Exhibit 4.1

---



DEPARTMENT OF THE ENVIRONMENT





Instrument of Appointment bythe Secretary of State for the Environmentof North West Water Limitedas a water and sewerage undertaker under the Water Act1989











Department of the Environment  August 1989


---



Back to Contents

INSTRUMENT OF APPOINTMENT OF NORTH WEST WATER LIMITED AS A WATER UNDERTAKER AND AS A SEWERAGE UNDERTAKER

This publication contains the full text of the Instrument of Appointment of North West Water Ltd as a water and sewerage undertaker by the Secretary of State for the Environment under Sections 11
and 14 of the Water Act 1989 (now Sections 6,7,11 and 12 of the Water Industry Act 1991) and includes modifications and variations by the Director General under Sections 11 to 17 of the Water Industry Act .

The texts on which this is based, including full scale maps of the area(s) of appointment is held in the Directors register and may be inspected during normal office hours at the Office of
Water Services, 13thFloor, Centre City Tower, 7, Hill St, Birmingham, B5 4UA, Telephone number : 0121 625
1300





Printed with amendments up to 14 July, 2005

---



Back to Contents











Printed with amendments up to 14 July, 2005

---



Table of Contents

THEAPPOINTMENTS

Schedule 1: Area for which the Appointments are made

Schedule 2: Conditions of the Appointments

|A. | Interpretation and Construction                               
|-- | --------------------------------------------------------------
|  
|B. | Charges                                                       
|  
|C. | Infrastructure Charges                                        
|  
|D. | Charges Schemes                                               
|  
|E. | Prohibition on Undue Discrimination and Undue Preference and  
|   | Information on Charges                                        
|  
|F. | Accounts and accounting information                           
|  
|G. | Code of Practice for Customers and relations with the Customer
|   | Service Committee                                             
|  
|H. | Code of Practice and Procedure on Disconnection               
|  
|I. | Code of Practice and Procedure on Leakage                     
|  
|J. | Levels of Service Information and Service Targets             
|  
|K. | Ring Fencing, Disposals of Land and Changes of Use of Land  
|  
|L. | Underground Asset Management Plans                            
|  
|M. | Provision of Information to the Director                      
|  
|N. | Fees                                                          
|  
|O. | Circumstances in which a replacement appointment may be made  
|  
|P  | THE ROLE OF UNITED UTILITIES PLC                              
|  
|Q. | Interruptions in Supply Because of Drought                    
|  

Guide to Defined Terms

---



TABLE OF CONTENTS

THE APPOINTMENTS

|                                                         | The Appointments to be a water and sewerage undertaker                                                                                      |            
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|                                                         |                                                                                                                                             |            
|SCHEDULE 1: AREA FOR WHICH THE APPOINTMENTS
    ARE MADE |                                                                                                                                            
|                                                         |                                                                                                                                             |            
|1.                                                       | The Water Supply Area                                                                                                                       | SCH
      1
|                                                         |                                                                                                                                             |            
|2.                                                       | The Sewerage Services Area                                                                                                                  |            
|                                                         |                                                                                                                                             |            
|3.                                                       | Interpretation and Construction of Schedule 1                                                                                               |            
|                                                         |                                                                                                                                             |            
|                                                         | Appendix:                                                                                                                                   |            
|                                                         |                                                                                                                                             |            
|                                                         | Part I, which lists premises and installations comprised in the Water Supply Area                                                           |            
|                                                         |                                                                                                                                             |            
|                                                         | Part II, which lists premises not comprised in the Water Supply Area                                                                        |            
|                                                         |                                                                                                                                             |            
|SCHEDULE 2: CONDITIONS OF THE APPOINTMENTS               |                                                                                                                                            
|                                                         |                                                                                                                                             |            
|CONDITION A: INTERPRETATION AND CONSTRUCTION             |                                                                                                                                            
|                                                         |                                                                                                                                             |            
|1 & 2.                                                   | General provisions as to interpretation and construction                                                                                    | A          
|                                                         |                                                                                                                                             |            
|3.                                                       | Defined terms used in the Conditions                                                                                                        |            
|                                                         |                                                                                                                                             |            
|4.                                                       | References to the
        Water Authority to include references to the Water Authoritys predecessors
    in title in certain circumstances |            
|                                                         |                                                                                                                                             |            
|5.                                                       | Notifications                                                                                                                               |            
|                                                         |                                                                                                                                             |            
|6.                                                       | Principles of construction which are to apply
    when one Appointment only is terminated                                                   |            
|                                                         |                                                                                                                                             |            
|7.                                                       | References to the Director of questions arising
    as to the extent of the Water Supply Area and the Sewerage Services Area                |            
|                                                         |                                                                                                                                             |            
|CONDITION
    B: CHARGES                                 |                                                                                                                                            
|                                                         |                                                                                                                                             |            
|Part I.                                                  | Explanatory
    Provisions                                                                                                                  | B          



---



|1. | Introduction                                                                                     
|-- | -------------------------------------------------------------------------------------------------
|  
|2. | Defined terms which apply for the purposes of all Parts of Condition B                           
|  
|3. | References to the Appointee to include references to the Water Authority in certain circumstances
|  

|Part II. | Restriction
    of Standard Charges for Basket Items                                            
|-------- | ------------------------------------------------------------------------------------------------
|         |                                                                                                 
|4.       | The Charges Limit (RPI + K)                                                                     
|        
|5.       | Matters Affecting the Charges Limit and the calculation of the Weighted Average Charges Increase
|        
|6.       | Verification of compliance with the Charges Limit                                               
|        
|7.       | Transitional Provisions                                                                         
|        

|Part III. | Periodic
    Reviews                                                                                    
|--------- | --------------------------------------------------------------------------------------------------------
|          |                                                                                                         
|8.        | Periodic Reviews of the Appointed Business initiated by the Director at Five-yearly Intervals(1.4.2000) 
|         
|9.        | Periodic Reviews of the Appointed Business at regular Ten-(1.4.2000)
    Five
yearly Intervals          
|         
|10.       | Periodic Reviews of the Appointed Business initiated by the Appointee at Five-yearly Intervals(1.4.2000)
|         
|11.       | Periodic Reviews of the Appointed Business where a Termination Notice has been given                    
|         
|12.       | Effect of termination of the Appointments (or either of them) on Periodic Reviews                       
|         

|Part IV. | Interim Determinations                                                                                                                
|-------- | --------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                       
|13.      | Matters of Interpretation and construction which apply for the purposes of Part IV                                                    
|        
|14.      | References to the Director relating to Notified Items and Relevant Changes.                                                           
|         |                                                                                                                                       
|15.      | Changes to the Adjustment
        Factor initiated by the Director relating to Notified Items and Relevant
    Changes of Circumstance
|         |                                                                                                                                       
|Part V.  | References
          to the Monopolies Competition Commission and Modification
    of Condition B                                     

