

(B) in relation to any other description of person, a person who is amember of one or more of the following bodies:

(i) the Institute of Chartered Accountants in England and Wales;

(ii) the Institute of Chartered Accountants of Scotland;

(iii) the Chartered Association of Certified Accountants; or

(iv) the Institute of Chartered Accountants in Ireland;

"British Grid Systems Agreement" means the agreement of that name made or to bemade between NGC, Scottish Hydro-Electric PLC and Scottish Power PLC inter aliaregulating the relationship between their respective grid systems;

"Central Despatch" means the process of Scheduling and issuing direct instructions byNGC referred to in paragraph 1 of Condition 7 of the NGC Transmission Licence and"Centrally Despatched" shall be construed accordingly;


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"Claim" in relation to a particular Licence Holder for a particular Claims Period,means a claim prepared and delivered by that Licence Holder to the Director inaccordance with Section 1 of Part 6;

"Claims Period" in relation to a Security Period, means the period of five yearscommencing on the date of expiry of that Security Period and ending on the daybefore the fifth anniversary of that date;

"Collection Bank" means a town clearing branch of a member of the Committee ofthe London and Scottish Clearing Banks (as constituted from time to time);

"Competent Authority" means the Secretary of State, the Director and any local ornational agency, authority, department, inspectorate, minister, ministry, official orpublic or statutory person (whether autonomous or not) of, or of the government of,the United Kingdom or the European Community;

"Customer" means a person to whom electrical power is provided (whether or not heis the provider of such electrical power);

"Distribution Business" in relation to a particular Supplier, has the meaning from timeto time ascribed to that term in the PES Licence granted to that Supplier;

"Distribution Code" in relation to any Public Electricity Supplier, means theDistribution Code required to be drawn up by such Public Electricity Supplier andapproved by the Director, as from time to time revised with the approval of theDirector;

"Distribution System" means the system consisting (wholly or mainly) of electriclines owned or operated by a Public Electricity Supplier and used for the distributionof electricity from Grid Supply Points or Generating Units or other entry points to thepoint of delivery to Customers or other Users and includes any Remote TransmissionAssets (as defined on the Grid Code) operated by such Public Electricity Supplier andany Plant and Apparatus and meters owned or operated by such Public ElectricitySupplier in connection with the distribution of electricity, but does not include anypart of the NGC Transmission System;

"Electricity" means Active Energy and Reactive Energy;

"Embedded" means having a direct connection to a Distribution System or the Systemof any other User to which Customers and/or Power Stations are connected, suchconnection being either a direct connection or a connection via a bulbar of anotherUser or of NGC (but with no other connection to the NGC Transmission System);

"External Interconnection" means Apparatus for the transmission of electricity to orfrom the NGC Transmission System into or out of an External System;

"Externally Interconnected Party" means a person operating an External Systemwhich is connected to the NGC Transmission System by an External Interconnection(which person may or may not also be an External Pool Member);


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"External Pool Member" means a person for the time being and from time to timeparty to the Pooling and Settlement Agreement (and any successor(s), in title to, orpermitted assign(s), of, such person) supplying electricity to or taking electricity fromthe NGC Transmission System through an External Interconnection and which hasbeen or (where appropriate) is to be admitted as a Pool Member in the capacity of aGenerator and/or a Supplier;

"External System" means, in relation to an Externally Interconnected Party, thetransmission or distribution system which it owns or operates and any Apparatus orPlant which connects that system to the External Interconnection and which is ownedor operated by such Externally Interconnected Party;

"Fuel Supplies Committee" has the meaning ascribed to that term in Sub-clause 5.02of the Introduction;

"Generating Unit" means any Apparatus which produces electricity and, in respect ofan External Pool Member, means a Generation Trading Block;

"Generation Business" in relation to a particular Generator, has the meaning fromtime to time ascribed to that term in the Generation Licence granted to that Generator;

"Generation Licence" means a licence granted or to be granted under section 6(1)(a)of the Act;

"Generator" means a person who generates electricity under a Generation Licence;

"Generation Trading Block" means a notionally Centrally Despatched GeneratingUnit of an External Pool Member treated as such for the purposes of the Grid Code;

"Grid Code" means the Grid Code drawn up pursuant to the NGC TransmissionLicence, as from time to time revised in accordance with the NGC TransmissionLicence;

"Grid Supply Point" means the point of supply from the NGC Transmission System toPublic Electricity Suppliers or to other Users with User Systems with Customersconnected to them or Non-Embedded Customers;

"GW" means Gigawatt;

"GWh" means Gigawatt-hour;

"Independent Auditor" means an auditor specified for this purpose from time to timeby the Director;

"Introduction" means the introduction to this Code;

"kW" means kilowatt;

"kWh" means kilowatt-hour;


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"LIBOR" for a particular month or part of a particular month, means the arithmeticaverage of the respective rates per annum quoted by three Collection Banks (specifiedfor this purpose from time to time by the Director) as the rate at which one monthdeposits for a sterling amount of £25 million are offered to leading Banks in theLondon Interbank Market at or about 11.00 am on the first Business Day of thatmonth, provided that if any of such Collection Banks shall be unable or otherwisefails to quote such offered rates by 1.00 pm on the relevant Business Day, the sameshall be determined on the basis of the quotations of the remaining Collection Banks;

"Licences" means all Generation Licences, PES Licences, Second Tier SupplyLicences and Transmission Licences and "Licence" means any or (as the context mayrequire) a particular one of them;

"Licence Holder" means the holder for the time being of a Licence;

"Long Term Security Cost" means:

(A) in relation to a particular Generator for a particular Security Period, anyadditional cost incurred by that Generator after that Security Period in carryingon its Generation Business which was:

(i) necessarily and properly incurred;

(ii) incurred in good faith and on arm's length terms;

(iii) insofar as the following basis is consistent with paragraphs (A)(i) and(A)(ii) of this definition, incurred on a basis consistent withcommercial practices and procedures that were normal and prudent;and

(iv) incurred after all reasonable efforts had been taken to establish that nopracticable alternative course of action (or inaction) was available at alower cost,

and which but for that Security Period would not have been incurred;

(B) in relation to NGC for a particular Security Period, any additional costincurred by NGC after that Security Period in carrying on its TransmissionBusiness which was:


(ii) incurred m good faith and on arm's length terms;

(iii) insofar as the following basis is consistent with paragraphs (B)(i) and(B)(ii) of this definition, incurred on a basis consistent withcommercial practices and procedures that were normal and prudent;and


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and which but for that Security Period would not have been incurred; and

(C) in relation to a particular Supplier for a particular Security Period, anyadditional cost incurred by that Supplier after that Security Period in carryingon its Distribution Business or its Supply Business or its Second Tier SupplyBusiness which was:



(iii) insofar as the following basis is consistent with paragraphs (C)(i) and(C)(ii) of this definition, incurred on a basis consistent withcommercial practices and procedures that were normal and prudent;and


and which but for that Security Period would not have been incurred,

apart from, in respect of any of paragraphs (A), (B) and (C) of this definition, any costfalling into any of the following categories:

(AA) that proportion of any cost incurred after the relevant Security Period which isor shall be recoverable out of any grant, subsidy, support or other form ofallowance from any Competent Authority;

(BB) taxes on gross or net income, profits or gains and value added and similartaxes (to the extent that such value added and similar taxes are recoverable),together with all penalties, charges and interest relating to any of them andregardless of whether any of the same are chargeable or attributable to therelevant Licence Holder or to any other person;

(CC) costs which derive from events occurring after the expiry of the relevantSecurity Period and which relate to a prior period under the accruals conceptas set out in the Statement of Standard Accounting Practice No. 2 (asamended) or any replacement of that Statement;

(DD) Security Interest;

(EE) any amount which any Licence Holder is entitled to recover as a consequenceof any determination made by the Director under Part 5 of this Code; and

(FF) Recoverable Anticipatory Costs or Recoverable Security Period Costs;


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"Master Connection and Use of System Agreement" means the agreement envisagedin Condition lOB of the NGC Transmission Licence;

"MVAr" means megavar;

"MW" means megawatt;

"MWh" means megawatt-hour ;

"NGC" means the National Grid Company plc (registered number 2366977) whoseregistered office is situated at National Grid House, Sumner Street, London SE1 9JU;

"NGC Transmission Licence" means the Transmission Licence granted or to begranted by NGC;

"NGC Transmission System" means the system consisting (wholly or mainly) of highvoltage electric lines owned or operated by NGC and used for the transmission ofelectricity from one Power Station to a sub-station or to another Power Station orbetween sub-stations or to or from any External Interconnection and includes anyPlant and Apparatus and meters owned or operated by NGC in connection with thetransmission of electricity but does not include any Remote Transmission Assets (asthat expression is defined in the Grid Code);

"Non-Embedded Customer" means a Customer, except for a PES, receiving electricitydirect from the NGC Transmission System irrespective of from whom it is supplied;

"Notional Security Period Profit" in relation to a particular Generator for a particularSecurity Period, means the amount calculated in relation to that Generator for thatSecurity Period in accordance with the formula set out in Schedule 6;

"Payment Instruction" means an instruction in the form set out in Schedule 5;

"PES Licence" means a licence granted or to be granted under Section 6(1)(c) of theAct;

"Plant" means fixed and movable items used in the generation and/or supply and/ortransmission of electricity, other than Apparatus;

"Pool Funds Administrator" means the person appointed for the time being and fromtime to time pursuant to Section 2 of Schedule 11 to the Pooling and SettlementAgreement or any replacement thereof from to time appointed pursuant to Section 3of that Schedule, to act as Pools Funds Administrator;

"Pool Member" means each of the Founder Generators and Founder Suppliers (as theexpressions are defined in the Pooling and Settlement Agreement) and any otherperson who is admitted to pool membership in accordance with Clause 8.2 of thePooling and Settlement Agreement, in each case until that person shall have resignedfrom pool membership or otherwise ceased to be a member in accordance with Clause


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8.7 or 60 (as the case may be) of the Pooling and Settlement Agreement, and "PoolMembership" shall be construed accordingly;

"Pool Rules" means the rules referred to in Clause 7.4 of the Pooling and SettlementAgreement and set out in Schedule 9 to, as amended, varied or substituted from timeto time in accordance with the terms of, the Pooling and Settlement Agreement;

"Pooling and Settlement Agreement" means the agreement of that title for the timebeing approved (or to be approved) by the Secretary of State or by the Director asfrom time to time amended with the approval of the Director and shall, where thecontext requires, include the Interim Pooling and Settlement Agreement approved (orto be approved) by the Secretary of State as from time to time amended with theconsent of the Secretary of State;

"Power Station" means an installation comprising one or more Generating Units (evenwhere sited separately), other than an External Interconnection, owned and/orcontrolled by the same Generator, which may reasonably be considered as beingmanaged as one Power Station;

"Premium Payments" has the meaning from time to time ascribed to that term in anycontract relating to capacity and output from nuclear stations, as certified by theDirector or the Secretary of State pursuant to section 32(7) of the Act;

"Public Electricity Supplier" or "PES" means a person who is a public electricitysupplier (as that expression is defined in Part I of the Act);

"Reactive Energy" means the integral with respect to time of the instantaneousReactive Power;

"Reactive Power" means the product of voltage and current and the sine of the phaseangle between them measured in units of voltamperes reactive and standard multiplesthereof, that is

1000 VAr = 1kVAr1000 kVAr = 1MVAr;

"Recoverable Anticipatory Cost" in relation to a particular Licence Holder, means anAnticipatory Cost of that Licence Holder the due date for payment of which falls (A)before the commencement of a Security Period or (8) on or after the expiry of aSecurity Period which commences after the agreement under Sub-clause 3.01 of Part3 in respect of that Anticipatory Cost was reached;

"Recoverable Long Term Security Cost" in relation to a particular Licence Holder,means a cost claimed by that Licence Holder which the Director has determined, inaccordance with Part 6, is a Long Term Security Cost;

