Credit arrangements
This presentation is the property of its rightful owner.
Sponsored Links
1 / 15

Credit Arrangements PowerPoint PPT Presentation


  • 47 Views
  • Uploaded on
  • Presentation posted in: General

Credit Arrangements. Rob McDonald Group Regulation Manager Scottish and Southern Energy plc. Principles of Good Credit Arrangements. Minimise costs overall (target costs on those who fail). Facilitate supply competition. Protect DNOs from bad debts. Maintain incentives for efficiency.

Download Presentation

Credit Arrangements

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Credit arrangements

Credit Arrangements

Rob McDonald

Group Regulation Manager

Scottish and Southern Energy plc


Principles of good credit arrangements

Principles of Good Credit Arrangements

  • Minimise costs overall (target costs on those who fail).

  • Facilitate supply competition.

  • Protect DNOs from bad debts.

  • Maintain incentives for efficiency.


Current position on duos

Current Position on DUoS

  • Credit rating above BBB-, no credit cover.

  • No credit rating or qualifying guarantee, 60 days use of system in cash or equivalent.

  • No guaranteed, mechanistic process for pass-through of bad debt.

  • Remedies exist for breach of DUoSA.


No credit option

“No credit” Option

  • No supplier posts any credit.

  • Full pass-through in all circumstances.

  • Resulting costs are smeared across all suppliers and their customers.


No credit option1

“No Credit” Option

  • Targets costs on those that failX

  • Facilitates supply competition?

  • Protects DNOs

  • Encourages efficiencyX


Full security option

“Full security” Option

  • All suppliers provide security for maximum possible exposure, regardless of credit rating.

  • At least 4 months DUoS in cash deposits.

  • No pass-through for DNOs.


Full security option1

“Full security” Option

  • Targets costs on those that failX

  • Facilitates supply competitionX

  • Protects DNOs?

  • Encourages efficiency


An alternative proposal

An Alternative Proposal

  • 3 levels of credit worthiness:

    • “gold”; “silver”; “bronze”

  • Use of credit ratings and some cash deposits

  • Supplemented by mechanistic process for determining pass-through

  • Clear remedies for supplier non-compliance


Example credit rating changes standard poors lt foreign issuer credit

Example Credit Rating ChangesStandard & Poors LT Foreign Issuer Credit

  • TXU Europe Group

    • 09/10/98BBB+

    • 10/10/02BBB- *-

    • 14/10/02B+*-

  • Enron Corp

    • 08/12/95BBB+

    • 01/11/01BBB*-

    • 09/11/01BBB-*-

    • 28/11/01B-*-*- = under review, negative implications


3 levels of credit worthiness

3 levels of Credit Worthiness

  • “Gold”- credit rating A- or above or PCG from such an entity - no security.

  • “Silver” - credit rating from BBB+ to BBB-or PCG from such an entity - tapered security.

  • “Bronze” - no credit rating or qualifying guarantee - 60 days cash or equivalent security.


Pass through process

Pass-Through & Process

  • 100% pass-through vital for remaining bad debts.

  • Requires firm commitment from Ofgem in advance.

  • Agreed mechanistic process for DNOs setting out billing & debt recovery.

  • “Tick box” approach.


Remedies

Remedies

  • Agreed process would also need to include remedies.

  • Suspension of registrations remains appropriate:

    • Prevents growing exposure;

    • Proportionate response.

  • Disconnection?


Other alternatives

Other Alternatives

  • “Bronze” status costs could be reduced by:

    • Prepayment of DUoS;

    • Weekly payment arrangements.

  • Not in favour of:

    • credit insurance;

    • Mutualisation;

    • reliance on past payment record.


Summary

Summary

  • Targets costs on those that fail

  • Facilitates supply competition

  • Protects DNOs

  • Encourages efficiency


Conclusions

Conclusions

  • Credit arrangements requires solution to several trade-offs.

  • Cash credit cover, parent guarantees and ratings agencies are still important.

  • Firm commitment to pass-through also required.

  • Same principles could apply in gas and wholesale markets


  • Login