---



|16.                                     | References to the MonopoliesCompetition Commission                                                                               
|--------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------
|                                       
|17.                                     | Modification of Condition B following Periodic Reviews and references to
    the Director or the MonopoliesCompetition Commission
|                                        |                                                                                                                                  
|Part VI.                                | Provision
    of Information to the Director                                                                                     
|                                        |                                                                                                                                  
|18.                                     | Information required to be furnished by the Appointee
      to the Director                                                      
|                                        |                                                                                                                                  
|CONDITION
    C: INFRASTRUCTURE CHARGES

|   |                                 |  
|-- | ------------------------------- | -
|1. | Interpretation and Construction | C

|                                 |                                                   
|-------------------------------- | --------------------------------------------------
|2.                               | Level of Infrastructure Charges                   
|                                
|3.                               | [no heading]                                      
|                                
|4.                               | [no heading]                                      
|                                
|5.                               | [no heading]                                      
|                                
|6.                               | [no heading]                                      
|                                
|7.                               | [no heading]                                      
|                                
|8.                               | [no heading]                                      
|                                
|9.                               | Notification to Sewerage Undertakers              
|                                
|10.                              | Arbitration                                       
|                                
|11.                              | Periodic Review of Level of Infrastructure Charges
|                                
|12.                              | Interim Review of Level of Infrastructure Charges 
|                                
|13.                              | Information                                       
|                                
|14.                              | References to the MonopoliesCompetition Commission
|                                
|15.                              | Modification of this Condition                    
|                                
|                                 | Appendix: Calculation of Relevant Multiplier      
|                                 |                                                   
|                                 | Explanatory Note                                  
|                                 |                                                   
|CONDITION D:
    CHARGES SCHEMES

---



|1. | Interpretation and Construction | D
|-- | ------------------------------- | -
|   |                                 |  

|2 & 3.                                                                                                           | Requirement to have in effect a charges scheme                                          
|---------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|                                                                                                                
|4.                                                                                                               | Provisions required to be included in charges schemes relating to Infrastructure Charges
|                                                                                                                
|5.                                                                                                               | Disclosure of information relating to charges schemes                                   
|                                                                                                                
|6.                                                                                                               | Section 75 agreements                                                                   
|                                                                                                                 |                                                                                         
|                                                                                                                 |                                                                                         
|CONDITION
            E: PROHIBITION ON UNDUE DISCRIMINATION AND UNDUE PREFERENCE AND INFORMATION
    ON CHARGES
|                                                                                                                

|1. | Charges to which Condition E applies | E
|-- | ------------------------------------ | -
|   |                                      |  

|2.                                                             | Prohibition of undue preference and undue discrimination in relation to classes of customer                             
|-------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------
|                                                              
|3.                                                             | Prohibition of undue preference and undue discrimination in relation to individual customers                            
|                                                              
|4.                                                             | Requirement to provide Information to the Director about compliance with the Condition                                  
|                                                              
|5.                                                             | Requirement to provide Information to the Director about supplies, services and functions to which the Condition applies
|                                                              
|6.                                                             | Matters to which the Condition does not apply                                                                           
|                                                              
|7.                                                             | Transitional Provisions                                                                                                 
|                                                              
|8.                                                             | [no heading]                                                                                                            
|                                                              
|9.                                                             | [no heading]                                                                                                            
|                                                              
|10.                                                            | [no heading]                                                                                                            
|                                                               |                                                                                                                         
|                                                               |                                                                                                                         
|CONDITION F:
          ACCOUNTS AND ACCOUNTING
    INFORMATION
|                                                              

|1. | Introduction | F
|-- | ------------ | -

|   |                                
|-- | -------------------------------
|2. | Interpretation and Construction
|  
|3. | Accounting Records             
|  
|4. | Accounting Statements          
|  
|5. | Segmental Information          

---



|6.                                                                                                                    | Transactions entered into by the Appointee or
      the Appointed Business with or for the benefit of Associated Companies
    or other businesses or activities of the Appointee
|--------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                      |                                                                                                                                                                                  
|6A.                                                                                                                   | Financial Ring-Fencing                                                                                                                                                           
|                                                                                                                      |                                                                                                                                                                                  
|7.                                                                                                                    | Basis of allocations and apportionments                                                                                                                                          
|                                                                                                                     
|8.                                                                                                                    | Current Cost Accounting Statements                                                                                                                                               
|                                                                                                                     
|9.                                                                                                                    | Audit and publication of accounting statements                                                                                                                                   
|                                                                                                                     
|10.                                                                                                                   | Guidelines and references to the MonopoliesCompetition
    Commission                                                                                                            
|                                                                                                                      |                                                                                                                                                                                  
|Appendix, which lists information to be disclosed
    under 6                                                        
|                                                                                                                      |                                                                                                                                                                                  
|CONDITION G:
          CODE OF PRACTICE FOR CUSTOMERS
          AND RELATIONS
    WITH THE CUSTOMER SERVICE COMMITTEE
|                                                                                                                     

|1. | Scope of Code of Practice | G
|-- | ------------------------- | -
|   |                           |  

|2.                                                                         | Review of Code of Practice                                
|-------------------------------------------------------------------------- | ----------------------------------------------------------
|                                                                          
|3.                                                                         | Consultation with the Customer Service Committee          
|                                                                          
|4.                                                                         | Directors approval of revised Code of Practice           
|                                                                          
|5.                                                                         | Modifications to Code of Practice required by the Director
|                                                                          
|6.                                                                         | Publicity                                                 
|                                                                          
|7.                                                                         | Complaints procedure                                      
|                                                                          
|8.                                                                         | Identification of personnel                               
|                                                                          
|9 - 11.                                                                    | Meetings with the Customer Service Committee              
|                                                                           |                                                           
|CONDITION H:
          CODE OF PRACTICE AND PROCEDURE
    ON DISCONNECTION
|                                                                           |                                                           

|1. | Scope of Code of Practice | H
|-- | ------------------------- | -
|   |                           |  

|2. | Review of Code of Practice                                
|-- | ----------------------------------------------------------
|  
|3. | Consultation with the Customer Service Committee          
|  
|4. | Directors approval of revised Code of Practice           
|  
|5. | Modifications to Code of Practice required by the Director
|  
|6. | Publicity                                                 