"Recoverable Security Period Cost" in relation to a particular Licence Holder, meansa cost claimed by that Licence Holder which the Director has determined, inaccordance with Part 5, is s Security Period Cost;


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"Retail Price Index" in relation to a particular Licence Holder, means the generalindex of retail prices published by the Department of Employment each month inrespect of all items or:

(A) if the index for any month in any year shall not have been published on orbefore the last day of the third month after such month, such index for suchmonth or months as the Director may after consultation with that LicenceHolder determine to be appropriate in the circumstances; or

(B) if there is a material change in the basis of the index, such other index as theDirector may after consultation with that Licence Holder determine to beappropriate in the circumstances;

"Scheduling" means the process of compiling and issuing a Generation Schedule (asthat expression is defined in the Grid Code), as set out in that portion of the Grid Codewhich is identified as SCD1 in the Grid Code;

"Second Tier Supplier" means a person who holds a Second Tier Supply Licence;

"Second Tier Supply Business" in relation to a particular Supplier, has the meaningfrom time to time ascribed to that term in the PES Licence granted to that Supplier;

"Second Tier Supply Licence" means a licence granted or to be granted under Section6(2)(a) of the Act;

"Security Interest" means:

(A) in relation to a particular Generator for a particular Security Period, anyamount (whether positive or negative) that, with the approval of the Directoror at his direction in accordance with Sub-clause 2.07 of Part 5, is produced,by:

(i) aggregating any amounts calculated in accordance with paragraphs(A)(ii) and (A)(iii) of Sub-clause 2.07 of Part 5;

(ii) deducting from the figure established pursuant to paragraph (A)(i) ofthis definition the sum of any amounts calculated in accordance withparagraphs (A)(iv) and (A)(v)(b) of Sub-clause 2.07 of Part 5;

(iii) adding to the figure established pursuant to paragraphs (A)(i) to (A)(ii)of this definition any amount to which that Generator is entitledpursuant to Sub-clause 2.08 of Part 5; and

(iv) deducting from the figure established pursuant to paragraphs (A)(i) to(A)(ii). of this definition any amount for which that Generator is liablepursuant to Sub-clause 2.08 of Part 5;

(B) in relation to NGC for a particular Security Period, any amount calcula ted inrelation to NGC in accordance with Sub-clause 3.05 of Part 5 by, or subject tothe approval of, the Director; and


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(C) in relation to a particular Supplier for a particular Security Period, any amountcalculated in relation to that Supplier in accordance with Sub-clause 4.06 ofPart 5 by, or subject to the approval of, the Director;

"Security Period" means a period commencing on the date on which any directionissued by the Secretary of State under Section 34(4)(b) of the Act enters effect andterminating on the date (being not earlier than the date such direction, as varied, isrevoked or expires) as the Director, after consultation with such persons (including,without limitation, Licence Holders liable to be principally affected) as he shallconsider appropriate, may with the consent of the Secretary of State by notice to allLicence Holders determine, after having regard to the views of such persons;


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"Security Period Cost" means:

(A) in relation to a particular Generator for a particular Security Period, any costincurred by that Generator during that Security Period in carrying on itsGeneration Business, any Anticipatory Cost of that Generator the due date forpayment of which fell on or after the commencement of that Security Periodbut before the expiry of that Security Period, and any cost incurred on or afterthe expiry of that Security Period in purchasing replacements of stocks of fuelwhich were consumed by that Generator during that Security Period but whichwere not replaced by fuel purchased during that Security Period, which (in thecase of each such cost referred to in the foregoing paragraph) was:



(iii) insofar as the following basis is consistent with sub-paragraphs (A)(i)and (A)(ii) of this definition, incurred on a basis consistent withcommercial practices and procedures that were reasonable and prudentin the circumstances; end

(iv) incurred after such efforts as were reasonable in the circumstances hadbeen taken to minimise such cost;

(B) in relation to NGC for a particular security Period, any additional cost incurredby NGC during that Security Period in carrying on its Transmission Businessand any Anticipatory Cost the due date for payment of which fell on or afterthe commencement of that Security Period but before the expiry of thatSecurity Period, which (in the case of each such cost referred to in theforegoing paragraph) was:



(iii) insofar as the following basis is consistent with paragraphs (B)(i) and(B)(ii) of this definition, incurred on a basis consistent withcommercial practices and procedures that were reasonable andprudent in the circumstances; and


and which but for that Security Period would not have been incurred; and

(C) in relation to a particular Supplier for a particular Security Period, anyadditional cost incurred by that Supplier during that Security Period incarrying on its Distribution Business or its Supply Business or its Second TierSupply Business and any Anticipatory Cost of that Supplier the due date forpayment of which fell on or after the commencement of that Security Period


21

but before the expiry of that Security Period, which (in the case of each suchcost referred to in the foregoing paragraph) was:



(iii) insofar as the following basis is consistent with paragraphs (C)(i) and(C)(ii) of this definition, incurred on a basis consistent withcommercial practices and procedures that were reasonable and prudentin the circumstances; and


and which but for that Security Period would not have been incurred,

apart from, in respect of any of paragraphs (A), (B) and (C) of this definition, any costfalling into any of the following categories:

(AA) that proportion of any cost incurred during the relevant Security Period whichis recoverable out of any grant, subsidy, support or other form of allowancefrom any Competent Authority;

(BB) taxes on gross or net income, profits or gains and value added and similartaxes (to the extent that such value added and similar taxes are recoverable),together with all penalties, charges and interest relating to any of them andregardless of whether any of the same are chargeable or attributable to therelevant Licence Holder or to any other person;

(CC) in the case of a Generator only, interest expense;

(DD) costs which derive from events occurring before the commencement of therelevant Security Period and which relate to a prior period under the accrualsconcept as set out in the Statement of Standard Accounting Practice No. 2 (asamended) or any replacement of that Statement;

(EE) that proportion of any cost which is incurred during the relevant SecurityPeriod which benefits the period following the Security Period; and

(FF) Recoverable Anticipatory Costs or Recoverable Long Term Security Costs;


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"Security Period Profit" (or loss), in relation to a particular Generator for a particularSecurity Period, means an amount (which in the case of a loss, shall be expressed as anegative figure) calculated by deducting the aggregate of all Security Period Costs ofthat Generator for that Security Period from the Security Period Revenue of thatGenerator for that Security Period, as shown in the relevant Security Period Statementdelivered to the Director in accordance with the provisions of sub-clause 2.01 of PartS of this Code;

"Security Period Revenue" in relation to a particular Generator for a particularSecurity Period, means the total revenue (excluding interest income and any relief,allowance or credit in respect of any taxes on gross or net income, profits or gains orany deduction in computing income, profits or gains for the purposes of any suchtaxes) earned by that Generator in respect of that Security Period in carrying on itsGeneration Business (including, for the avoidance of doubt, all amounts recovered inrespect of any Anticipatory Cost of that Generator the due date for payment of whichfell on or after the commencement of that Security Period but before the expiry of thatSecurity Period) and, in the case of any Generator operating a nuclear power stationpursuant to qualifying arrangements (as defined in Section 33(8) of the Act) made inpursuance of the order (Statutory Instrument 1990 No. 263 as amended by StatutoryInstrument 1990 No. 494) made by the Secretary of State pursuant to Section 32 ofthe Act, adding the amount by which there has been any underpayment of amountsdue in respect of the Premium Payment and deducting the amount by which there hasbeen any overpayment of amounts due in respect of the Premium Payment, as shownin the relevant Security Period Statement delivered to the Director in accordance withthe provisions of Sub-clause 2.01 of Part 5 of this Code;

"Security Period Statement" means:

(i) in relation to a particular Generator for a particular Security Period, thestatement prepared by that Generator for that Security Period pursuantto Sub-clause 2.01 of Part 5;

(ii) in relation to NGC for a particular Security Period, the statementprepared by NGC for that Security Period pursuant to Sub-clause 3.01of Part 5; and

(iii) in relation to a particular Supplier for a particular Security Period, thestatement prepared by that Supplier for that Security Period pursuant toSub-clause 4.01 of Part 5;

"Supplier" means a person who supplies electricity under a PES Licence;

"Supply Business" in relation to a particular Supplier, has the meaning from time totime ascribed to that term in the PES Licence granted to that Supplier;

"System" means any User System or the NGC Transmission System, as the case maybe;

"Total System" means the NGC Transmission System and all User Systems inEngland and Wales;


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"Transfer Date" means such date as may be appointed by the Secretary of State byorder under Section 65 of the Act;

"Transmission Business" in relation to a particular Transmission Company, has themeaning from time to time ascribed to that term in the Transmission Licence grantedto that Transmission Company;

"Transmission Company" means a person who transmits electricity under aTransmission Licence;

"Transmission Licence" means a licence granted or to be granted under Section6(1)(b) of the Act, the authorised area of which is England and Wales or any part ofeither thereof;

"TW" means terrawatt;

"TWh" means terrawatt-hour;

"User" means a term utilised in various sections of the Grid Code to refer to a personusing the NGC Transmission System and includes an Externally Interconnected Party,all as more particularly identified in each section of the Grid Code concerned;

"User System" means:

(A) other than in relation to an External Pool Member or an ExternallyInterconnected Party, any system owned or operated by a User comprisingGenerating Units and/or Distribution Systems (and/or other systemsconsisting, wholly or mainly, of electric lines which are owned or operated bya person other than a PES) and Plant and/or Apparatus connecting GeneratingUnits, Distribution Systems (and/or other systems consisting, wholly ormainly, of electric lines which are owned or operated by a person other than aPES) or Non-Embedded Customers to the NGC Transmission System or(except in the case of Non-Embedded Customers) to the relevant other UserSystem, as the case may be, but does not include any part of the NGCTransmission System; and

(B) in relation to an External Pool Member or an Externally Interconnected Party,the External System connected to the relevant External Interconnection;

"Wh" means watt-hours.


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3. FURTHER INTERPRETATION

3.01 In this Code, except where the context otherwise requires, any reference to:

(A) an Act of Parliament or any Part or section or other provision of, or Scheduleto, an Act of Parliament shall be construed, at the particular time, as includinga reference to any modification, extension or re-enactment thereof then inforce and to all instruments, orders or regulations then in force and madeunder or deriving validity from the relevant Act of Parliament;

(B) any agreement or any deed or other instrument shall be construed as areference to that agreement, deed or other instrument as the same may havebeen, or may from time to time be, amended, varied, supplemented or novated;

(C) the terms "Director" and "Secretary of State" shall have the same meanings asin the Act;

(D) an "affiliate" means, in relation to any person, any holding company orsubsidiary of such person or any subsidiary of a holding company of suchperson, in each case within the meaning of sections 736, 736A and 736B ofthe Companies Act 1985 as substituted by section 144 of the Companies Act1989 (and if that latter section is not in force, as if it were in force);

(E) a "person" includes any individual, partnership, firm, company, corporation,joint venture, trust, association, organisation or other entity, in each case,whether or not having separate legal personality;

(F) a "related undertaking" means, in relation to any person, any undertaking inwhich such person has a participating interest as defined by section 260 of theCompanies Act 1985 as substituted by section 22 of the Companies Act 1989(and if that latter section is not in force, as if it were in force);

(G) an "undertaking" has the meaning given to the expression by section 259 ofthe Companies Act 1985 as substituted by section 22 of the Companies Act1989 (and if that latter section is not in force, as if it were in force);

(H) a "day" means a period of 24 hours (or such other number of hours as may berelevant in the case of changes for daylight saving) ending at 12.00 midnight;

(I) a "Business Day" means any week day (other than a Saturday) on which banksare open for domestic business in the City of London;,

(J) a "working day" shall have the same meaning as in the Act;

(Ii) a "month" means a calendar month;

(L) a "year" means a calendar year; and


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(M) a "financial year" in relation to a particular Generator, has the meaning fromtime to time ascribed to that term in the Generation Licence granted to thatGenerator.

