BG Transco plc

NOTICE OF PROPOSAL TO MODIFY THE STANDARD AND SPECIAL CONDITIONS OF THE PUBLIC GAS TRANSPORTER LICENCE TREATED AS GRANTED UNDER SECTION 7 OF THE GAS ACT 1986 TO BG TRANSCO PLC (FORMERLY BRITISH GAS PLC)

The Director General of Gas Supply, pursuant to 23(3) of the Gas Act 1986, hereby gives notice as follows—
1. In this notice—
“Transco” means BG Transco plc;
“the Director” means the Director General of Gas Supply;
“the Licence” means the Public Gas Transporter Licence treated as granted under section 7 of the Act to Transco;
“the proposed modifications” means the proposed modifications to the Standard and Special Conditions of the Licence set out in Schedule 1;
2. The Director, pursuant to section 23(1)(a) of the Gas Act 1986, proposes to make the proposed modifications to the Licence.
3. The effects of the proposed modifications are that, where the Director, pursuant to paragraph 5 of Special Condition 2 of the Licence, consents to Transco entering into an agreement or arrangement a Cross-Default Obligation (as that term is defined in Special Condition 1 of the Licence), then, unless the Director otherwise consents, Transco shall:
(i) procure that a related person to Transco indemnifies it in respect of its liabilities and potential liabilities under the Cross-Default Obligation on terms approved in writing by the Director;
(ii) procure that the terms of that indemnity shall include an obligation that the person granting the indemnity shall maintain, at all relevant times, an investment grade credit rating; and
(iii) enforce the terms of the indemnity if so directed in writing by the Director.
4. The reason why the Director proposes to make the proposed modifications is that Transco has sought the consent of the Director pursuant to paragraph 5 of Special Condition 2 and that the Director considers that—
(a) it is in the interests of consumers in respect of prices and continuity of supply; and
(b) BG will be better able to finance the carrying on of the Transco business,
if the proposed modifications are made; this reason is more fully set out and explained in Annex 1.
5. Representations or objections with respect to the proposed modifications may be made within 29 days of the date of this notice and should be addressed to:
The Office of Gas and Electricity Markets, Stockley House, 130 Wilton Road, London SW1V 1LQ, and marked for the attention of Justin Coombs.
Schedule 1
Paragraph 5 of Special Condition 2 of the Licence shall be modified by the addition of:
(d) This sub-paragraph applies where the Licensee, with the consent of the Director pursuant to this paragraph, enters into any agreement or arrangement incorporating a Cross-Default Obligation. In those circumstances, unless the Director otherwise consents, the Licensee shall:
(i) procure that a related person of the Licensee shall indemnify the Licensee in respect of its liabilities and potential liabilities under the Cross-Default Obligation on terms approved in writing by the Director;
(ii) procure that the terms of that indemnity shall include an obligation that the person granting the indemnity shall maintain, at all relevant times, an investment grade credit rating; and
(iii) enforce the terms of the indemnity if so directed in writing by the Director.

Annex 1

Use of gas-related infrastructure for telecommunications purposes

BG Transco plc has advised Ofgem of proposals for the transfer to Transco Telecommunications Asset Development Company Limited for certain assets which would be used by Transco Telecommunications Asset Development Company Limited to provide telecommunications services to third parties. The proposed transactions include leasehold and freehold transfers of land and the rights to use buildings and structures for telecoms purposes.
Cross-default obligations may arise out of the transfer of these interests in land, including cross-default obligations of a type that Special Condition 2 of Transco’s licence prohibits Transco entering into, other than with the Director’s consent. In order to safeguard the interest of transportation customers, Transco has agreed to procure Deeds of Undertaking and Indemnities in relation to the transfers in question, similar to those described in Special Condition 2(5)(b).
In order to further protect the interests of customers, Ofgem considers that the party giving the indemnity should maintain an investment grade credit rating and that Transco should enforce the indemnity if so directed by the Director General of Gas Supply.
To implement these safeguards a modification to the Transco PGT licence is required under Section 23 of the Gas Act 1986. The Director is minded, once these modifications have been made, to consent to Transco entering into certain cross default obligations arising out of the transfer of assets to Transco Telecommunications Asset Development Company Limited.