---



|7.                                                                   | Disconnection procedure                                                                    
|-------------------------------------------------------------------- | -------------------------------------------------------------------------------------------
|                                                                    
|8.                                                                   | Information about disconnections
          to be provided to the Customer Service Committee
|                                                                     |                                                                                            
|CONDITION
              I: CODE OF PRACTICE AND PROCEDURE ON LEAKAGE
|                                                                    

|1. | Definition of supply
          pipe | I
|-- | ------------------------------------- | -

|                                                                             |                                                                              
|---------------------------------------------------------------------------- | -----------------------------------------------------------------------------
|2.                                                                           | Scope of Code of Practice                                                    
|                                                                            
|3.                                                                           | Review of Code of Practice                                                   
|                                                                            
|4.                                                                           | Consultation with the
          Customer Service Committee                   
|                                                                            
|5.                                                                           | Directors approval
          of revised Code of Practice                    
|                                                                            
|6.                                                                           | Modifications to Code
          of Practice required by the Director         
|                                                                            
|7.                                                                           | Publicity                                                                    
|                                                                            
|8.                                                                           | Procedure for adjusting
          charges where there is an unidentified leak
|                                                                             |                                                                              
|CONDITION
              J: LEVELS OF SERVICE INFORMATION AND SERVICE TARGETS

|        |                               |  
|------- | ----------------------------- | -
|Part I. | Levels of Service Information | J
|        |                               |  

|1. | Provision of Information            
|-- | ------------------------------------
|  
|2. | Reports, certificates
          etc.
|  

|Part
          II. | Service
    Targets                                  
|------------------ | -----------------------------------------------------
|                   |                                                      
|3.                 | Setting of Service
          Targets by the Appointee
|                  
|4.                 | Monitoring of Service
          Targets              
|                  
|5.                 | Reporting on Service
          Targets               
|                  
|6.                 | Measures to achieve
          Service Targets        
|                  

|Part III. | Certification and
            Verification of Information         
|--------- | ------------------------------------------------------------------
|          |                                                                   
|7         | Auditors Certificate                                             
|          |                                                                   
|8 - 12.   | Directors investigations                                         
|          |                                                                   
|Part IV.  | Publication
              of Information                          
|          |                                                                   
|13        | Publication of Levels
          of Service Information and Service

---



Target Reports


|CONDITION
              K: RING FENCING, DISPOSALS OF LAND AND CHANGES OF USE
              OF LAND |                                                                                                                            
|----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------
|                                                                                                      |                                                                                                                            
|1.                                                                                                    | Introduction                                                                                                               
|                                                                                                      |                                                                                                                            
|2.                                                                                                    | Interpretation and Construction                                                                                            
|                                                                                                      |                                                                                                                            
|3.                                                                                                    | Ring Fencing                                                                                                             
|                                                                                                      |                                                                                                                            
|4.                                                                                                    | Disposals of protected
          land other than disposals by auction or formal tender or to Associated
          Companies
|                                                                                                      |                                                                                                                            
|5.                                                                                                    | Disposals of protected
          land by auction or formal tender                                                          
|                                                                                                      |                                                                                                                            
|6.                                                                                                    | Disposals of protected
          land to Associated Companies                                                              
|                                                                                                      |                                                                                                                            
|7.                                                                                                    | Disclosure of Information
          to Valuers                                                                             
|                                                                                                      |                                                                                                                            
|CONDITION
              L: UNDERGROUND ASSET MANAGEMENT PLANS                                         |                                                                                                                            
|                                                                                                      |                                                                                                                            
|1.                                                                                                    | Interpretation and Construction                                                                                            
|                                                                                                      |                                                                                                                            
|2.                                                                                                    | Duty to furnish Information                                                                                                
|                                                                                                      |                                                                                                                            
|3.                                                                                                    | Information Systems                                                                                                        
|                                                                                                      |                                                                                                                            
|4.                                                                                                    | Reports                                                                                                                    
|                                                                                                      |                                                                                                                            
|5.                                                                                                    | General                                                                                                                    
|                                                                                                      |                                                                                                                            
|CONDITION
              M: PROVISION OF INFORMATION TO THE DIRECTOR                                   |                                                                                                                            
|                                                                                                      |                                                                                                                            
|1.                                                                                                    | Requirement to furnish
          Information to the Director                                                               
|                                                                                                      |                                                                                                                            
|2.                                                                                                    | Form etc. in which Information
          to be supplied                                                                    
|                                                                                                      |                                                                                                                            
|3 - 6.                                                                                                | Restrictions on scope
          of Information which the Appointee can be required to furnish under
          Condition M  
|                                                                                                      |                                                                                                                            
|CONDITION
              N: FEES                                                                       |                                                                                                                            
|                                                                                                      |                                                                                                                            
|1.                                                                                                    | Interpretation and Construction                                                                                            
|                                                                                                      |                                                                                                                            
|2.                                                                                                    | Fees                                                                                                                       
|                                                                                                      |                                                                                                                            
|3.                                                                                                    | Limit on renewal fee
          and special fee                                                                             
|                                                                                                      |                                                                                                                            
|4.                                                                                                    | Protocol for the Application
          of Licence Condition N3.2.                                                          

---



Back to Contents

|CONDITION
              O: CIRCUMSTANCES IN WHICH A REPLACEMENT APPOINTMENT MAY BE MADE |                                                                                                                                                               
|--------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                        |                                                                                                                                                               
|1                                                                                       | Requirement to give
          at least 10 years notice, expiring not earlier than 25 years
          after the transfer date, to terminate either Appointment
|                                                                                        |                                                                                                                                                               
|CONDITION
              P: THE ROLE OF UNITED UTILITIES PLC                             | P                                                                                                                                                             
|                                                                                        |                                                                                                                                                               
|1.                                                                                      | The procurement and
          contents of the undertaking                                                                                                     
|                                                                                        |                                                                                                                                                               
|2.                                                                                      | Production of the undertaking
          to the Director General                                                                                               
|                                                                                        |                                                                                                                                                               
|3.                                                                                      | Duty to inform Director
          General if no longer enforceable or breached                                                                                
|                                                                                        |                                                                                                                                                               
|4.                                                                                      | Circumstances where
          there is a prohibition on entering into contracts                                                                               
|                                                                                        |                                                                                                                                                               
|CONDITION
              Q: INTERRUPTION IN SUPPLY BECAUSE OF DROUGHT                    |                                                                                                                                                               
|                                                                                        |                                                                                                                                                               
|1.                                                                                      | Interpretation                                                                                                                                                
|                                                                                        |                                                                                                                                                               
|2.                                                                                      | Liability and amounts
          of payments                                                                                                                   
|                                                                                        |                                                                                                                                                               
|3.                                                                                      | Amounts payable to
          household and business customers                                                                                                 
|                                                                                        |                                                                                                                                                               
|4.                                                                                      | Determination of Disputes                                                                                                                                     
|                                                                                        |                                                                                                                                                               
|5.                                                                                      | Cessation or Modification
          of this Condition                                                                                                         
|                                                                                        |                                                                                                                                                               
|                                                                                        | Explanatory Note                                                                                                                                              
|                                                                                        |                                                                                                                                                               
|GUIDE
              TO DEFINED TERMS                                                    |                                                                                                                                                               