3.02 In this Code:

(A) references to the masculine shall include the feminine and references in thesingular shall include references in the plural and vice versa, and wordsdenoting natural persons shall include companies, corporations and any otherlegal entity and vice versa;

(B) references to the word "include" or "including" are to be construed withoutlimitation;

(C) except where the context otherwise requires, references to a particular Part,Clause, Sub-clause, paragraph or Schedule shall be a reference to that Part,Clause, Sub-clause, paragraph or Schedule in or to this Code;

(D) the table of contents, headings, notes and commentaries are inserted forconvenience only and shall be ignored in construing this Code;

(E) references to the Director exercising his discretion shall be construed asreferences to the Director exercising his discretion in a manner consistent withhis duties under the Act; and

(F) references to time are to London time;

4. STATUS OF INTRODUCTION

The Introduction has been included in this Code for the sake of clarity andcompleteness so as to assist the reader in understanding the reasons for and the background tothis Code. As such, the Introduction imposes no obligations and shall not be binding or of anyforce or effect. Furthermore, except in relation to the definition of Fuel Supplies Committeein Clause 2 of this Part, the provisions contained in the Introduction (including the headingsto such provisions) shall not affect the interpretation or construction of any of the provisionsof this Code.

5. THE FUEL SUPPLIES COMMITTEE

5.01 The Fuel Supplies Committee is not intended to be formally constituted and is notintended to have any binding authority. As such, the Secretary of State, the Director,any person specified under Section 34(5)(d) of the Act and any other person will beunder no obligation, by virtue of the provisions of this Code, to recognise either theexistence of the Fuel Supplies Committee or any of its decisions.

5.02 Whilst any plans, manuals and other arrangements produced by the Fuel SuppliesCommittee will assist in the orderly conduct of the industry in planning for, and


26

operating during, a Security Period and provide valuable guidance to the industry forsuch purpose, any such plans, manuals or other arrangements will not, by virtue of theprovisions of this Code, be binding on the Secretary of State, the Director, any personspecified under Section 34(5)(d) of the Act or any other person and neither theSecretary of State, the Director, any person specified under Section 34(5)(d) of theAct nor any other person will be requited, by virtue of the provisions of this Code, torecognise or comply with the provisions of any such manual, plan or otherarrangement.


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PART 2.

GENERAL

1. INCLUSION WITHIN LICENCES

1.01 The provisions of this Code, as from time to time amended, varied and modified, shallbe read and construed together as one document with, and as if they were includedwithin, each Licence in which provision is made for the holder of that Licence tocomply with this Code and for the provisions of this Code to have effect as if theywere set out in that Licence.

2. MODIFICATION UNDER SECTION 7(5) OF THE ACT

2.01 In addition to (but without prejudice to) the powers of modification contained insections 11 to 15 of the Act, but subject to Sub-clause 2.02 of this Part, the Secretaryof State after consultation with the Director, or the Director with the consent of, or inaccordance with a general authority given by, the Secretary of State, may (havingregard to his duties under the Act) modify any provision of this Code in such manneras appears to him to be appropriate in any of the following circumstances:

(A) where he reasonably considers that such modifications are of a minor andinconsequential nature; or

(B) where the consent of all Licence Holders has first been obtained; or

(C) where he considers (having regard in addition to his duties under the Act toany representations or objections which are duly made and not withdrawn, tothe periods of time within which the Director considers it desirable tointroduce such modifications and to the availability of the powers ofmodification contained in sections 11 to 15 of the Act) that such modificationsare in the best interests of the electricity industry as a whole; or

(D) where, on the basis of written submissions made by a Generator, he issatisfied, after making such consultations with such other Licence Holders ashe shall consider appropriate in the circumstances (and having regard inaddition to his duties under the Act to the written submissions made to him bythat Generator, to the views of such other Licence Holders expressed in suchconsultations, and also to any representations or objections which are dulymade and not withdrawn), that it would be equitable to make suchmodifications in order to ensure that no Generator is, or would be, by virtue ofthe provisions of this Code, in a materially better or worse position in terms ofits profitability as a result of a Security Period; or

(E) where, on the basis of written submissions made by a Supplier or NGC, he issatisfied, after making such consultations with such other Licence Holders ashe shall consider appropriate in the circumstances (and having regard in


28

addition to his duties under the Act to the written submissions made to him bythat Supplier oz NGC, to the views of such other Licence Holders expressed insuch consultations, and also to any representations or objections which areduly made and not withdrawn) that it would be equitable to make suchmodifications in order to ensure that neither NGC nor any Supplier is, orwould be, by virtue of the provisions of this Code, unable to recover by meansof increased charges to its customers (to such extent as the Director considersrequisite or appropriate), costs which the Director has determined under theprovisions of this Code should be so recovered.

2.02 Before making any modifications to any provision of this Code under paragraphs (B),(C), (D) or (E) of Sub-clause 2.01 of this Part the Secretary of State or, as the casemay be, the Director shall give to each Licence Holder a notice stating in such detailas he shall consider appropriate in the circumstances:

(A) the modifications proposed;

(B) in the case of paragraph (C) of Sub-clause 2.01 of this Part, the reasons whysuch modifications are considered to be in the best interests of the electricityindustry as a whole and the reasons why any powers of modification availablepursuant to sections 11 to 15 of the Act are not being utilised; and

(C) in the case of paragraphs (D) and (E) of Sub-clause 2.01 of this Part, thereasons why the Director is satisfied that it would be equitable to make suchmodifications,

and also specifying the period of time which he considers appropriate in thecircumstances within which representations or objections with respect to the proposedmodifications may be made.

2.03 The Secretary of State or, as the case may be, the Director shall promptly notify eachLicence Holder of any modifications to the provisions of this Code under Sub-clause2.01 of this Part when made.

3. ILLEGALITY

3.01 Notwithstanding anything to the contrary contained in this Code, but subject to thefollowing proviso, no Licence Holder shall be obliged by any provision of this Codeto take any action or refrain from taking any action to the extent that the relevantLicence Holder reasonably believes in the circumstances then subsisting that:

(A) by reason of any of the matters specified in Sub-clause 3.02 of this Part, suchaction or inaction would be unlawful or prohibited; and

(B) there is no defence (other than that provided for under this Sub-clause)available to the relevant Licence Holder in respect of such unlawfulness orprohibition,

provided that the relevant Licence Holder:


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(i) takes all efforts as are reasonable in the circumstances to confirm the truth andaccuracy of that belief; and

(ii) uses its best efforts to comply with the relevant provision in a manner which isnot unlawful or prohibited.

3.02 The matters referred to in Sub-clause 3.01 of this Part are as follows:

(A) Any Act of Parliament.

(B) Any order, decree or judgement of any court of competent jurisdiction.

(C) Any covenant, agreement, restriction, stipulation, instruction, provision,condition, or notice contained in a licence for the time being in force grantedin accordance with the Nuclear Installations Act 1965 (or legislationamending, replacing or modifying the same) or any consent, direction orapproval issued, or to take effect from time to time, under such licence andany emergency arrangements, operating rules or other matters from time totime approved by the relevant authority under, or pursuant to any suchagreements, restrictions, stipulations, instructions, provisions, conditions ornotices.

4. PRIORITIES

For the avoidance of doubt:

4.01 In the event of any inconsistency between any provision, of this Code and anydirection issued by the Secretary of State under Section 34 or Section 35 of the Act,the latter shall prevail.

4.02 In the event of any inconsistency between any provision of this Code and any of thePooling and Settlement Agreement or the British Grid Systems Agreement thatprovision shall prevail.

4.03 In the event of any inconsistency between any provision of this Code and thedecisions of or the terms of any manual or plan developed by the Fuel SuppliesCommittee, that provision shall prevail.

5. COMPLIANCE WITH PART XIV OF THE POOLING AND SETTLEMENTAGREEMENT

Each Licence Holder who is a party to the Pooling and Settlement Agreement shallcomply with Part XIV of the Pooling and Settlement Agreement insofar as applicableto that Licence Holder.


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6. NOTICES

The provisions of section 109 of the Act shall apply for the purposes of the delivery orservice of any documents or notices to be delivered or served pursuant to this Code.


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PART 3

PLANNING FOR A SECURITY PERIOD

Commentary (not forming pert of the Code)

1. Under section 35(1) of the Act the Secretary of State is empowered to give directionsrequiring NGC to give to the Secretary of State certain information or advice, afterconsulting specified persons.

2. A standing direction under section 35(1) of the Act has been given by the Secretary ofState to NGC requiring NGC to give to the Secretary of State periodic informationand advice as to levels of fuel stocks, after consulting with other Licence Holders.

3. Anon-exclusive illustrative list of information, additional to that specified in the GridCode, that might be requested by NGC in its consultations with other Licence Holdersis set out in Schedule 1.

1. OBLIGATIONS OF NGC

1.01 In addition to (but without prejudice to) any requirements from time to time imposedupon NGC by the Secretary of State under section 35(1) of the Act, NGC shall:

(A) prepare such plans as may be necessary for the operation of systems fordespatch of Power Stations to ensure continuity of electricity supplies during aSecurity Period on such planning assumptions as the Secretary of State mayfrom time to time specify;

(B) maintain, until the Director shall otherwise direct, records of:

(a) advice given to the Secretary of State by it under section 35(1) of theAct; and

(b) stocking arrangements implemented by Licence Holders pursuant todirections issued by the Secretary of State under section 34 of the Act;

(C) make available to the Director such of the records referred to in paragraph (B)of this Sub-clause as the Director may at any time request;

(D) report to the Secretary of State on all matters referred to in paragraphs (A) to(C) of this Sub-clause at such times or periods as the Secretary of State mayrequest; and

(E) without prejudice to the confidentiality provisions under the MasterConnection and Use of System Agreement and subject to any direction fromthe Director to the contrary, keep each Generator properly informed in relationto advice given to the Secretary of State by it under Section 35(1) of the Act,insofar as such advice affects that Generator.


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1.02 Costs incurred by NGC under Sub-clause 1.01 of this Part or under section 35(1) ofthe Act may only be recovered by NGC by an appropriate equitable increase on allcharges made in the course of its Transmission Business.

2. OBLIGATIONS OF OTHER LICENCE HOLDERS

Each Licence Holder who is for the time being a specified person under a directiongiven to NGC under section 35(1) of the Act shall, at the request of NGC, make itselfavailable for such consultation as NGC shall reasonably request for the purpose ofNGC complying with the direction given to it under section 35(1) of the Act.


1. In addition to their obligations under Clause Z of this Part, each Generator has, byvirtue of the standing direction given to it under sections 34(3), 34(4)(a) 5(d) end (6)of the Act and, most importantly for the present purposes, Schedule 2 to the EnergyAct 1976 in conjunction with section 35(7) of the Act, bees directed to provide to NGCperiodic information concerning levels of stocks of fuel as well as various otherinformation.

2. Any information provided by a Licence Bolder to NGC under Clause 2 of this Part orunder any such direction is provided subject to the confidentiality provisionscontained in the Master Connection and Use of System Agreement.

3. COSTS INCURRED IN ANTICIPATION OF A POSSIBLE SECURITYPERIOD

3.01 The Director may (having regard to his duties under the Act) at any time in his sole,absolute and unfettered discretion agree with any Licence holder that such LicenceHolder should incur an additional cost (in the case of a Generator, in carrying on itsGeneration Business or, in the case of NGC, in carrying on its Transmission Businessor, in the case of a Supplier, in carrying on its Distribution Business or its SupplyBusiness or its Second Tier Supply Business) in anticipation of a possible SecurityPeriod (whether or not such contemplated Security Period subsequently commences)which but for such agreement would not have been incurred and that suchAnticipatory Cost shall:

(A) if the due date for payment by the Licence Holder of that Anticipatory Costfalls before the commencement of a Security Period, be recoverable by thatLicence Holder on the basis set out in Sub-clause 3.03 of this Part; or

(B) if the due date for payment by the Licence Holder of that Anticipatory Costfalls on or after the commencement of a Security Period but before the expiryof that Security Period, be taken into account in determining the RecoverableSecurity Period Costs of that Licence Holder in relation to that SecurityPeriod; or

(C) if the due date for payment by the Licence Holder of that Anticipatory Costfalls on or after the expiry of a Security Period which commences after such


33

agreement, be recoverable by that Licence Holder on the basis set out in Sub-clause 3.03 of this Part.

