The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014

Appropriate letters of credit

20.—(1) For the purposes of regulation 19, a letter of credit is appropriate if—

(a) it is issued by a person who holds a required rating; and

(b) it is provided on terms which the CFD counterparty considers are appropriate.

(2) The terms which the CFD counterparty may consider are appropriate under paragraph (1)(b) include terms relating to—

(a) the manner in which any demand for payment under a letter of credit is to be made;

(b) the manner in which any payment under a letter of credit is to be made;

(c) requirements about the holding of funds to meet demands for payment under a letter of credit.

(3) Where an electricity supplier has provided the CFD counterparty with a letter of credit issued by a person who ceases to hold a required rating that letter will not constitute an appropriate letter of credit from the 10th working day after the day on which that person ceases to hold that rating.

(4) Subject to paragraph (5), a person holds a required rating if that person has been assessed by—

(a) Fitch Ratings as having a short term debt rating of “F1” or better;

(b) Moody’s as having a short term debt rating of “P-1” or better; or

(c) Standard and Poor’s as having a short term debt rating of “A-1” or better.

(5) Where the CFD counterparty is of the opinion that the requirement that appropriate letters of credit must be issued by persons holding a short term debt rating mentioned in paragraph (4)(a) to (c) is too onerous in the circumstances, and subject to having regard to its duty under regulation 28(1), it may issue a notice to electricity suppliers specifying alternative short term debt ratings, and that notice shall remain in force until such time as it is withdrawn.

(6) The CFD counterparty may withdraw a notice under paragraph (5) (“the first notice”) by issuing a further notice (“the withdrawal notice”) to electricity suppliers setting out the date from which the first notice is to be withdrawn (that date being no earlier than 10 working days after the day on which the withdrawal notice is issued).

(7) The CFD counterparty must, before 1^st December 2014, publish a document setting out the terms of letters of credit which it is likely to regard as appropriate for the purposes of paragraph (1)(b), and must keep any such document under review and publish any revision from time to time.

(8) In this regulation—

“Fitch Ratings” means Fitch Ratings Limited (registered company number 01316230);

“Moody’s” means the corporation known as Moody’s Investors Service Inc. incorporated in the US State of Delaware with the file number 0577904;

“Standard and Poor’s” means the corporation known as Standard & Poor’s Financial Services LLC. incorporated in the US State of Delaware with the file number 4621989.