---



Back to Contents

|THE
      APPOINTMENTS
|----------------------
|                      
|1                     
|                      
|2                     
|                      



|Authorised by the     |                                         
|--------------------- | ----------------------------------------
|                      |                                         
|Secretary of State to | R.S. DUDDING                            
|sign in that behalf   | An Assistant Secretary in the Department
|                      | of the Environment                      
|                      |                                         
|                      |                                         
|                      | August 1989                             

---



Back to Contents

SCHEDULE
  1: Area for which the Appointments are made

|1.  | The Water Supply Area                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The area for which the Appointee is appointed to be the
water undertaker (the Water Supply Area) comprises:                                                                                                                                                                                                                                   
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                             
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                             
|   
|1.2 | The seaward boundary of the area described in sub-paragraph 1.1(1) and of
    the islands referred to in sub-paragraph 1.1(2) is the seaward boundary of
    the Water Authoritys area immediately before the transfer date for the purposes
    of the 1973 Act.                                                                              
|   
|2.  | The Sewerage Services Area                                                                                                                                                                                                                                                                                                                      
|   
|2.1 | The area for which the Appointee is appointed to
    be the sewerage undertaker (the    Sewerage Services Area)
    comprises:                                                                                                                                                                                                                
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                             
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                             
|   
|2.2 | The seaward boundary of the area described in sub-paragraph 2.1(1) and of
    the islands referred to in sub-paragraph 2.1(2) is the boundary which was
    the seaward boundary for the purposes of section 14 of the 1973 Act of the
    area which immediately before the transfer date is the Water Authoritys
    area for those purposes.
|   
|3.  | Interpretation and Construction                                                                                                                                                                                                                                                                                                                 
|   
|    | In this Schedule:                                                                                                                                                                                                                                                                                                                               

SCH - 1: 1

---



Back to Contents

| | the 1973 Act means
    the Water Act 1973;                                                                                                                                                                                                                                                                                             
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the Sewerage Services
          Area Map means the maps signed on behalf of the Secretary of State
          accompanying and forming part of this instrument numbered 1 S 1 -1
          S 10 inclusive, 1 S 10a - 1S 10e inclusive, 1 S 11, 1 S 11a - 1 S 11a
          - 1 S 11h inclusive, 1 S 12, and 1 S 12a - 1 S 12f
inclusive;
| |                                                                                                                                                                                                                                                                                                                                          
| | the Water Authority means
        the Water Authority of which the Appointee is the successor company under
    the Act;                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                          
| | the Water Supply Area Map means
    the maps signed on behalf of theSecretary
    of State accompanying and forming part of this instrument numbered 1 W 1
    - 1 W 13 inclusive;                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                          
| | words and expressions
        used in this Schedule shall have the same meaning as in any provision
    of the 1973 Act.                                                                                                                                                                                                                 

SCH - 1: 2

---



Back to Contents

SCHEDULE 2: Conditions
  of the Appointment

Condition A: Interpretation
  and Construction

|1. | Unless the contrary intention appears:                                                                                                                                             
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | (1)                                                                                                                                                                                
|  
|   | (2)                                                                                                                                                                                
|  
|   | (3)                                                                                                                                                                                
|  
|   |                                                                                                                                                                                    
|   |                                                                                                                                                                                    
|   |                                                                                                                                                                                    
|   |                                                                                                                                                                                    
|2. | In construing these Conditions:                                                                                                                                                    
|  
|   | (1)                                                                                                                                                                                
|  
|   | (2)                                                                                                                                                                                
|  
|3. | Unless the context otherwise requires, in these Conditions:                                                                                                                        
|  
|   | the 1937 Actmeans the Public Health (Drainage of Trade Premises) Act 1937;                                                                                                       
|  
|   | the 1985 Act means the Companies Act 1985;                                                                                                                                       
|  
|   | the
          Appointed Business means
          the business consisting of the carrying out by the Appointee of the
    Regulated Activities;                                   
|  
|   | the
          Area means the area
          for which for the time being the Appointee holds the appointment as
    water undertaker, or as the case may be, sewerage undertaker;
|  
|   | Associated
        Companymeans any Group Company
        or Related
Company;                                                                                                    
|  
|   | the
          Auditorsmeans the Appointees
    auditors for the time being appointed in accordance with the 1985 Act;                                                           

SCH - 1: 3

---



Back to Contents

| | books
            and records means any
            and all books, records, files, maps, plans, documents, papers, accounts,
            estimates, returns and other data of whatsoever nature and whether
    or not created, recorded or maintained in a document;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Charging
          Yearmeans a year commencing
    on 1st April;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | the
            Customer Service Committeemeans
            the customer service committee to which the Appointee is allocated
            under section 6; (section 28 of the 1991 Act)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | domestic
          customermeans the occupier
          of domestic
premises;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | domestic
          premises means any premises
          used wholly or partly as
a dwelling or intended for such use;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | financial
            yearmeans a financial
            year of the Appointee beginning and ending on the respective dates
    referred to in section 227(2) of the 1985 Act;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Group
            Company means any subsidiary
            or holding company of the Appointee and any subsidiary of any holding
    company of the Appointee (other than the Appointee);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Informationmeans
          information which is in the possession of the person required to furnish
          it or which it can reasonably obtain or which it can reasonably prepare
          from information which is in its possession or which it can reasonably
          obtain, and information which is required to be furnished under any
          of these Conditions shall be furnished, subject to the provisions of
          the Condition under which that information is required to be furnished,
    in such form and manner as the Director may reasonably require;                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Periodic
            Reviewmeans a review
            of the Appointed Business carried out under paragraph 8, 9, 10 or
            11 of Condition B, but so that references in Part IV of Condition
            B to a Periodic Review shall exclude any review carried out under
            paragraph 11 of that Condition and shall include the determination
            by the Monopolies Competition
            Commission of the relevant questions or, as the case may be, the
            disputed determination referred to it under paragraph 16 of Condition
            B following the giving of a Review Notice under paragraph 8 or the
            giving of Information to the Director in accordance with paragraph
    9 or a reference under paragraph 10;
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Prior
            Year means the year commencing
    1st April immediately prior to the relevant Charging Year;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Reference
            Notice means a notice
    given to the Director under paragraph 10, 11 or 14 of Condition B;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | the
            Regulated Activities means
            the functions of a water undertaker or, as the case may be, a sewerage
            undertaker and, for the avoidance of doubt, references to the functions
            of a water undertaker or, as the case may be, a sewerage undertaker
    shall include references to the                                                                                                                                                                                                                                                                                                                                                                                                                                             