3.02 The Licence Holder with whom the Director has reached an agreement undersub-clause 3.01 of this Part shall, promptly upon reaching such agreement, notify suchpersons as the Director may direct, in such detail as the Director may specify in suchdirection, of a description of the Anticipatory Costs which the Director has agreedwith that Licence Holder should be incurred.

3.03 If the due date for payment by a Generator of an Anticipatory Cost falls before thecommencement of a Security Period or on or after the expiry of a Security Periodwhich commences after the agreement under Sub-clause 3.01 of this Part in respect ofthat Anticipatory Cost was reached, then that Generator may with the approval of theDirector, and shall if directed to do so by the Director, at any time on or after the duedate for payment of that Anticipatory Cost:

(A) deliver to the Pool Funds Administrator a completed and duly authorisedPayment Instruction specifying the identity of that Generator and the amountof the relevant Anticipatory Cost, and that amount shall (being a positivefigure) be collected from Suppliers and be paid to that Generator inaccordance with the provisions of Part XIV of the Pooling and SettlementAgreement over such period, at such rate and otherwise on such basis as in theopinion or estimation of the Director is appropriate; and

(B) give to the Director and to the Suppliers a copy of such Payment Instructiontogether with, in the case of the Suppliers, such details of the amount specifiedin such Payment Instruction as the Director shall consider appropriate.

A Payment Instruction shall not be considered authorised until it has been approvedby a resolution passed at a duly convened and held meeting of the directors of therelevant Generator, signed by at least two directors of that Generator and thereaftercertified by, the Director following consultation by the Director with the Pool FundsAdministrator. A Payment Instruction shall cease to be considered authorised if, afterit has been certified by the Director, it is modified in any manner without the priorwritten consent of the Director.

Commentary (not forming part of the Code)

1. Any Anticipatory Cost of a Supplier, the due date for payment of which falls (A)before the commencement of a Security Period or (B) on or after the expiry of aSecurity Period which commences after the agreement under Sub-clause 3.01 of thisPert in respect of that Anticipatory Cost was reached, may be recovered by thatSupplier subject to and in accordance with the provisions set out in Condition 3F(Allowances is respect of security costs) of its Licence.

2. Any Anticipatory Cost of NGC, the due date for payment of which falls (A) before thecommencement of a Security Period or (B) on or after the expiry of a Security Periodwhich commences after the agreement under Sub-clause 3.01 of this Part in respect ofthat Anticipatory Cost was reached, may be recovered by NGC subject to and in


34

accordance with the provisions set out in Condition 4D (Allowances in respect ofsecurity costs) of its Licence.

3. This Part of the Code does not set out an exhaustive list of the arrangements forendurance planning. Licence Holders are also referred to:

(i) their obligations under directions in force from time to time under sections 34end 35 of the Act;

(ii the informal arrangements described in clause 5 of the Introduction withrespect to the Fuel Supplies Committee.


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PART 4.

OPERATING AND RECOVERY DURING A SECURITY PERIOD.

1. OPERATION OF THE NGC TRANSMISSION SYSTEM

1.01 NGC shall from time to time during a Security Period keep each other Licence Holderproperly informed as to the manner in which the NGC Transmission System (or anypart thereof) will be operated in order to give effect to a direction which has beengiven to it by the Secretary of State under Section 35(2) of the Act.

1.02 In giving effect to a direction given to it by the Secretary of State under Section 35(2)of the Act, NGC may make reference to applicable industry plans, manuals andarrangements as to the manner in which the NGC Transmission System is to operateand the objectives to be achieved by such operation during the relevant SecurityPeriod.

1.03 In the event of any inconsistency between the terms of the Grid Code (on the onehand) and the terms of any direction given by or on behalf of the Secretary of State toNGC under section 35(2) of the Act or to a Generator under section 34(4) of the Act(on the other) the latter shall prevail and the relevant terms of the Grid Code shall bedeemed to be modified accordingly to such extent and for such period of time as shallbe necessary to give effect to such direction (but not further or otherwise).

1.04 NGC shall, until directed otherwise by the Director, maintain records of allinformation supplied by it in accordance with Sub-clause 1.01 of this Part and of allsubsequent communication in relation to such information. NGC shall make availableto the Director such of those records as the Director may at any time request.


1. In addition to any obligation imposed on NGC pursuant to section 35(Z) of the Act t ooperate its transmission system either in a specified manner or with a view toachieving specified objectives, it is envisaged that the Secretary of State will in givingdirections to Generators under section 34(3) and section 34(4) of the Act utilisesection 34(5)(d) end section 34(6) of the Act to require things failing to be specifiedunder such directions to be specified by NGC in such manner as may be specified. Aprocedure for Generators to clarify things specified by NGC in such capacity isprovided for in Sub-clause 3.01 of this Part.

2. It is to be noted that a Security Period may continue after directions under section34(4) of the Act (end consequently section 35(2) of the Act) have elapsed or have beenrevoked. In the absence of these directions NGC will revert to operating itstransmission system in accordance with the provisions of the Grid Code.


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2. OPERATION OF DISTRIBUTION SYSTEMS

During a Security Period, each operator of a Distribution System shall operate thatDistribution System in a mariner that is consistent with the operation of the NGCTransmission System and, for such purpose, NGC shall make itself available for suchconsultation and shall provide such information as any operator of a DistributionSystem may reasonably request. To the extent that the operation of any suchDistribution System in that manner is inconsistent with the terms of the relevantDistribution Code, the terms of the relevant Distribution Code shall be deemed to bemodified accordingly to such extent and for such period of time as shall be necessaryfor such Distribution System to be operated without such inconsistency.

3. CLARIFICATION OF DIRECTIONS DURING A SECURITY PERIOD

3.01 In the event that during a Security Period a Generator considers any direction (or partthereof) under section 34 of the Act or any thing specified by a person specifiedpursuant to section 34(5)(d) of the Act to be unclear, contradictory or incomplete,then that Generator must, promptly upon becoming aware of the same, notify theSecretary of State (or, as the case may be, the person specified pursuant to section34(5)(d) of the Act) in reasonable detail of the direction or thing specified that itconsiders to be unclear, contradictory or incomplete and until clarification is receivedshall continue to comply with the direction or thing specified to the extent thatwithout clarification such compliance is possible. Upon receiving any suchnotification, the Secretary of State (or, as the case may be, that other person) mayprovide such clarification (if any) in such form as, in such case, he shall in his sole,absolute and unfettered discretion consider appropriate in the circumstances.

3.02 In the event that during a Security Period, before compliance by any Generator with adirection (or any part thereof) given to it under section 34 of the Act, compliance isconsidered by that Generator to be capable of being achieved in alternative ways withdifferent cost consequences then that Generator must, if it does not intend to pursuethe alternative which it reasonably considers would involve the least associated cost,promptly notify the Director of the alternative solutions which that Generatorconsiders to be available and its then best estimate of the associated costs and shalluntil such time (if any) as it is notified by the Director to the contrary, pursue thealternative which that Generator reasonably considers would involve the leastassociated cost.

3.03 NGC shall, until directed otherwise by the Director, maintain records of all thingsspecified by it in accordance with directions under section 34 of the Act and of allsubsequent communication in relation to the things that were so specified. NGC shallmake available to the Director such of those records as the Director may at any timerequest.


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1. The object of Sub-clause 3.01 of this Part is to provide a mechanism for theGenerators to clarify, during a Security Period, areas of uncertainty in directionsgiven to them under section 34 of the Act. In this way, Generators will be able toanalyse end form a more informed view as to whet exactly is required of them in orderto comply with such directions.

2. The object of Sub-clause 3.02 of this Part is to provide a mechanism for theGenerators to clarify with the Director, during a Security Period, which course ofaction of alternatives available (a11 of which would enable compliance withdirections given to them under section 34 of the Act to be achieved) should bepursued.

3. In addition to Sub-clause 3.02 of this Part, the provisions of Part S of this Codeenable the Director to make a determination at any time (after having regard, interalia, to any clarification given by the Director under Sub-clause 3.02 of this Part) asto whether any particular cost (or part thereof) claimed by a Licence Holder is or isnot a Security Period Cost. In appropriate circumstances it would be open to theDirector to make a determination as to whether any particular cost (or part thereof)claimed by a Licence Holder is or is not a Security Period Cost, However, theDirector may in his absolute discretion, during a Security Period, decline to do so. Inthat event, the Generator would nevertheless be obliged to comply with the direction;in such circumstances the determination would be made by the Director at some latertime, most likely after consultation with the Independent Auditor, whose functions arereferred to in Part 5 of this Code.


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PART 5.

SECURITY PERIOD COST RECOVERY

1. SETTLEMENT DURING A SECURITY PERIOD

1.01 Pooling and Settlement. During a Security Period, each Licence Holder who is a partyto the Pooling and Settlement Agreement shall comply with the provisions of thePooling and Settlement Agreement relating to payments for electricity during aSecurity Period insofar as applicable to that Licence Holder.

2. POST SECURITY PERIOD SETTLEMENT FOR GENERATORS

2.01 Preparation of Security Period Statement. Each Generator shall, in conjunctionwith its Auditors, as soon as possible following the end of a Security Period (and inany event within three months after the end of a Security Period or within such longerperiod as may before the end of such three month period be notified by the Director toall Generators), deliver to the Director a duly authorised Security Period Statementprepared in accordance with the accounting policies, principles and practices specifiedin Part I of Schedule 3 showing:

(A) the costs claimed by that Generator as Security Period Costs in respect of thatSecurity Period;

(B) the Security Period Revenue of that Generator in respect of that SecurityPeriod; and

(C) the Security Period Profit of that Generator in respect of that Security Period.

A Security Period Statement shall not be considered authorised until it has beenapproved by a resolution passed at a duly convened and held meeting of the directorsof the relevant Generator and until it has been signed by at least two directors of thatGenerator. A Security Period Statement once delivered to the Director may not bewithdrawn or amended. Following the delivery of a Security Period Statement inrespect of a particular Security Period each Generator shall thereafter deliver to theDirector, as soon as is practicable to do so, a further statement or statements (dulyauthorised as aforesaid) giving details of (i) the actual cost of purchasingreplacements of stocks of fuel which were consumed by that Generator during thatSecurity Period but which were not replaced by fuel purchased during that SecurityPeriod, and (ii) the actual amounts expended by that Generator in discharging after theend of that Security Period any other liabilities shown in that Security PeriodStatement as being costs claimed by that Generator as Security Period Costs in respectof that Security Period.

2.02 Independent Audit of Security Period Statement. Each Generator shall permit theIndependent Auditor to audit the Security Period Statement and any further statements


39

prepared and delivered by it to the Director in accordance with Sub-clause 2.01 of thisPart.

2.03 Information and Assistance. Each Generator and NGC shall, and each of them shallprocure that their respective representatives, advisers, affiliates and relatedundertakings (and the representatives and advisers of such affiliates and relatedundertakings) shall, promptly provide to the Director, the Independent Auditor andtheir respective representatives and advisers, both during and after a Security Period:

(A) any information or explanation requested by any of them;

(B) such access to their premises and to their books and records (in whatevermedium stored) and such access to their officers and employees as any ofthem may from time to time request; and

(C) all such other assistance as any of them may from time to time request,

for the purpose of (i) enabling the Independent Auditor to conduct an independentaudit of the Security Period Statement and any further statements prepared anddelivered by that Generator to the Director in accordance with Sub-clause 2.01 of thisPart, to make any adjustments required to reflect the actual amounts expended by thatGenerator in discharging after the end of that Security Period liabilities shown in thatSecurity Period Statement as being costs claimed by that Generator as Security PeriodCosts in respect of that Security Period and in particular (but without limitation) toadjust the accrual claimed by that Generator in respect of fuel stocks pursuant toparagraph (c)(ii) in Part I of Schedule 3 to reflect, as a Security Period Cost, the costof replacing such stocks, and deliver a report to the Director in the form set out in PartI of Schedule 4, and (ii) enabling the Director to determine whether any particularcost claimed by that Generator is or is not a Security Period Cost.

