EBCC MEETING

24th October 2016

AGENDA

• 1.0 Introduction & Status Review

• 1.1 Approval of Minutes

• 1.2 Actions

• 2.0 Operational Update

• 2.1 Update at September 16

• 2.2 12 Month Review

• 2.3 Focus for 2016/17

• 2.4 Security Review

• 2.5 Brexit

• 2.6 Project Update

• 3.0 Modifications

• 4.0 AOB

• 5.0 Diary Planning

Outstanding Actions

Operational Update

Operational Update

• September 2016 – Cash Collection 96.91%

– Rolling 12 Months 99.28%

– 3 Failure to Pay Invoice Notices issued

– No Cash Calls issued

– No Further Security Request Notices Issued

– No Failure to Pay Cash Call Notices issued

Cash Collection

92%

93%

94%

95%

96%

97%

98%

99%

100%

Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

94.79%

100.00% 100.00% 99.98% 99.86% 100.00% 99.99% 99.87% 100.00% 99.98% 100.00%

96.91%

% O

f C

as

h C

olle

cte

d

Monthly Breakdown Of Cash Collected At Payment Due Date

Target PDD Collected PDD Collected PDD

Cash Collection

95%

96%

97%

98%

99%

100%

2011 2012 2013 2014 2015 2016

98% 98% 98% 98% 98% 98%

99.26%

99.73% 99.90%99.63%

99.28% 99.28%

% O

f C

ash

Co

lle

cte

d

Yearly Cash Collection Targets Payment Due Date

Target PDD Collected PDD

Cash Call Issued

This Graph provides a yearly breakdown of cash calls issued.

64

55

17

25

13

0

10

20

30

40

50

60

70

2012 2013 2014 2015 2016

No

. Of C

ash

Cal

ls

Yearly Total Of Cash Calls Issued

Value of Cash Call Issued

This graph is a year To Date breakdown by financial value and should be viewed in

conjunction with the yearly breakdown of cash calls issued.

£20,582,000

£17,998,000

£3,752,000

£9,770,851

£5,890,000

£0

£5,000,000

£10,000,000

£15,000,000

£20,000,000

£25,000,000

2012 2013 2014 2015 2016

Val

ue

(£'s

)

Yearly Total Value Of Cash Calls Issued

FTPCCN’s – issued & paid

This graph is a yearly breakdown of Failure to Pay Cash Call Notices issued and paid.

1

2

1

2

1

0

0.5

1

1.5

2

2.5

2012 2013 2014 2015 2016

No

. of

Cas

h C

alls

Yearly Total of FTPCCN's Issued & Paid

Review since 2015

Review of Last 12 Months

• Cash Collection figures saw challenges in October 2015 and

September 16 However, the rolling 12 month performance remains

above 99%.

• Continued pro-active engagement with Users reaching 70% of

indebtedness to minimise Cash Calls.

• Up front payment of Cash Calls limited to 3 times implemented

• Security Renewals 100%

• Worked with National Grid to appoint a new Market Operator wef

24/2/16

• Implemented Mod 568 Security Requirements and Invoice Payment

Settlement Cycle for the Trading System Clearer, resulting in daily

billing to the Market Operator wef 1/8/16.

Review of Last 12 Months

• Proactively working with Users to support change – looking at the

removal of the minimum Security requirement & seasonal energy

balancing credit cover

• Energy Balancing Credit Rules were revised March 2016

• Continue to support development of - EU Reform & Gemini

Consequential Change

• Worked with Treasury to open new bank accounts to ‘spread the risk’

Currently moving cash collateral supported by a non registrable

Deposit Deed approx £40M

• The Credit Team continue with their ICM training with 6 members of

the team completing the Business Law module

Focus for 2016

Focus for 2016/17

Proposed Focus for 2016/17

• Committee membership\Profile

• Risk Management

- Spreading Profile

- Pension Protection Fund/ABTA/ATOL/Motor Insurance Bureau

• Team

- CICM Training programme

- Performance Excellence

- Review of Structure

• Change Programme

- Gemini Consequential change (UK Link Replacement programme)

- EU Reform

- FGO

Energy Balancing Security Review

Bank Ratings Current Position

• DZ Bank was upgraded from Aa2 to Aa1 then subsequently downgraded back to Aa2

• Standard Chartered was downgraded from Aa2 to Aa3 by Moodys and from A+ to A by S & P

• BNP Paribas was downgraded from A+ to A by S & P

• Santander upgraded from A1 to Aa3 by Moodys

Note any rating below Moodys A3 or Standard and Poors A- is not acceptable - the lowest prevailing rating is always used

FI Risk Profile

The following chart provides a summary of customers exposures to each

rating category

• We have seen a move over the last 12 months in to the lower acceptable rating

categories

• We no longer have any FI’s in the AA+/Aa1 or AA/Aa2 rating categories.

• There are now more FI’s in the A2 category equating to 46% and currently have 1 FI

in the lowest acceptable rating category or A3

25%

25%

46%

4% FI Ratings Sept' 2016

>AA-/Aa3

>A+/A1

>A/A2

>A-/A3

Spread of FI Exposure

The movement since Sept’ 2015 to Sept’ 2016 is a decrease of overall

value in LOC’s to £305m. However, the spread of risk is heavily weighted

in favour of the lower band. This is demonstrated by the absence of

securities held within the Aa1 & Aa2 rating bands.