1 A4

---



Back to Contents

|  | duties
    imposed on a water undertaker or, as the case may be, a sewerage undertaker;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | Related
            Company means any company
            in relation to which the Appointee or any Group Company is a Related
            company within the meaning of paragraph 92 of Schedule 4 to the 1985
            Act or which is such a Related company in relation to the Appointee
    or any Group Company;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | Relevant
            Premises means any office
            premises occupied by the Appointee in relation to the Appointed Business
    and to which members of the public have access;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | the
            Retail Prices Index means
            the General Index of Retail Prices published by the Department of
            Employment each month in respect of all items or, if the said index
            for the month of November is not published by 31st December next
            following, such index for such month as the Director may not later
            than 7th January next following determine to be appropriate in the
            circumstances, after such consultation with the Appointee as is reasonably
            practicable, and in such a case references to the Retail Prices Index
            shall be construed for the purpose of all subsequent calculations
            for which the value of the Retail Prices Index for that year is relevant
            as references to that other index;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | Review
            Charging Year means the
            first of the Charging Years in respect of which any Periodic Review
    is carried out;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | the
            Review Notice Datemeans
            the first day of January which is fifteen months before the first
    day of the Review Charging Year;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | Sewerage
            Infrastructure Charge means
            such a charge as is described in section 79(2)(b);(section 146 of
    1991 Act)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | trade effluenthas
    the same meaning as in the 1937 Act;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | the Water Authority means
    the Water Authority of which the Appointee is the successor company;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | Water
          Infrastructure Charge means such a charge as is described in section
    79(2)(a);(section 146 of 1991 Act)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4 | In the definition of Excluded Charges and Standard
        Charges in Condition B and in Condition E references to the water
        Authority shall include references to the Water
Authoritys predecessor in title.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|5 | Any notification required or permitted
        to be given under any Condition shall be given in writing and cognate
    expressions shall be construed accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|6 | Where only one of the Appointments is
        terminated, so much of the provisions of these Conditions as applies
        or is relevant exclusively to the Appointment which has been so terminated
        or to the activities of an undertaker holding an appointment of the kind
        which has been so terminated shall cease to have effect as from the date
    on which the termination of that Appointment takes place.                                                                                                                                                                                                                                                                                                                                                                                                          

1 A5

---



Back to Contents

|7. | The Appointee may refer to the Director for determination by him (having considered any representations by the Appointee and any other water undertaker or as the case may be, sewerage undertaker)
any question arising as to whether any area, island, premises or installation is, or, as the case may be, are, comprised within the Water Supply Area or as the case may be, the Sewerage Services Area) as that expression is defined in Schedule 1 to
this instrument.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1 A6

---



Back to Contents

Part I.Explanatory
  Provisions

|1.  | Introduction                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The purposes of this Condition are set out in the following sub-paragraphs.                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|1.1 | To limit increases in standard charges made by the Appointee for the supply of water, the provision of sewerage services and the reception, treatment and disposal of trade effluent. The weighted average
increase is limited to the sum of the movement in the Retail Prices Index and an Adjustment Factor, called K.                                                                                                                                                               
|   
|    | Changes in metered charges are calculated by reference to actual consumption in a Weighting Year (a financial year of the Appointee). Changes in unmetered charges are calculated by reference to changes
in average revenue per chargeable supply calculated on the customer base as at the preceding 1st December. Changes are weighted in proportion to the contribution which each type of charge makes to total revenue in the Weighting Year.                                    
|   
|    | These matters are dealt within Part II under the heading Restriction of Standard Charges for Basket Items.                                                                                                                                                                                                                                                                                                                                                                           
|   
|1.2 | To provide for a review of the Appointed Business to be carried out by the
    Director at 5 or 10five-yearly intervals,so
    that the Director can determine whether the Adjustment Factor should be changed.
    Except aswhereexpressly provided in this Condition
    all reviews will cover periods of tenfiveconsecutive
    years. This is dealt with in Part III under the heading Periodic Reviews. (strikethrough
    and highlighted italics effective
from 1 April 2000)
|   
|1.3 | To enable the Appointee:                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

B7

---



Back to Contents

|    | (4)                                                                                                                                                                                                                                                                                                                                                                                                                               | where notice to terminate either or
      both of the Appointments has been given, to refer to the Director for determination
      the question what the Adjustment Factor should be in the future, on the
      assumption that the relevant Appointment or, as the case may be, the Appointments
      were to continue in force, for the purpose of facilitating consideration
      of the terms on which a new appointee could accept transfers of property,
      rights and liabilities from the Appointee, as provided in section 12(4)
      (section 9(4) of 1991 Act).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | These
      matters are dealt with in Part IV under the heading Interim Determinations.                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|1.4 | To
      provide for the Director to initiate changes to the Adjustment Factor to
      allow for Notified Items and Relevant Changes of Circumstance. This is also
      dealt with in Part IV.                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|1.5 | To
      enable the Appointee to require the Director to refer to theMonopoliesCompetition Commission matters arising out of determinations
      by the Director referred to in sub-paragraphs 1.2 and 1.4 and references
      referred to in sub- paragraph 1.3. These matters are dealt with in Part
      V under the heading References to the MonopoliesCompetition
      Commission and Modification of this Condition.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|1.6 |                                                                                                                                                                                                                                                                                                                                                                                                                                   | To require the appointee to give Information
      to the Director to enable him to make determinations under this Condition.
      This is dealt with in Part VI under the heading Provision of Information
      to the Director.                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2.  | Defined
          Terms which apply for the purpose of all parts of this Condition                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | In
      this Condition:                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | references
         to the Appointed Business shall be construed as if the Appointed
          Business included the management and holding by the Appointee of any protected
           land for so long as it is not transferred under paragraph 7 of Condition

      K;                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Average Charge per Chargeable Supplymeans, in respect of a specified Unmeasured Basket Item for a specified
      year, the amount R/N where:                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   | R is the annual revenue (exclusive of
      VAT) which would accrue to the Appointee in respect of the specified Unmeasured
      Basket Item if all Standard Charges (other than Excluded Charges) made or
      to be made in respect of that Unmeasured Basket Item in the specified year
      were applied to all Chargeable Supplies of the Appointee which would have
      been subject to those Standard Charges as at 1st December preceding the
      specified year; and                                                                                              

B8

---



Back to Contents

| |                         | N is the number of Chargeable Supplies
      as at such 1st December for which the Appointee would have been entitled
      to make those Standard Charges,provided that, where the
    specified year is a Prior Year,
| | ----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                         | (a)                                                                                                                                                                                                                    
| |                         | (b)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| | Basket
      Itemsare
| |                         |                                                                                                                                                                                                                        
| |                         | (1)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| |                         | (2)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| |                         | (3)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| |                         | (4)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| |                         | (5)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| |                         | where                                                                                                                                                                                                                  
| |                         |                                                                                                                                                                                                                        
| |                         | (a)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| |                         | (b)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| |                         | Chargeable
            Supplymeans any supply of water
    or any provision of sewerage services for which charges are payable;                                                                                      
| |                         |                                                                                                                                                                                                                        
| |                         | Excluded
            Chargesunless and until otherwise
    agreed between the Director and the Appointee, are                                                                                                        
| |                         |                                                                                                                                                                                                                        
| |                         | (1)                                                                                                                                                                                                                    
| |                         |                                                                                                                                                                                                                        
| |                         | (2)                                                                                                                                                                                                                    