2.04 Assistance by NGC. NGC shall, at the request of a Generator, provide to thatGenerator such information from its records as that Generator may reasonably requestas being necessary for such Generator to prepare a Security Period Statement inrespect of a particular Security Period. For the avoidance of doubt, any suchGenerator shall not, by virtue of the preceding sentence of this Sub-clause, have anyright to inspect books or records maintained by NGC or have any access to thepremises, officers or employees of NGC.

2.05 Decisions of Director as to Recoverable Security Period Costs. The Director may,at any time (whether or not the Independent Auditor has completed his audit to thesatisfaction of the Director but having regard to any report delivered to him by theIndependent Auditor and also having regard to any clarification given to the relevantGenerator by the Director in accordance with Sub-clause 3.02 of Part 4), make adetermination as to whether any particular cost (or part thereof) claimed by aGenerator is or is not a Security Period Cost. In making such a determination theDirector may have regard to such evidence as the Generator may produce. Each costclaimed by a Generator to be a Security Period Cost in a Security Period Statementprepared and delivered to the Director in accordance with Sub-clause 2.01 of this Partshall (subject to any adjustments required to reflect the actual amounts expended bythat Generator in discharging after the end of that Security Period liabilities shown in


40

that Security Period Statement as being costs claimed by that Generator as SecurityPeriod Costs in respect of that Security Period and in particular (but withoutlimitation) to adjust the accrual claimed by that Generator in respect of fuel stockspursuant to paragraph (c)(ii) in Part I of Schedule 3 to reflect, as a Security PeriodCost, the cost of replacing such stocks) be deemed to be referred to the Director fordetermination as to whether such cost is or is not a Security Period Cost. Anydetermination by the Director as to whether any particular cost (or part thereof)claimed by a Generator is or is not a Security Period Cost shall be conclusive andbinding, save in the case of fraud. Any determination by the Director at any time as towhether any particular cost (or part thereof) claimed by a Generator is or is not aSecurity Period Cost will not create any presumption as to whether any similar cost(or part thereof) claimed by a Generator at that time or at any other time will or willnot be a Security Period Cost.

Commentary (not forming part of the Code),

It is anticipated that the Director will not make a final determination in relation to aparticular cost claimed by a Generator as a Security Period Cost in a Security PeriodStatement, the liability in respect of which was not discharged during that SecurityPeriod, until he has been notified by that Generator of the actual amounts expendedby that Generator in discharging that liability after the end of that Security Period.However, it is recognised that the Director is not compelled to wait in this mannerand may if he chooses make a determination in the absence of any such notification.

2.06 Interim Payments. A Generator shall, if directed to do so by the Director in writingat any time after the expiry of a Security Period but prior to a Payment Instructionbeing given to the Pool Funds Administrator in accordance with Sub-clause 2.07 ofthis Part:

(A) deliver to the Pool Funds Administrator a completed and duly authorisedPayment Instruction specifying the identity of that Generator and an amountspecified by the Director in such direction calculated on such basis as theDirector may determine as representing a payment in advance of any portionof any amount which the Director considers would otherwise have beenspecified in a Payment Instruction relating to that Generator given underSub-clause 2.07 of this Part; and



41

A Payment Instruction shall not be considered authorised until it has been approvedby a resolution passed at a duly convened and held meeting of the directors of therelevant Generator, signed by at least two directors of that Generator and thereaftercertified by the Director following consultation by the Director with the Pool FundsAdministrator. A Payment Instruction shall cease to be considered authorised if, afterit has been certified by the Director, it is modified in any manner without the priorwritten consent of the Director.

2.07 Final Payments. A Generator may with the approval of the Director, and shall ifdirected to do so by the Director, after the Director has made a determination inaccordance with Sub-clause 2.05 of this Part in respect of each cost claimed by thatGenerator to be a Security Period Cost in a Security Period Statement prepared anddelivered to the Director in accordance with Sub-clause 2.01 of this Part:

(A) deliver to the Pool Funds Administrator a completed and duly authorisedPayment Instruction specifying the identity of that Generator and an amountwhich shall be calculated in relation to that Generator as follows:

(i) deducting the Audited Security Period Profit of that Generator inrelation to that Security Period from the Notional Security PeriodProfit applicable to that Generator in respect of that Security Period;

(ii) adding to the figure established pursuant to paragraph (A)(i) of thisSub-clause an amount equal to interest, calculated (on the basis ofactual days elapsed and a year of 365 days) on an amount equal to theNotional Security Period Profit applicable to that Generator in respectof that Security Period (which shall be treated for the purpose of thiscalculation as having accrued to the Generator during the relevantSecurity Period at a rate per day calculated by dividing such NotionalSecurity Period Profit by the total number of days in such SecurityPeriod) at a rate equal to LIBOR for each successive period (the firstsuch period commencing on the first day of such Security Period andending on the last day of the then current calendar month (exceptwhere that is not a Business Day, in which case it shall end on the nextsucceeding day which is a Business Day) and each subsequent periodcommencing on the last day of the immediately preceding period andending (except as aforesaid) on the last day of each successive calendarmonth thereafter or, in the case of the last such period, on the effectivedate stated in the above-mentioned Payment Instruction delivered tothe Pool Funds Administrator in accordance with Schedule 5), suchinterest to accrue and be compounded at the end of each such period;

(iii) adding to the figure established pursuant to paragraphs (A)(i) and(A)(ii) of this Sub-clause an amount equal to interest on each costwhich is a Recoverable Security Period Cost of that Generator inrelation to that Security Period, calculated in each case (on the basis ofactual days elapsed and a year of 365 days) from the date ofdisbursement thereof until the effective date stated in theabove-mentioned Payment Instruction to the Pool FundsAdministrator, at the applicable rate for LIBOR established from time


42

to time in respect of each successive period referred to in paragraph(A)(ii) of this Sub-clause, such interest to accrue and be compoundedat the end of each such period;

(iv) deducting from the figure established pursuant to paragraphs (A)(i) to(A)(iii) of this Sub-clause an amount equal to interest on each item ofAudited Security Period Revenue of that Generator in relation to thatSecurity Period, calculated in each case (on the basis of actual dayselapsed and a year of 365 days) from the date of receipt thereof untilthe effective date stated in the above-mentioned Payment Instruction atthe applicable rate for LIBOR established from time to time in respectof each successive period referred to in paragraph (A)(ii) of thisSub-clause, such interest to accrue and be compounded at the end ofeach such period;

(v) deducting from the figure established pursuant to paragraphs (A)(i) to(A)(iv) of this Sub-clause an amount equal to the sum of (a) allamounts received by that Generator in consequence of any interimPayment Instruction given in relation to that Generator underSub-clause 2.06 of this Part and (b) interest on each such amountcalculated in each case (on the basis of actual days elapsed and a yearof 365 days) from the date of receipt of such amount until the effectivedate stated in the above-mentioned Payment Instruction at theapplicable rate of LIBOR established from time to time in respect ofeach successive period referred to in paragraph (A)(ii) of thisSub-clause, such interest to accrue and be compounded at the end ofeach such period,

and the amount so produced shall (if it is a positive figure) be collected fromSuppliers and be paid to the relevant Generator (or vice versa if such sum is anegative figure) in accordance with the provisions of Part XIV of the Poolingand Settlement Agreement over such period, at such rate and otherwise onsuch basis as in the opinion or estimation of the Director is appropriate; and



2.08 Interest Adjustment. In the event that, in relation to a particular Generator, the sumof (i) any outstanding unpaid balances of amounts specified in any PaymentInstructions given under Sub-clause 2.06 of this Part and (ii) any amount specified ina Payment Instruction given under Sub-clause 2.07 of this Part is:


43

(A) a positive figure, then that Generator shall be entitled to interest on suchamount; or

(B) a negative figure, then that Generator shall be liable for interest on suchamount,

calculated (on the basis of actual days elapsed and a year of 365 days) on theaggregate outstanding unpaid balance thereof from time to time, from the effectivedate stated in the Payment Instruction delivered to the Pool Funds Administratorunder Sub-clause 2.07 of this Part until such amount is paid in full at a rate (in respectof any period up to the effective date stated in the Payment Instruction underSub-clause 2.07 of this Part) equal to the applicable rate for LIBOR established underparagraph (A)(ii) of Sub-clause 2.07 in respect of each successive period referred to inthat paragraph and (in respect of any subsequent period) equal to LIBOR for eachsuccessive period of one month (the first such period .commencing on the effectivedate stated in the relevant final Payment Instruction in accordance with Schedule 5and ending on the last day of the then current calendar month (except where that is nota Business Day, in which case it shall end on the next succeeding day which is aBusiness Day) and each subsequent period commencing on the last day of theimmediately preceding period and ending (except as aforesaid) on the last day of eachsuccessive calendar month thereafter) such interest to accrue and be compounded atthe end of each such period. Such interest shall (if it has been calculated by referenceto a positive figure) be collected from Suppliers and be paid to the relevant Generator(or vice versa if it has been calculated by reference to a negative figure) in accordancewith the provisions of Part XIV of the Pooling and Settlement Agreement over suchperiod, at such rate and otherwise on such basis as in the opinion or estimation of theDirector is appropriate.

3. POST SECURITY PERIOD SETTLEMENT FOR NGC

3.01 Preparation of Security Period Statement. NGC shall, in conjunction with itsAuditors, as soon as possible following the end of a Security Period (and in any eventwithin three months after the end of a Security Period or within such longer period asmay before the end of such three month period be notified by the Director to NGC),deliver to the Director a duly authorised Security Period Statement prepared inaccordance with the accounting policies, principles and practices specified in Part IIof Schedule 3 showing the costs claimed by NGC as Security Period Costs in respectof that Security Period. A Security Period Statement shall not be consideredauthorised until it has been approved by a resolution passed at a duly convened andheld meeting of the directors of NGC and until it has been signed by at least twodirectors of NGC. A Security Period Statement once delivered to the Director may notbe withdrawn or amended. Following the delivery of a Security Period Statement inrespect of a particular Security Period NGC shall thereafter deliver to the Director, assoon as is practicable to do so, a further statement or statements (duly authorised asaforesaid) giving details of the actual amounts expended by NGC in discharging afterthe end of that Security Period liabilities shown in that Security Period Statement asbeing costs claimed by NGC as Security Period Costs in respect of that SecurityPeriod.


44

3.02 Independent Audit of Security Period Statement. NGC shall permit theIndependent Auditor to audit the Security Period Statement and any further statementsprepared and delivered by it to the Director in accordance with Sub-clause 3.01 of thisPart.

3.03 Information and Assistance. NGC shall, and it shall procure that its representatives,advisers, affiliates and related undertakings (and the representatives and advisers ofsuch affiliates and related undertakings) shall, promptly provide to the Director, theIndependent Auditor and their representatives and advisers both during and after aSecurity Period:




for the purpose of (i) enabling the Independent Auditor to conduct an independentaudit of the Security Period Statement and any further statements prepared anddelivered by NGC to the Director in accordance with Sub-clause 3.01 of this Part, tomake any adjustments required to reflect the actual amounts expended by NGC todischarge after the end of that Security Period liabilities shown in that Security PeriodStatement as being costs claimed by NGC as Security Period Costs in respect of thatSecurity Period, and deliver a report to the Director in the form set out in Part II ofSchedule 4, and (ii) enabling the Director to determine whether any particular costclaimed by NGC is or is not a Security Period Cost.

