NOTICE UNDER SECTION 11(2) OF THE ELECTRICITY ACT 1989

The Director General of Electricity Supply (“the Director”) hereby gives notice pursuant to section 11(2) of the Electricity Act 1989 (“the Act”) as follows.
The Director proposes to modify the conditions of the licences granted to Midlands Electricity plc (“Midlands”) under sections 6(1)(c) and 6(2) of the Act. He proposes to modify these conditions because of: [i] the acquisition by National Power plc of Midlands’ electricity supply business; and (ii) the agreement by Midlands to engage National Power Energy Co. Ltd. (“NPEC”) as its agent in undertaking its functions as a public electricity supplier with regard to the supply of electricity.
1. The Director proposes to modify the licence granted under section 6(1)(c) by amending existing conditions and introducing new conditions to have the following effect.
(a) To clarify which licence conditions apply to Midlands’ distribution business, to its supply business or to both by reordering the provisions of the licence and dividing it into three sections and by making such consequential modifications as are necessary.
(b) To provide that the exercise of any statutory power by NPEC in respect of the supply business shall be treated as if it were performed by Midlands; and to provide that any document served by NPEC on the Director (or vice versa) shall be treated as being served by (or on) Midlands.
(c) To require Midlands to treat as confidential any information relating to or deriving from the management or operation of its distribution business; to require Midlands to manage and operate its distribution business independently of any of its other businesses and from any business of the National Power Group; and to provide that the Director may in certain circumstances, and subject to such terms and conditions as he considers necessary, give, amend and withdraw directions which disapply these obligations in whole or in part.
(d) To require Midlands; to appoint a person to facilitate and monitor compliance with the requirements set out in (c) above; to assign to that person such tasks and duties as are required for that purpose; to provide that person with such facilities and resources as are necessary for him to carry out his tasks and duties; and to require Midlands to report to the Director on his activities and its compliance with the requirements set out in (c) above.
2. The Director proposes to modify the conditions of the licence granted under section 6(2) of the Act by introducing a new condition to prohibit Midlands from supplying or offering to supply electricity to customers outside its authorised area, other than those with whom it has entered into contracts to supply electricity prior to the date on which the condition comes into force.
The Director proposes further to modify the conditions of the licence granted to Midlands under section 6(1)(c) of the Act. He proposes to modify these conditions in order: (i) to protect the electricity businesses of Midlands and their assets from being put at risk by non-electricity activities; (ii) to ensure that Midlands is able to finance its electricity activities; and (iii) to extend the obligation of Midlands to obtain undertakings from the main group holding company to certain other holding companies which may be in a position to exercise control or influence over it.
3. The Director proposes to modify the licence granted under section 6(1)(c) by amending existing conditions and introducing new conditions to have the following effect.
(a) To update certain aspects of the obligation of Midlands to prepare accounts in the light of changes in accounting practice.
(b) To place an additional restriction on the businesses which Midlands can carry on in addition to the distribution and supply of electricity by reference to a limit on investment as well as on turnover.
(c) To require Midlands to obtain undertakings as to compliance with licence conditions and as to the provision of information from any ultimate holding company.
(d) To restrict the payment of dividends or the making of other distributions by Midlands unless it has issued a certificate to the Director confirming that it is, and will remain, in compliance with specified licence conditions.
(e) To oblige Midlands to use reasonable endeavours to maintain an investment grade credit rating for its corporate debt.
(f) To further limit the extent to which Midlands can give charges or provide financial or other support for non-electricity businesses; to impose additional requirements that transactions entered into with affiliates or related undertakings shall be on an arm’s-length basis and on normal commercial terms; and to restrict the extent to which Midlands can incur “cross-default” liability arising from default by affiliates or others (other than by controlled subsidiaries carrying on business for a permitted purpose).
(g) To make such consequential modifications as are necessary.
The Director proposes further to modify the conditions of the licence granted to Midlands under section 6(1)(c) of the Act. He proposes to modify these conditions in order: (i) to increase the financial and operational separation of Midlands’ generation business from its supply and distribution businesses in accordance with assurances given to the Secretary of State; and (ii) to assist in securing that the distribution business of Midlands is undertaken on arm’s-length terms from its supply and generation activities.
4. The Director proposes to modify the licence granted under section 6(1)(c) by amending existing conditions and introducing new conditions to have the following effect.
(a) To require that Midlands’ generation business shall be carried on by an affiliate in which it has no shareholding interest.
(b) To remove Midlands’ generation business from the “permitted purposes” for which Midlands may provide investment, security or financial support.
(c) To restrict the construction, operation, ownership or acquisition by Midlands or its affiliates or related undertakings of generation plant embedded in Midlands’ distribution system.
(d) To require Midlands to conduct its distribution business so as to facilitate competition in generation and in the supply of electricity within its authorised area.
A copy of the proposed modifications can be obtained (free of charge), from the Office of Electricity Regulation. Any representations or objections to the proposed modifications may be made on or before 14th June 1999 to Karen Marshall, Office of Electricity Regulation, Hagley House, 83-85 Hagley Road, Edgbaston, Birmingham B16 8QG.
A. J. Boorman
Authorised on behalf of the Director
17th May 1999.