B9

---



Back to Contents

|                                                                                                                                                                                                                                                                                                                                                                                                            | (3)                                                                                                                                                  | charges for the reception and disposal
      by the Appointee, or other person specified by the Appointee or, as the
      case may be, the Water Authority, of matter delivered to the Appointee or
      such other person by a collection authority in pursuance of section 14(9)
      of the Control of Pollution Act 1974;                                                                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | (4)                                                                                                                                                  | charges for unmeasured supplies of water
      to cattle troughs;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | (5)                                                                                                                                                  | charges for unmeasured building water
      supplies;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | (6)                                                                                                                                                  | amounts payable in respect of an unmeasured
      supply of water by means of bowsers or water tankers;and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | (7)                                                                                                                                                  | charges for unmeasured supplies of water
      to farm taps and other agricultural water points; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(7A)     Charges in any Charging Year for supplies of water (or for the provision
      of sewerage services or for the reception, treatment and disposal of trade
      effluent) to premises where the premises were supplied in the relevant Weighting
      Year with not less than such quantity of water as is specified from time
      to time under section 7(5)(a) of the Water Industry Act 1991
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | AND,
      for the avoidance of doubt, but without prejudice to the meaning of Standard
      Charges in respect of Basket Items, shall also include
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | (8)                                                                                                                                                  | charges payable for any such connection
      as is described in section 79(2) (section 146 of the 1991 Act);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | (9)                                                                                                                                                  | charges for a supply of water in bulk
      to another water undertaker;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | (10)                                                                                                                                                 | amounts payable under any such agreement
      as is described in section 126(1)(b) (section 20 (1)(b) of the Water Resources
      Act 1991), (including any such agreement entered into by the Water Authority
      under section 81 of the Water Resources Act 1963 (section 158 of the Water
      Resources Act 1991), with respect to any of the matters referred to in sections
      81(1)(b) and 81(1)(d) of that Act (section 158(1)(b) and 158(1)(d) of the
      Water Resources Act 1991), as, by virtue of paragraph 29(1) of Schedule
      26, has effect on and after the transfer date as a thing done by the Appointee);
      and
|                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                            | (11)                                                                                                                                                 | charges payable under any agreement
      for any unmeasured supply of water or unmeasured sewerage services which
      are calculated by reference to the rateable value of hereditaments, occupied
      by the person to whom the supply or services are provided, fixed in accordance
      with section 32, 33 or, as the case                                                                                                                                                                                                                                                                                                                  

B10

---



Back to Contents

| |                                                                                                                                                                                                                                                    | may be, 34 of the General Rate Act 1967
      or, as the case may be, fixed in accordance with section 54 of the Local
      Government Finance Act 1988                                                                                                                                                                                                                                                           
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | but
      so that where this Condition requires reference to be made to Excluded Charges
      in a Charging Year prior to that starting on 1st April 1990 the expression
      Excluded Charges shall be read and construed as though:         
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (a)                                                                                                                                                                                                                                                | there were added to sub-paragraph (2)
      of this definition the words and charges for a supply of water provided
      by the Water Authority under section 37 of Schedule 3 to the 1945 Act;                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (b)                                                                                                                                                                                                                                                | there were added to sub-paragraph (3)
      of this definition the words and charges for the reception and disposal
      by the Water Authority, or other person specified by the Water Authority,
      of matter delivered to the Water Authority or such other person by a collection
      authority in pursuance of section 14(9) of the Control of Pollution Act
      1974; and                          
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (c)                                                                                                                                                                                                                                                | there were added to sub-paragraph (10)
      of this definition the words and any agreement entered into by the Water
      Authority under section 81 of the Water Resources Act 1963 (section 158
      of the Water Resources Act 1991) with respect to any of the matters referred
      to in sections 81(1)(b) and 81(1)(d) of that Act (section 158(1)(b) &
      (1)(d) of the Water Resources Act 1991);
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Measured
      Basket Itemsmeans items (3), (4) and
      (5) in the definition of Basket Items:                                                                                                                                                
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Non-volumetric
      Chargeis a charge which is not based
      on measured quantities of volume;                                                                                                                                               
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | the
      Relevant Charging Yearmeans a Charging
      Year starting on 1st April 1995 or on the fifth anniversary of the first
      day of the first of the Charging Years in respect of which the last Periodic
      Review was carried out;
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Standard
      Chargesmeans                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (1)                                                                                                                                                                                                                                                | charges fixed under any such charges
      scheme as is referred to in section 76 (section 143 of the 1991 Act);                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (2)                                                                                                                                                                                                                                                | charges payable under any such agreement
      as is referred to in section 75 (section 142 of the 1991 Act), (including
      any such agreement made or entered into by the Water Authority under section
      30 of the 1973 Act as, in accordance with a scheme under Schedule 2, is
      transferred to the Appointee) under or for                                                                         

B11

---



Back to Contents

| |                                                                                                                                                                                                                                           | which all the charges payable are in
      accordance with standard charges published or fixed by the Appointee or,
      as the case may be, the Water Authority;                                                                                                                                                                                                                                                                                                        
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (3)                                                                                                                                                                                                                                       | charges payable where a discharge is
      made in pursuance of a consent given by the Appointee for the purposes of
      the 1937 Act under or for which all the charges payable are in accordance
      with standard charges published or fixed by the Appointee;                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (4)                                                                                                                                                                                                                                       | charges determined by agreement in
      respect of a supply of water provided by the Appointee for non-domestic
      purposes where all the charges so determined in respect of that supply are
      in accordance with standard charges published or fixed by the Appointee;                                                                                                                                                                                          
| |                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (5)                                                                                                                                                                                                                                       | charges fixed under any such charges
      scheme made by the Water Authority under section 31 of the 1973 Act as,
      by virtue of paragraph 16(1) of Schedule 26, has effect on and after the
      transfer date as if it were a charges scheme made under section 76 (section
      143 of the 1991 Act), by the Appointee;                                                                                                                                         
| |                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (6)                                                                                                                                                                                                                                       | charges payable under any such consent
      or agreement under the 1937 Act as, by virtue of paragraph 13 of Schedule
      26, has effect on and after the transfer date as if it were given or entered
      into by the Appointee under which all the charges payable are in accordance
      with standard charges published or fixed by the Water Authority or, as the
      case may be, the Appointee;and                                                         
| |                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (7)                                                                                                                                                                                                                                       | charges in respect of any such supply
      which the Water Authority was under a duty to make under section 27 of the
      1945 Act as, by virtue of paragraph 8 of Schedule 26, is a supply which
      the Appointee is under a duty to make on and after the transfer date where
      all charges in respect of such supply are in accordance with standard charges
      published or fixed by the Water Authority or, as the case may be, the Appointee;
      and
| |                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Provided
      that no part of this definition shall apply to any charge which is for the
      time being an Excluded Charge by virtue of (7A) of the definition of Excluded
      Charges.                                             
| |                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | but
      so that where this Condition requires reference to be made to Standard Charges
      in a Charging Year prior to that starting on 1st April 1990 the expression
      Standard Charges shall be read and construed as though:
| |                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (a)                                                                                                                                                                                                                                       | there were added to sub-paragraph (5)
      of this definition the words and any charges scheme made by the Water Authority
      under 31 of the 1973 Act;                                                                                                                                                                                                                                                                                                             