3.04 Decisions of Director as to Recoverable Security Period Costs.The Director may, at any time (whether or not the Independent Auditor has completedhis audit to the satisfaction of the Director but having regard to any report delivered tohim by the Independent Auditor), make a determination as to whether any particularcost (or part thereof) claimed by NGC is or is not a Security Period Cost. In makingsuch a determination the Director may have regard to such evidence as NGC mayproduce. Each cost claimed by NGC to be a Security Period Cost in a Security PeriodStatement prepared and delivered to the Director in accordance with Sub-clause 3.01of this Part shall (subject to any adjustments required to reflect the actual amountsexpended by NGC to discharge after the end of that Security Period liabilities shownin that Security Period Statement as being costs claimed by NGC as Security PeriodCosts in respect of that Security Period) be deemed to be referred to the Director fordetermination as to whether such cost is or is not a Security Period Cost. Anydetermination by the Director as to whether any particular cost (or part thereof)claimed by NGC is or is not a Security Period Cost shall be conclusive and binding,save in the case of fraud. Any determination by the Director at any time as to whetherany particular cost (or part thereof) claimed by NGC is or is not a Security PeriodCost will not create any presumption as to whether any similar cost (or part thereof)claimed by NGC at that time or any other time will or will not be a Security PeriodCost.


45

3.05 Interest Adjustment. Following a determination by the Director that a particular cost(or part thereof) is a Security Period Cost of NGC in relation to a particular SecurityPeriod, NGC shall be entitled to an additional amount equal to interest calculated (onthe basis of actual days elapsed and a year of 365 days) by, or subject to the approvalof, the Director, on that portion for the time being which has not yet been recovered ofthe outstanding unpaid balance of such cost, from the date of disbursement thereofuntil the date on which it is recovered in full, at a rate equal to LIBOR for eachsuccessive period (the first such period commencing on the first day of such SecurityPeriod and ending on the last day of the then current calendar month (except wherethat is not a Business Day, in which case it shall end on the next succeeding daywhich is a Business Day) and each subsequent period commencing on the last day ofthe immediately preceding period and ending (except as aforesaid) on the last day ofeach successive calendar month thereafter), such interest to accrue and becompounded at the end of each such period.

3.06 Over Recovery. Where any user of the NGC Transmission System is itself a LicenceHolder, the Director may issue directions requiring such Licence Holder to take suchsteps as may be specified to pass on the reimbursement of amounts recovered by NGCin excess of the allowed security costs to the customers of that Licence Holder.


The amount of NGC's Recoverable Security Period Costs end Security Interest, asdetermined by Sub-clauses 3.01 to 3.05, may be recovered by NGC subject to and inaccordance with the provisions set out in Condition 4D (Allowances in respect ofsecurity costs of its Licence.

4. POST SECURITY PERIOD SETTLEMENT FOR SUPPLIERS

4.01 Preparation of Security Period Statement. Each Supplier shall, in conjunction withits Auditors, as soon as possible following the end of a Security Period (and in anyevent within three months after the end of a Security Period or within such longerperiod as may before the end of such three month period be notified by the Director toall Suppliers), deliver to the Director a duly authorised Security Period Statementprepared in accordance with the accounting policies, principles and practices specifiedin Part III of Schedule 3 showing the costs claimed by that Supplier as Security PeriodCosts in respect of that Security Period. A Security Period Statement shall not beconsidered authorised until it has been approved by a resolution passed at a dulyconvened and held meeting of the directors of the relevant Supplier and until it hasbeen signed by at least two directors of that Supplier. A Security Period Statementonce delivered to the Director may not be withdrawn or amended. Following thedelivery of a Security Period Statement in respect of a particular Security Period eachSupplier shall thereafter deliver to the Director, as soon as is practicable to do so, afurther statement or statements (duly authorised as aforesaid) giving details of theactual amounts expended by that Supplier in discharging after the end of that SecurityPeriod liabilities shown in that Security Period Statement as being costs claimed bythat Supplier as Security Period Costs in respect of that Security Period.

4.02 Independent Audit of Security Period Statement. Each Supplier shall permit theIndependent Auditor to audit the Security Period Statement and any further statements


46

prepared and delivered by it to the Director in accordance with Sub-clause 4.01 of thisPart.

4.03 Information and Assistance. Each Supplier and NGC shall, and each of them shallprocure that their respective representatives, advisers, affiliates and relatedundertakings (and the representatives and advisers of such affiliates and. relatedundertakings) shall, promptly provide to the Director, his representatives and hisadvisers both during and after a Security Period:




for the purpose of (i) enabling the Independent Auditor to conduct an independentaudit of the Security Period Statement and any further statements prepared anddelivered by that Supplier to the Director in accordance with Sub-clause 4.01 of thisPart, to make any adjustment required to reflect the actual amounts expended by thatSupplier to discharge after the end of that Security Period liabilities shown in thatSecurity Period Statement as being costs claimed by that Supplier as Security PeriodCosts in respect of that Security Period, and deliver a report to the Director in theform set out in Part III of Schedule 4, and (ii) enabling the Director to determinewhether any particular cost claimed by that Supplier is or is not a Security PeriodCost.

4.04 Assistance by NGC. NGC shall, at the request of a Supplier, provide to that Suppliersuch information from its records as that Supplier may reasonably request as beingnecessary for such Supplier to prepare a Security Period Statement in respect of aparticular Security Period. For the avoidance of doubt, any such Supplier shall not, byvirtue of the preceding sentence of this Sub-clause, have any right to inspect books orrecords maintained by NGC or have any access to the premises, officers or employeesof NGC.

4.05 Decisions of Director as to Recoverable Security Period Costs. The Director may,at any time (whether or not the Independent Auditor has completed his audit to thesatisfaction of the Director but having regard to any report delivered to him by theIndependent Auditor), make a determination as to whether any particular cost (or partthereof) claimed by a Supplier is or is not a Security Period Cost. In making such adetermination the Director may have regard to such evidence as the Supplier mayproduce. Each cost claimed by a Supplier to be a Security Period Cost in a SecurityPeriod Statement prepared and delivered to the Director in accordance withSub-clause 4.01 of this Part shall (subject to any adjustment required to reflect theactual amounts expended by that Supplier to discharge after the end of that SecurityPeriod liabilities shown in that Security Period Statement as being costs claimed bythat Supplier as Security Period Costs in respect of that Security Period) be deemed tobe referred to the Director for determination as to whether such cost is or is not aSecurity Period Cost. Any determination by the Director as to whether any particular


47

cost (or part thereof) claimed by a Supplier is or is not a Security Period Cost shall beconclusive and binding, save in the case of fraud. Any determination by the Directorat any time as to whether any particular cost (or part thereof) claimed by a Supplier isor is not a Security Period Cost will not create any presumption as to whether anysimilar cost (or part thereof) claimed by a Supplier at that time or any other time willor will not be a Security Period Cost.

4.06 Interest Adjustment. Following a determination by the Director that a particular cost(or part thereof) is a Security Period Cost of a particular Supplier in relation to aparticular Security Period, that Supplier shall be entitled to an additional amountequal to interest, calculated (on the basis of actual days elapsed and a year of 365days) by, or subject to the approval of, the Director, on the portion for the time beingwhich has not yet been recovered of the outstanding unpaid balance of such cost, fromthe date of disbursement thereof until the date on which it is recovered in full, at a rateequal to LIBOR for each successive period (the first such period commencing on thefirst day of such Security Period and ending on the last day of the then currentcalendar month (except where that is not a Business Day, in which case it shall end onthe next succeeding day which is a Business Day) and each subsequent periodcommencing on the last day of the immediately preceding period and ending (exceptas aforesaid) on the last day of each successive calendar month thereafter), suchinterest to accrue and be compounded at the end of each such period.

Commentary (not forming part of the Code)

The amount of a Supplier's Recoverable Security Period Costs and Security Interest, asdetermined by Sub-clauses 4.01 to 4.06, may be recovered by that Supplier subject to and inaccordance with the provisions set out in Condition 3F (Allowances in respect of securitycosts) of its Licence.


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PART 6

LONG TERM SECURITY COSTS

1.01 Preparation of Claims. Subject to the following proviso, any Licence Holder may atany time during the Claims Period relating to a Security Period deliver to the Directora duly authorised Claim prepared in accordance with the accounting policies,principles and practices specified in Schedule 7 identifying each cost (if any), theliability relating to which has been discharged before the expiry of the Claims Period,which it claims is a Long Term Security Cost attributable to that Security Period,provided that if a Licence Holder shall have delivered to the Director during theClaims Period a duly authorised notice of a potential Claim identifying to thesatisfaction of the Director (in his sole, absolute and unfettered discretion) an event orcircumstance which that Licence Holder reasonably believes may occur or arisefollowing the expiry of the Claims Period, which event or circumstance it can bedemonstrated to the satisfaction of the Director (in his sole, absolute and unfettereddiscretion) can be expected to result in a Long Term Security Cost, such LicenceHolder may, if such Long Term Security Cost is incurred and the liability relatingthereto is discharged within three years after the expiry of the Claims Period, deliverto the Director a duly authorised Claim identifying the actual cost (if any) incurred bythat Licence Holder in respect of the previously notified potential Claim,notwithstanding the fact that the Claims Period has expired. Any such Claim or noticeof a potential Claim shall not be considered authorised until it has been approved by aresolution passed at a duly convened and held meeting of the directors of the relevantLicence Holder and until it has been signed by at least two directors of that LicenceHolder. Any such Claim once delivered to the Director may not be withdrawn oramended.

1.02 Verification of Claims. Each Licence Holder shall provide to the Director with anyClaim sufficient evidence (including reports from appropriately qualified experts) toenable the Director to determine whether any particular cost claimed by that LicenceHolder is or is not a Long Term Security Cost. The Director may if he wishes makesuch investigation and collect such other evidence (including reports fromappropriately qualified independent experts) as he shall in his sole, absolute andunfettered discretion think fit.

1.03 Information and Assistance. Each Licence Holder and NGC shall, and each of themshall procure that their respective representatives, advisers, affiliates and relatedundertakings (and the representatives and advisers of such affiliates and relatedundertakings) shall, provide to the Director, his representatives and his advisers:




49


for the purpose of enabling the Director to determine whether any particular costclaimed by that Licence Holder is or is not a Long Term Security Cost.

1.04 Decisions of Director as to Recoverable Long Term Security Costs. The Directormay, at any time (having regard to any evidence provided to him in accordance withClause 2 of this Part and also having regard to such other evidence as he shall in hissole, absolute and unfettered discretion think fit), make a determination as to whetherany particular cost (or part thereof) claimed by a Licence Holder is or is not a LongTerm Security Cost. Any determination by the Director as to whether any particularcost (or part thereof) claimed by a Licence Holder is or is not a Long Term SecurityCost shall be conclusive and binding, save in the case of fraud. Each cost claimed by aLicence Holder to be a Long Term Security Cost in a Claim prepared and delivered tothe Director in accordance with Clause 1.01 of this Part shall be deemed to be referredto the Director for determination as to whether such cost is or is not a Long TermSecurity Cost. Any determination by the Director at any time as to whether anyparticular cost (or part thereof) claimed by a Licence Holder is or is not a Long TermSecurity Cost will not create any presumption as to whether any similar cost (or partthereof) claimed by a Licence Holder at that time or at any other time will or will notbe a Long Term Security Cost.

1.05 Recovery by Generators. A Generator may with the approval of the Director, andshall if directed to do so by the Director, after the Director has made a determinationin accordance with Clause 1.04 of this Part in respect of each cost claimed by thatGenerator to be a Long Term Security Cost in a Claim prepared and delivered to theDirector in accordance with Clause 1.01 of this Part:

(A) deliver to the Pool Funds Administrator a completed and duly authorisedPayment Instruction specifying the identity of that Generator and theRecoverable Long Term Security Costs of that Generator referable to thatClaim and such Recoverable Long Term Security Costs shall (being a positivefigure) be collected from Suppliers, and be paid to that Generator inaccordance with the provisions of Part XIV of the Pooling and SettlementAgreement over such period, at such rate and otherwise on such basis as in theopinion of the Director is appropriate; and



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1. The amount of a Supplier's Recoverable Long Term Security Costs, as determined byClauses 1 to 4 above, may be recovered by that Supplier subject to and in accordancewith the provisions set out in Condition 3F (Allowances in respect of security costs) ofits Licence.

