National Grid 2008 Annual Report Download - page 399

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 35546
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.7.1, Doc: 8, Page: 56
Description: EXH 2(B).7.1
0/2810.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/810/2*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 35546
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.7.1, Doc: 8, Page: 56 Description: EXH 2(B).7.1
0/2810.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/810/2*
56
As indicated above, each of the
g
as transportation businesses of National Grid Gas is operated pursuant to the Licences which
were
g
ranted (or treated as
g
ranted) under the Gas Act.
The Gas Act and the Licences obli
g
e National Grid Gas in res
p
ect of each of National Grid Gas’s businesses of:
(i) the NTS; and
(
ii
)
the DNs
(
taken as a whole
)
,
to develop, maintain and operate an economic and efficient pipeline system for the conveyance of
g
as in Great Britain. These
obli
g
ations also require National Grid Gas to comply, so far as it is economical for it to do so, with all reasonable requests to
connect to the respective systems and convey
g
as by means of those systems to any premises or other pipeline system.
National Grid Gas must also facilitate com
p
etition in the su
pp
l
y
of
g
as in Great Britain.
The Licences set out the responsibilities of each business in respect of char
g
in
g
, system access/use of system, meterin
g
and
other specific obli
g
ations required for the proper functionin
g
of the relevant activity and also restrict the revenues which National
Grid Gas may derive from its licensed activities (known as the “price controls”). The Licences also require National Grid Gas to
conduct each of its transportation businesses in the manner best calculated to secure that neither the NTS/DN (or any affiliate
or related undertakin
g
), any
g
as shipper or supplier nor any other
g
as transporter operatin
g
a distribution network obtains an
unfair commercial advantage including, in particular, any advantage from a preferential or discriminatory arrangement.
The Licences can only be amended either in accordance with (i) the procedures contained in the Licences themselves or (ii) the
Gas Act. The Licences continue in force until determined by not less than 10 years’ notice in writin
g
g
iven by GEMA (such
notice not to be served earlier than 22 Au
g
ust 2011) or otherwise revoked in accordance with the terms of the Licences (such
as in the event of financial default).
Each of the Licences contains conditions which have the effect of “ring fencing” each of the NTS and DN businesses. These
include:
(
i
)
p
rohibitin
g
National Grid Gas from carr
y
in
g
on activities other than those
p
ermitted b
y
the Licences;
(ii) requirin
g
that each business has sufficient mana
g
erial and financial resources available to it to conduct the relevant
licensed activities;
(iii) requiring National Grid Gas to maintain an investment grade issuer credit rating;
(iv) prohibitin
g
National Grid Gas from creatin
g
indebtedness or enterin
g
into any other obli
g
ations (except in limited
circumstances) other than on an arm’s length basis on normal commercial terms for one of its permitted purposes;
(
v
)
p
rohibitin
g
the creation of “cross-default” obli
g
ations; and
(vi) prohibiting either the NTS or the DN business from giving or receiving any cross-subsidy from any other group business.
If National Grid Gas is in default of any of these “ring fence” obli
g
ations, it is prohibited from declarin
g
and payin
g
a dividend. In
October 2002, GEMA consented to National Grid Gas makin
g
loans to its immediate parent company, National Grid Gas
Holdin
g
s plc. This consent was renewed by GEMA in May 2005. As a result, National Grid Gas Holdin
g
s plc is subject to a
number of the “ring fencing” conditions of the Licences as if it were itself the holder of those Licences.
The Licences also contain “business separation” conditions requirin
g
National Grid Gas to maintain appropriate mana
g
erial and
operational independence of the transportation businesses of the NTS and DN from each other in order to ensure that each
business com
p
lies with the obli
g
ations not to confer an
y