B12

---



Back to Contents

| |  | (b)                                                                                                                                                                                                           | there were added to sub-paragraph (6) of
        this definition the words and any consent or agreement given or entered
        into by the Water Authority under the 1937 Act under which all the charges
        payable were in accordance with standard charges published or fixed by
    the Water Authority;                                                                                                                          
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | (c)                                                                                                                                                                                                           | there were added to sub-paragraph (7) of
        this definition the words and any such supply which the Water Authority
        was under a duty to make under 27 of the 1945 Act, where all the charges
        in respect of such supply were in accordance with standard charges published
    or fixed by the Water Authority; and                                                                                                      
| |  |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | (d)                                                                                                                                                                                                           | there were added a further sub-paragraph,
        (8), as follows: charges payable under any consent, agreement, scheme
        or other instrument given, made or entered into by the Water Authority
        under any enactment or subordinate legislation under which it is empowered
        to make charges under which all the charges payable were in accordance
    with standard charges published or fixed by the Water Authority.
| |  |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | In this definition references to standard charges
        published or fixed by the Appointee or the Water Authority are to such
    charges, whether published or fixed under a charges scheme or otherwise;
| |  |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Termination Noticemeans
    a notice given in accordance with Condition O;                                                                                                                                 
| |  |                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Unmeasured Basket
            Itemsmeans
    items (1) and (2) in the definition of Basket Items;                                                                                                          

B13

---



Back to Contents

| |  | Weighted Average Charges
            Increasemeans the sum calculated
    as follows:
| |  | ---------------------------------------------------------------------------------------
| |  |                                                                                        

| |  |        |  | At(i)   |      |  |        |    | Bt(j)   | 
| |  | ------ |  | ------- | ---- |  | ------ | -- | ------- | 
| |  | Wt= ( |  | .r(i)   | + ( |  | .r(j)) | -1 |         | 
| |  | i      |  | At-1(i) |      |  | j      |    | Bt-1(j) | 
| |  |        |  |         |      |  |        |    |         | 

| |                                                                                                                                                                                                                                                                                                                 | where                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 | Wt is the Weighted
        Average Charges Increase for the Charging
Year                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 | i is an index identifying
    the two Unmeasured Basket Items                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 | j is an index identifying
    the three Measured Basket Items                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 | requires
    summation over the two Unmeasured Basket Items                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                 | i                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                 | requires
    summation over the three Measured Basket Items                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                 | j                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                 | At(i) is
          the Average Charge Per Chargeable Supply in respect
ofUnmeasured Basket Item i for the
Charging Year                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 | At-1(i) is the Average
          Charge Per Chargeable Supply in
respect ofUnmeasured Basket Item i for
the Prior Year                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 | Bt(j) is the Weighting
          Year Revenue in respect of Measured
BasketItem j for the Charging
Year                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 | Bt-1(j) is the Weighting
          Year Revenue in respect of Measured
BasketItem j for the Prior Year                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 | r(i) or r(j) is the revenue
        (exclusive of VAT) which accrued to the Appointee in the Weighting Year
        from all Standard Charges other than Excluded Charges (including, in
        the case of Measured Basket Items, any Non-volumetric Charge) in respect
        of Unmeasured Basket Item i or Measured Basket Item j (as the case may
    be), divided by the aggregate of such revenues for all five Basket Items;
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Weighting Yearmeans
          the financial year of the Appointee ended last before 7th October in
    the Prior Year;                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Weighting Year Revenuemeans
          the revenue (exclusive of VAT) which would have accrued to the Appointee
          in the Weighting Year in respect of the specified Measured Basket Item,
          if all Standard Charges other than Excluded Charges (including any
    Non-volumetric Charge) made
| |                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                       

B14

---



Back to Contents

|         |                                                                                                                                                                                                                                                                                         | or to be made in respect of that Measured
        Basket Item in the Charging Year or, as the case may be, the Prior Year
    had applied.                                                                                                                                                                                                                             
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|3        | Where the calculation of the Weighted
        Average Charges Increase requires reference to be made to circumstances
        existing at any time or during any period prior to the transfer date
        references to the
Appointee shall include references to the Water Authority.
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|Part II. |                                                                                                                                                                                                                                                                                         | Restriction of Standard
    Charges for Basket Items                                                                                                                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|4.       | The Charges Limit                                                                                                                                                                                                                                                                      
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|4.1      | The Appointee shall ensure that the
        Weighted Average Charges Increase in any Charging Year (beginning with
        the Charging Year starting on 1st April 1990) when expressed as a percentage
        does not exceed the
Charges Limit.                                     
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|4.2      | The Charges Limit is the percentage
    calculated as RPI + K, where                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                         | RPI is the percentage change (expressed,
        in the case of an increase, as a positive number, in the case of a decrease,
        as a negative number and, in the case of no change, as zero) in the Retail
        Prices Index between that published for the month of November in the
    Prior Year and that published for the immediately preceding November.
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                         | K is the Adjustment Factor.                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|4.3      | The Adjustment Factor is:                                                                                                                                                                                                                                                              
|         |                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                        
|         | (1)                                                                                                                                                                                                                                                                                     | for each Charging Year starting on
        1st April in the year specified in Column (1) of the table below, the
        number set opposite that Charging Year in Column (2) of the said table
        (or such other number, which may be a positive or negative number or
    zero, as shall from time to time be determined under this Condition):                 

| |      |               |  |     |  |           | 
| | ---- | ------------- |  | --- |  | --------- | 
| | (1)  |               |  | (2) |  |           | 
| | 1990 |               |  | 5   |  |           | 
| | 1991 |               |  | 5   |  |           | 
| | 1992 |               |  | 5   |  |           | 
| | 1993 |               |  | 4.2 |  |           | 
| | 1994 |               |  | 4   |  |           | 
| | 1995 |               |  | 2.5 |  |           | 
| | 1996 |               |  | 2.5 |  |           | 
| | 1997 |               |  | 2.5 |  |           | 
| | 1998 |               |  | 2.5 |  |           | 
| | 1999 |               |  | 2.5 |  |           | 
| | 2000 | (PR 25.11.99) |  | 0   |  | minus9.31 | 
| | 2001 |              |  | 0   |  | minus1.0  | 
| | 2002 |              |  | 0   |  | 0.0       | 
| | 2003 |              |  | 0   |  | 4.0       | 