2. The amount of NGC's Recoverable Long Term Security Costs, as determined byClauses 1 to 4 above, may be recovered by NGC subject to end in accordance withthe provisions set out in Condition 4D (Allowance in respect of security costs) of itsLicence.


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SCHEDULE 1

(Illustrative non-exclusive list of information additionalto that specified m the Grid Code that might be requestedby NGC in its consultations with other Licence Holders)

1. FOSSIL FUEL DATA

1.1 For preparation of the security period clan

The following data will be provided to NGC annually when the security period plan isbeing prepared:

A. Storage capacities at each station (in kt) of:

(i) Coal.

(ii) HFO.

(iii) Secondary oil.

(iv) GT oil.

B. CVs of all fuels.

Generators also undertake to let NGC know, between security period plans, of anysignificant changes.

1.2 For monitoring Security Period capability

Stocks of coal held by Generators will be reported to NGC:

A. Weekly as a company total.

B. Monthly for individual stations/sites.

1.3 During, or in anticipation of, a Security Period

A. Generators will provide NGC, on a weekly basis, with:

(i) Stocks of fuel at each station.

(ii) Consumption and delivery of all fuel to each station.

B. Generators will notify NGC as soon as there are any changes to:

(i) fuel stock capacities.

(ii) CV of any fuel.


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(iii) the possibilities for redirecting fuel supplies.

2. NON NUCLEAR PLANT PERFORMANCE

2.1 For preparation of the security period plan

The following data will be provided to NGC annually (for the period up to 2 yearsahead) when the security period plan is being prepared:

A. Changes to plant performance under Security Period conditions from thoseregistered under the Grid Code. Items in this category would include, forexample, two shifting capabilities, minimum stable generation, run up rates;minimum on/off times.

B. Data enabling the normal scheduling process to be converted from one whichis price determinate to one which is fuel availability determinate.

e.g.:- Generator heat details; Generator fuel details; all related to a securityperiod situation and provided to a pre specified format.

C. For coal fired boilers details of:

(i) Oil for start up (hot and cold).

(ii) Oil for flame stabilisation (% of full load heat).

D. Details of plant outages for statutory inspection.

E. Changes to plant availabilities under Security Period conditions.



Generators will notify NGC, as soon as there are any changes to, or informationconcerning:

A. Plant performance under Security Period conditions differing from thoseregistered under the Grid Code.

B. Data enabling the normal scheduling process to be converted from one whichis price determinate to one which is fuel availability determinate.

C. Plant availabilities under Security Period conditions.

D. The oil requirements for start up and flame stabilisation.

E. Constraints arising from shortages of other commodities.


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3. NUCLEAR PLANT PERFORMANCE

3.1 For the Preparation of the security period plan

The following data will be provided to NGC annually (for the period up to 2 yearsahead) when the security period plan is being prepared:

A. Estimates applicable to a possible future Security Period of total annualnuclear Twh output (together with indicative values for each station) on amonthly review period basis.

B. Details of plant outages for statutory inspection.



Generators will notify NGC as soon as there are any changes to, or informationconcerning:

A. Estimates of annual nuclear output for each monthly review period on a stationbasis.

B. Plant outages as registered under the Grid Code.

C. Any constraints arising from shortages of other commodities.


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SCHEDULE 2

(Illustrative non-exclusive lists of additional costs)

PART I

(Illustrative non-exclusive list of additional coststhat might be incurred during a Security Period)

1. Additional computer models and settlement systems2. Delaying, accelerating, cancelling or otherwise rescheduling plant overhaul and

maintenance programmes3. Increases in fuel prices4. Increased plant maintenance costs5. Cost of reactivating dormant plant6. Increased costs of HM Customs and Excise delays7. Costs arising from 2-shifting and peak lopping plant usually run at base load8. Greater use of lighting up oil because of greater plant flexibility required9. Enhanced oil burn at coal plant10. Additional flue gas additives11. Increased cost of handling/storing "difficult" fuels12. Increased nuclear fuel costs13. Higher costs of road transport14. Increased invoicing and checking of road transport deliveries15. Increased costs of ships queuing to unload cargoes16. Costs of redeployment of coal17. Hiring of additional tankers for storage18. Liability arising from local authority road repairs19. Increased costs through falling exchange rates20. Liability arising from rescheduling of trains and track maintenance21. Higher costs associated with direct deliveries by suppliers to small stations22. Provision of large flat unfenced areas adjacent to routes (not on Generator's property)

to assist police23. Additional environmental costs24. Increased corporate overheads (including additional staffing costs)25. Increased costs of protection26. Additional auditors' costs27. Additional legal costs28. Additional charges by DGES29. Additional short term research and investigative costs30. Increased charges of NGC in its Transmission Business31. Additional trading costs arising from departures from normal commercial practice32. Additional final customer billing costs33. Additional financing costs arising from delays in recovery of security costs from

consumers


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PART II

(Illustrative non-exclusive list of additional-coststhat might be incurred after a Security Period)

1. Cost of technical/engineering investigation of possible long term damage to plant2. Delayed repair and overhaul of plant3. Cost of restocking of spares4. Cost of accelerated maintenance programme5. Cost of re-stocking fuels6. Cost of continued use of high price fuel in transit7. Increased charges of NGC in its Transmission Business8. Increased depreciation9. Additiona l financing costs arising from delays in recovery of long-term security costs

from consumers


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SCHEDULE 3

(Accounting Policies. Principles and Practicesfor Preparation of Security Period Statements)

PART I

(Generators)

Each Security Period Statement shall:

(a) subject to paragraphs (c) and (d) of this Part, be prepared in accordance withUK generally accepted accounting principles and practices extant at the timeof preparation of the Security Period Statement including, in particular (butwithout limitation), the Statements of Standard Accounting Practice issued bythe member bodies of the Consultative Committee of Accountancy Bodies (orany successor or replacement organisation) and extant at that time;

(b) subject to paragraphs (c) and (d) of this Part, be prepared using the sameaccounting policies, consistently applied, as those used by the relevantGenerator in the preparation by it of its most recent audited annual financialstatements;

(c) include the cost of stocks of fuel which have been consumed during theSecurity Period to which the Security Period Statement relates:

(i) to the extent that such stocks of fuel were replaced by fuel purchasedduring that Security Period, at the cost at which such fuel waspurchased; and

(ii) to the extent such stocks of fuel were not so replaced during thatSecurity Period, as an accrual at the best estimate (at the time ofpreparation of the Security Period Statement) of the prevailing marketrate for the replacement of such stocks of fuel at the date ofconsumption;

(d) include a note showing:

(i) the actual costs incurred on or after the end of the Security Period inreplacing any stocks of fuel referred to in paragraph (c)(ii) of this Part;and

(ii) the actual amounts expended by the relevant Generator in dischargingafter the end of the Security Period any other liabilities shown in theSecurity Period Statement as being costs claimed by the relevantGenerator as Security Period Costs in respect of that Security Period;


57

(e) include further notes, where appropriate, explaining the basis of any allocationor apportionment of costs or revenues or the basis of any significantinterpretation of the Code;

(f) state the accounting policies adopted; and

(g) be prepared in the following format:

Security Period Statement of [Generator]for the Security Period from [DD/MM/YY] to [DD/MM/YY]

Note £Security Period Revenue

Security Period Costs claimed

Security Period Profit

We confirm that the Security Period Statement has been properly prepared inaccordance with the provisions of the Fuel Security Code (including in particular, butwithout limitation, Part I of Schedule 3).

Approved by the Hoard of Directors of (Generator] on [DD/MM/YY].

Director A Date:Director B Date:

PART II

NGC


(a) be prepared in accordance with UK generally accepted accounting principlesand practices extant at the time of preparation of the Security Period Statementincluding, in particular (but without limitation), the Statements of StandardAccounting Practice issued by the member bodies of the ConsultativeCommittee of Accountancy Bodies (or any successor or replacementorganisation) and extant at that time;

(b) be prepared using the same accounting policies, consistently applied, as thoseused by NGC in the preparation by it of its most recent audited annualfinancial statements;

(c) include a note showing the actual amounts expended by NGC in dischargingafter the end of the Security Period liabilities shown in the Security Period


58

Statement as being costs claimed by NGC as Security Period Costs in respectof that Security Period;

(d) include further notes, where appropriate, explaining the basis of any allocationor apportionment of costs or revenues or the basis of any significantinterpretation of the Code;

(e) state the accounting policies adopted; and

(f) be prepared in the following format:

Security Period Statement of NGCfor the Security Period from [DD/MM/YY] to [DD/MM/YY]

Note £


We confirm that the Security Period Statement has been properly prepared inaccordance with the provisions of the Fuel Security Code (including in particular, butwithout limitation, Part II of Schedule 3).

Approved by the Board of Directors of NGC on [DD/MM/YY].


PART III

(Suppliers)


(a) be prepared in accordance with UK generally accepted accounting principlesand practices extant at the time of preparation of the Security Period Statementincluding, in particular (but without limitation), the Statements of StandardAccounting Practice issued by the member bodies of the ConsultativeCommittee of Accountancy Bodies (or any successor or replacementorganisation) and extant at that time;

(b) be prepared using the same accounting policies, consistently applied, as thoseused by the relevant Supplier in the preparation by it of its most recent auditedannual financial statements;


59

(c) include a note showing the actual amounts expended by the relevant Supplierin discharging after the end of the Security Period liabilities shown in theSecurity Period Statement as being costs claimed by the relevant Supplier asSecurity Period Costs in respect of that Security Period;

(d) include further notes, where appropriate, explaining the basis of any allocationor apportionment of costs or revenues or the basis of any significantinterpretation of the Code;

(e) state the accounting policies adopted; and

(f) be prepared in the following format:

Security Period Statement of [Supplier]for the Security Period from [DD/MM/YY] to [DD/MM/YY]

Note £


We confirm that the Security Period Statement has been properly prepared inaccordance with the provisions of the Fuel Security Code (including in particular, butwithout limitation, Part III of Schedule 3).

Approved by the Board of Directors of [Supplier] on [DD/MM/YY].



60

SCHEDULE 4

(Audit Reports)

PART I

(Generators)

Unless the context otherwise requires, in this report words and expressions defined in theFuel Security Code shall bear the same meanings.

We have examined the attached Security Period Statement of [Generator] dated[DD/MM/YY], for which the directors of [Generator] are solely responsible, in respect of theSecurity Period from [DD/MM/YY] to [DD/MM/YY].

We have also examined the attached further statement[s] of [Generator] dated [DD/MM/YY][respectively], for which the directors of [Generator] are solely responsible, in respect ofactual amounts expended after that Security Period in discharging liabilities shown in theattached Security Period Statement of [Generator].

We have examined the books and records of [Generator] and have obtained such explanationsand carried out such tests as we consider necessary.

On the basis of our examination we confirm that, [except as disclosed in the Security PeriodStatement/except for the matters in paragraph [ ] above/except as disclosed in our coveringletter dated [DD/MM/YY],] in our opinion:

(A) the Security Period Statement has been properly compiled in accordance with theprovisions of the Fuel Security Code (including in particular, but without limitation,Part I of Schedule 3);

(B) the costs claimed by [Generator] in the attached Security Period Statement of[Generator] to be Security Period Costs, as adjusted by the attached further statementsof [Generator], are all Security Period Costs; and

(C) the revenue claimed by [Generator] in the Security Period Statement to be theSecurity Period Revenue of [Generator] for the relevant Security Period comprises allthe Security Period Revenue of [Generator] for that Security Period.