£25,605,000 £62,000,000

£0

£125,3

20,0

00

£98,4

91,9

20

£16,0

29,0

00

£89,1

50,0

00

£3,5

00,0

00

£19,9

25,0

00

£128,6

25,0

00

£96,8

29,4

20

£106,0

34,0

00

£0

£0

£13,0

60,0

00

£100,9

96,0

00

£90,2

48,5

00

£100,8

64,0

00

£0

£0

£0

£20,000,000

£40,000,000

£60,000,000

£80,000,000

£100,000,000

£120,000,000

£140,000,000

A3/A

-

A2/A

A1/A

+

Aa3

/AA

-

Aa2

/AA

>A

a1/A

A+

Aggregate secured credit by rating band

Sep-15

Mar-16

Sep-16

Current Outlook

• Moodys anticipate their next review of FI’s

to take place in April 2017. Moody’s have

affirmed the ratings for 12 FI’s which equates

to half the existing portfolio of FI’s. A

Committee within Moody’s determines if a

rating is affirmed and this results in a longer

view of the FI.

• The 3 FI’s subject to a downgrade (Bank of

Tokyo-Mitsubishi(A1), Standard Chartered

Bank(Aa3) & Sumitomo Mitsui Banking

Corp’(A1)) equate to £46m.

* S & P - Since September 2015 there have

been five FI’s placed on negative outlook;

Barclays, Royal Bank of Canada (London),

HSBC, Lloyds Bank & Santander. Negative

outlook exposure (9 FI’s) is £137m. Particular

concern is Barclays plc (A-) and any further

downgrade will result in re-assignment to

alternative FI’s.

50%

29%

13%

8%

Moody's Sept' 2016

Rating Affirmation

Upgrade

Downgrade

Confirm Only (P.R)

62%

38%

S&P Sept' 2016

stable

negative

Deposit Deeds

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

2014 to Sept’ 2016

£0

£50,000,000

£100,000,000

£150,000,000

£200,000,000

£250,000,000

£300,000,000

£350,000,000

£400,000,000

Sep-14 Apr-15 Sep-15 Apr-16 Sep-16

£3

57

,90

5,0

00

£3

59

,21

4,9

20

£3

50

,51

7,9

20

£3

51

,41

3,4

20

£3

05

,16

8,5

00

£3

8,5

79

,00

0

£3

8,5

30

,08

0

£4

3,9

83

,00

0

£4

5,9

86

,00

0

£3

7,9

60

,90

0

LOC

Deposit Deed

90.27%

9.73%

90.31%

9.69%

88.85%

11.15%

88.43%

11.57%

88.94%

11.06%

Summary

• We have seen an decrease in the overall value of security (LOC’s) during the period Sept’ 2015

to Sept’ 2016 by £46m. This has been driven by a number of Users who have had their security reduced. For example one User has had the security reduced by almost £20m. The lower rating band holds £204m of the value of (LOC) security held. The prospect of adverse conditions for FI’s post Article 50 particularly for Barclays Bank plc are challenging as any further downgrade will result in a B Grade Rating and will require re-assignment of securities. The remaining FI’s within the lower band can withstand one rating downgrade. The securities in band Aa3/AA- (£90m) are on the lowest rating within the upper band and any further downgrade will affect six FI’s. We continue to monitor the risk posed by 18 financial institutions which sit in the lower rating band and where most of the securities are held.

• S & P maintains a more risk averse approach to ratings compared to Moody’s. S & P have placed Barclays, Royal Bank of Canada (London), HSBC, Lloyds Bank & Santander on negative outlook.

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

• Deposit Deeds held have seen a decrease of £6m in the last 12 months. Driven by a refund of monies and User’s re-alignment of security. Continue to take over an 11% share of overall security. Deposit Deed funds were held in Barclays however we are currently moving the funds to Lloyds.

Brexit

• The UK will be leaving the E.U following results of the E.U Referendum on 23rd June 2016.

• We have carried out some analysis along with sources from Moody’s and S & P with the following possible

outcomes;

• E.U. likely to take a strong position on trade negotiations to ensure other E.U. Members are discouraged

from exiting. UK likely to reach an agreement on trade but not on all sectors. Uncertainty in economy likely

to lead to increase in inflation.

• Article 50 of the Lisbon Treaty permits a member state a minimum of 2 years from the date it

submits its application to exit the E.U (not from the date of the referendum). The longer the period

for completing the exit, the greater the likelihood of uncertainty within the economy.

• Possible short term adverse impact on FI’s ratings after Article 50 activated, until Markets stabilise.

• UK Banks will see downward pressure resulting from economic uncertainty. B of E four pronged stimulus

package identified risk; rate cut to 0.25%, quantitative easing, corporate debt buys and Term Funding

Scheme for banks. In order to prepare Markets for post Article 50 impact.

Project Update

• DN Sales – UAT completed on the interim solution. Analysis

underway for enduring solution post Nexus

• EU Phase 4a – Scope of this release is being finalised. Target

implementation date of Apr-2017 with a further release in Oct-2017

• iGMS Evolution programme – Ongoing issues resulting in incorrect

data being sent to Gemini. Analysis ongoing

• Gas Deficit Emergency – 1st usage test of live system completed and

all results were as expected

Modifications

Modifications

• Mod 0587 - Seasonal Energy Balancing Credit Cover on 20/10/16

the UNC Modification Panel recommended implementation to

become effective from May 2017 on a User Pays basis

AOB

Credit Rules Update

Customer Satisfaction

New Members Introduction

Members Profiles

Any Questions?

Date of Next Meeting