PART II

(NGC)


We have examined the attached Security Period Statement of NGC dated [DD/MM/YY], forwhich the directors of NGC are solely responsible, in respect of the Security Period from[DD/MM/YY] to [DD/MM/YY].


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We have also examined the attached further statement(s) of NGC dated [DD/MM/YY][respectively], for which the directors of NGC are solely responsible, in respect of actualamounts expended after that Security Period in discharging liabilities shown in the attachedSecurity Period Statement of NGC.

We have examined the books and records of NGC and have obtained such explanations andcarried out such tests as we consider necessary.

On the basis of our examination we confirm that, (except as disclosed in the Security PeriodStatement/except for the matters in paragraph [ ] above/ except as disclosed in our coveringletter dated [DD/MM/YY] in our opinion:

(A) the Security Period Statement has been properly compiled in accordance with theprovisions of the Fuel Security Code (including in particular, but without limitation,Part II of Schedule 3); and

(B) the costs claimed by NGC in the attached Security Period Statement of NGC to beSecurity Period Costs, as adjusted by the attached further statements of NGC, are allSecurity Period Costs.

PART III

(Suppliers)


We have examined the attached Security Period Statement of (Supplier) dated [DD/MM/YY],for which the directors of (Supplier) are solely responsible, in respect of the Security Periodfrom [DD/MM/YY] to (DD/MM/YY].

We have also examined the attached further statement [s] of (Supplier] dated [DD/MM/YY][respectively], for which the directors of [Supplier] are solely responsible, in respect of actualamounts expended after that Security Period in discharging liabilities shown in the attachedSecurity Period Statement of [Supplier].

We have examined the books and records of [Supplier] and have obtained such explanationsand carried out such tests as we consider necessary.

On the basis of our examination we confirm that, (except as disclosed in the Statement/exceptfor the matters in paragraph [ ] above/except as disclosed in our covering letter dated[DD/MM/YY],] in our opinion:

(A) the Security Period Statement has been properly compiled in accordance with theprovisions of the Fuel Security Code (including in particular, but without limitation,Part III of Schedule 3); and


62

(B) the costs claimed by [Supplier] in the attached Security Period Statement of [Supplier]to be Security Period Costs, as adjusted by the attached further statements of[Supplier], are all Security Period Costs.


63

SCHEDULE 5

(Form of Payment Instruction)

To: The Pool Funds. Administrator [DD/MM/YY]

Payment Instruction

1. This Payment Instruction is delivered to you in accordance with the provisions of theFuel Security Code for the purpose of enabling payments authorised under the FuelSecurity Code to be made in accordance with the provisions of the Pooling andSettlement Agreement in the manner specified in this Payment Instruction. Unless thecontext otherwise requires, in this Payment Instruction words and expressions definedin the Fuel Security Code shall bear the same meanings.

2. This is to notify you that as of [DD/MM/YY] [Generator] is [*entitled to recover from[Suppliers]/*liable to reimburse [Suppliers] in] the amount of £[ ] pursuant to[Sub-clause/Clause] of [Part] of the Fuel Security Code.

[*Relevant Generator to delete whichever alternative is not applicable and completethe remainder.]

3. You are hereby instructed to arrange for the amount specified in paragraph 2 of thisPayment Instruction to be [*recovered from [Suppliers]/*reimbursed to [Suppliers]] inaccordance with the provisions of the Pooling and Settlement Agreement in themanner specified below.

[*Relevant Generator to delete whichever alternative is not applicable and completethe remainder].

4. [In the case of the final Payment Instruction applicable to Relevant Generator]. Forthe purpose of the Interest Adjustment referred to in Sub-clause 2.08 of Part 5 of theFuel Security Code, the effective date is [DD/MM/YY].

[*Date Inserted by Relevant Generator must be the last Business Day of a calendarmonth, and must be the nearest practicable such date before date of delivery ofPayment Instruction].

Approved by the Board of Directors of [Generator] on (DD/MM/YY].



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THE FOLLOWING SECTION IS TO BE COMPLETED BY THE DIRECTOR ONLY

*The amount specified in paragraph 2 of this Payment Instruction shall be recovered from(Suppliers] in the following manner:

(i) *by means of a single lump sum to be paid on [date] by [Suppliers] to[Generator] in the following proportions [insert appropriate calculations]; or

(ii) *by means of [number] [equal/variable] instalments to be paid on (dates) by[Supplier] to [Generator] in the following proportions [insert appropriatecalculations]; or

(iii) *by increasing by [per cent.] (or such lesser percentage as is appropriate in thecase of the last increase) the amount (exclusive of VAT) shown on all AdviceNotes issued to [Suppliers] in respect of sums owed by them until the amountspecified in paragraph 2 of this Payment Instruction has been discharged infull; or

(iv) [insert any other instructions considered by the Director to be appropriate].

OR

*The amount specified in paragraph 2 of this Payment Instruction shall be reimbursed to[Suppliers] in the following manner:

(i) *by means of a single lump sum to be paid on [date] to (Suppliers) by[Generator] in the following proportions [insert appropriate calculations]; or

(ii) *by means of (number) [equal/variable] instalments to be paid on [dates] to(Suppliers.) by [Generator] in the following proportions (insert appropriatecalculations); or

(iii) *by reducing by (per cent.) (or such lesser percentage as is appropriate in thecase of the last increase) the amount [exclusive of VAT] shown on all AdviceNotes issued to [Generator] in respect of sums owed by it until the amountspecified in paragraph 2 of this Payment Instruction has been discharged infull; or

(iv) *[insert any other instructions considered by the Director to be appropriate].

[*Director to delete/complete as appropriate].

Certified by the Director Date:


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SCHEDULE 6

(Calculation of Notional Security Period Profit)

The Notional Security Period Profit in relation to a particular Generator for a particularSecurity Period is given by the formula:

Z = Z1 + Z2

Where:

(a) Z shall equal the Notiona l Security Period Profit in relation to that Generator forthat Security Period, expressed in pounds sterling.

(b) Z1 = (AH1P-1 + AMP -2 + AH1P-3) x DH1S (DH1-1+ DH1-2 +DH1-3)

(c) Z2 = (AH2P-1 + AH2P-2 + AH2P -3) x DH2S (DH2-1 + DH2-2 + DH2-3)

(d) AH1Pi = HIPi x (RPI1i + 100)

(e) AH2Pi = H2Pi x (RP12i + 100) 100

(f) HIPi shall equal the profit (which may be either positive or negative) before interestincome and expense, tax (on gross or net income, profits or gains, togetherwith penalties, charges and interest relating to any of them and regardless ofwhether any of the same are chargeable or attributable to that Generator or toany other person but after setting off any relief, allowance or credit in respectof any such tax or any deduction in computing income, profits or gains for thepurposes of any such tax) and extraordinary items (determined on a historiccost basis) of that Generator in relation to its Generation Business in the firstsix months of financial year as shown in the interim profit and loss account ofthat Generator for the first six months of financial year i prepared inaccordance with paragraph 3(b)(ii) of Condition 2 of the Generation Licenceof that Generator and delivered to the Director in accordance with paragraph3(d) of that Condition where the sum of HIPi and H2Pi exceeds zero but shallotherwise equal zero, expressed in pounds sterling.

(g) H2Pi shall equal the difference between (i) the aud ited profit (which may be eitherpositive or negative) before interest income and expense, tax (on gross or netincome, profits or gains, together with all penalties, charges and interestrelating to any of them and regardless of whether any of the same arechargeable or attributable to that Generator or to any other person but aftersetting off any relief, allowance or credit in respect of any such tax or anydeduction in computing income, profits or gains for the purposes of any suchtax) and extraordinary items (determined on a historic cost basis) of that


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Generator in relation to its Generation business for the financial year i asshown in the profit and loss account of that Generator for that financial yearprepared in accordance with paragraph 3(b)(i) of Condition 2 of theGeneration Licence of that Generator and delivered to the Director inaccordance with paragraph (d) of that Condition, and (ii) HIPi where the sumof HIPi and H2Pi exceeds zero but shall otherwise equal zero, expressed inpounds sterling.

(h) HIP-1 shall equal H1Pi and H2Pi respectively for the financial year which at theand H2P-1 commencement of the relevant Security Period is the most recent financial

year for which the financial statements required by paragraph 3(b) ofCondition 2 of the Generation Licence of that Generator have been deliveredto the Director in accordance with paragraph 3(d) of that Condition.

(i) HIP-2 shall equal HIPi and H2Pi respectively for the financial year preceding theand H2P-2 financial year which at the commencement of the relevant Security Period is

the most recent financial year for which the financial statements required byparagraph 3(b) of Condition 2 of the Generation Licence of that Generatorhave been delivered to the Director in accordance with paragraph 3(d) of thatCondition.

(j) HIP- 3 shall equal HIPi and H2Pi respectively for the financial year two years beforeand H2P-3 the financial year which at the commencement of the relevant Security Period

is the most recent financial year for which the financial statements required byparagraph 3(b) of Condition 2 of the Generation Licence of that Generatorhave been delivered to the Director in accordance with paragraph 3(d) of thatCondition.

(k) RPIli shall equal the percentage change (whether of a positive or a negative value)in the Retail Price Index between the index published or determined withrespect to June in financial year i and the index published or determined withrespect of the month in which the mid point of the relevant Security Periodfalls.

(l) RP12i shall equal the percentage change (whether of a positive or a negative value)in the Retail Price Index between the index published or determined withrespect to December in financial year i and the index published or determinedwith respect to the month in which the mid point of the relevant SecurityPeriod falls.

(m) DH1S shall equal the number of completed days in the relevant Security Periodwhich occur between 1 April and 30 September inclusive.

(n) DH2S shall equal the number of completed days in the relevant Security Periodwhich occur between 1 October and 31 March inclusive.

(o) DH1-i shall equal 183 days, being the number of days in the first six months offinancial year i.

(p) DH2-i shall equal the number of days in the second six months of financial year i.


67

PROVIDED THAT:

(A) Where the Generator has not carried on its Generation Business sufficiently long forHIP-3 to be available, the Notional Security Period Profit for that Generator shall begiven by the formula for Z expressed above but setting the variables H1P-3, H2P-3,DH1-3, and DH2-3, to zero.

(B) Where that Generator has not carried on its Generator Business sufficiently long forH1P-2 to be available, the Notional Security Period Profit for that Generator shall begiven by the formula for Z expressed above but setting the variables H1P-3, H2P-3,DH1-3, DH2-3, H1P-2, H2P-2, DH1-2 and DH2-2 to zero.

(C) Where that Generator has not carried on its Generation Business sufficiently long forH1P-1 to be available, the Notional Security Period Profit for that Generator shall besuch amount as the Director may, in his sole, absolute and unfettered discretion,determine.


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SCHEDULE 7

(Accounting Policies, Principles and Practices for preparation of Claims)

Each Claim shall:

(a) be prepared in accordance with UK generally accepted accounting principlesand practices extant at the time of preparation of the Claim including, inparticular (but without limitation), the Statements of Standard AccountingPractice issued by the member bodies of the Consultative Committee ofAccountancy Bodies (or any successor or replacement organisation) andextant at that time;

(b) be prepared using the same accounting policies, consistently applied, as thoseused by the relevant Licence Holder in the preparation by it of its most recentaudited annual financial statement;

(c) include notes, where appropriate, explaining the basis of any allocation orapportionment of costs or revenues or the basis of any significantinterpretation of the Code;

(d) state the accounting policies adopted; and

(e) be prepared in the following format:

Claim of [Licence Holder]

relating to the Security Period from[DD/MM/YY] to [DD/MM/YY]

£

Long Term Security Costs claimed

We confirm that this Claim has been properly prepared in accordance with theprovisions of the Fuel Security Code (including in particular, but withoutlimitation, Schedule 7).

Approved by the Board of Directors of (Licence Holder) on [DD/MM/YY].


the fuel security code (designated by the secretary...

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