B15

---



Back to Contents

| | 2004 (ID 11.12.03) | 0 | 4.58.9
| | ------------------ | - | ------

|    | (2)                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                               | for each subsequent Charging Year,
        such number (which may be a different number for any Charging Year and
        may be a positive or negative number or zero) as shall from time to time
        have been determined
under this Condition or, if none, zero.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|4.4 | If the Weighted Average Charges Increase
        in any Charging Year is less than the Charges Limit then the Charges
        Limit for the following Charging Year shall be increased by the amount
        of such
deficiency.                                                                        
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|4.5 | The Charges Limit for the
        Charging Year started on 1st April 1992 and each subsequent Charging
        Year shall only be increased by virtue of sub-paragraph 4.4 to the extent
        that such deficiency is not attributable to any Charging Year ended three
    or more years previously.
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|5.  | Matters affecting the
    Charges Limit and the calculation of the Weighted Average Charges Increase                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|5.1 | Where the Appointee determines:                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|    | (1)                                                                                                                                                                                                                                                                                                      | to make a material change (other than
        one which relates solely to the amount of a charge) to the basis on which
        it makes or calculates any Standard Charge, or Standard Charges taken
        as a whole, (other than Excluded Charges) for the supply of water or
        the provision of sewerage services or the reception, treatment and disposal
    of trade effluent;
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|    | (2)                                                                                                                                                                                                                                                                                                      | to make a material change to the scope
        of any such scheme, agreement or consent as is referred to in the definition
        of Standard Charges (insofar as such change relates to charges, other
        than Excluded Charges, for the supply of water or the provision of sewerage
        services or the reception, treatment and disposal of trade effluent);
    or         
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|    | (3)                                                                                                                                                                                                                                                                                                      | to change the basis on
        which the Appointee treats supplies of water or provisions of sewerage
        services as separate
        supplies or provisions for the purpose of making Standard Charges (other
        than Excluded Charges) which affects the calculation of Average Charge
    Per Chargeable Supply                                                                 
|    |                                                                                                                                                                                                                                                                                                          | it shall:                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                          | (a)                                                                                                                                                                                                                                                                                                                                                                                           | notify the Director; and                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                          | (b)                                                                                                                                                                                                                                                                                                                                                                                           | furnish to the Director such explanations
        and Information relating to such change as the Director considers requisite
    or expedient having regard to the purposes of this Condition                                                                         
|    |                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                        
|5.2 | Where there is a material change to
        the basis of compiling the Retail Prices Index this Condition, insofar
        as it relates to that part of the calculation of the Charges Limit to
        which the Retail Prices
Index is relevant, shall be modified in                                

B16

---



Back to Contents

|    | such
    manner as the Director, after prior consultation with the Appointee, may
    determine to be appropriate to take account of such change.                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                               
|6.  | Verification of Compliance with the Charges Limit                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                               
|6.1 | Statements                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                               
|    | The Appointee shall deliver to the Director the following statements:                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                               
|    | (1)                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                               
|    | (2)                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                               
|    | Any Principal Statement or Supplemental Statement shall be accompanied by the
information necessary to calculate At(i) and At-1(i) and
Bt(j) and Bt-1(j) in the definition of Weighted Average
Charges Increase and a written statement of those calculations.

B17

---



Back to Contents

|6.2       | Auditors Report                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         
|          | Any Principal Statement shall be accompanied by a report by the Auditors as to
whether, in their opinion, the information included in that Principal Statement
under sub-paragraphs 6.1(1)(a) and (b) has been properly extracted from the relevant
accounting statements prepared and delivered by the Appointee under paragraph
4 of Condition F and from the Appointees accounting records and such other
records of the Appointee as the Auditors consider relevant for the purpose of
making their report and as to whether, in their opinion, the calculations delivered
by the Appointee with that Principal Statement are in accordance with this Condition
and with the Appointees accounting and such other
relevant records.
|         
|7.        | Transitional Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         
|7.1       | Save with the prior written approval of the Director or as permitted under
    the terms of any agreement or arrangement entered into or made by the Water
    Authority before the transfer date, the Appointee shall not increase the
    amount of any Standard Charge (other than an Excluded Charge) for any supply
    of water provided, or provision of sewerage services made, or reception,
    treatment and disposal of trade effluent which takes place, at any time before
    1st April 1990 or in respect of any period ending before that date from the
    amount of such Standard Charge as at the transfer date.                                                                                                     
|         
|7.2       | The Director, after consultation with the Appointee, may modify this Condition
    by prior notice to the Appointee at any time and from time to time while
    the Appointee is wholly owned by the Crown by
changing the Adjustment Factor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         
|          | Any such modification shall have effect from the date and in respect of the Charging
Years specified in the relevant notice, not being a Charging Year starting before
the Director gives such
notice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Part III. |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|8.  | Periodic Reviews of the Appointed Business Initiated by the Director
    at five- yearly intervals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|8.1 | Where the Director so requires by notice to the Appointee (aReview
    Notice) given at any time on or before the Review Notice Date the Appointee shall furnish to the Director such Information as the Director may reasonably require to enable him to carry out a Periodic Review for the
purpose of determining the question whether (having regard to all the circumstances which are relevant in the light of the principles which apply by virtue of Part I of the Act in relation to the Directors determination, including, without
limitation, any change in circumstance which has occurred since the transfer date or, as the case may be, the last Periodic Review or which is to occur) the Adjustment Factor should be changed (and if so what change should be made to the Adjustment
Factor) for the ten consecutive Charging Years starting on
|   

B18

---



Back to Contents

|    | 1st April 1995 or any such later date specified in the relevant Review
Notice which is the fifth anniversary of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|8.2 | The Appointee shall furnish to the Director not later than 31st March
    immediately following the Review Notice Date such Information as the Director
    may reasonably require in the Review Notice to enable him to carry out the
    Periodic Review. The Appointee shall also furnish to the Director, as soon
    as reasonably practicable, such further Information as the Director may from
    time to time by notice to the Appointee reasonably require to enable him
    to carry out the Periodic Review.                                                                                                                                                                                                                                                
|   
|8.3 | The Appointee shall also furnish to the Director from time to time when so requested by the Director such Information as the Director may reasonably require to decide whether or not to give a
Review Notice.(effective from 1 April 2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|9.  | Periodic Reviews of the Appointed Business at Regular FiveTen-
    yearly Intervals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|9.1 | The Appointee shall furnish to the Director such Information as the Director
    may reasonably require to enable him to carry out a Periodic Review for the
    purpose of determining the question whether (having regard to all the circumstances
    which are relevant in the light of the principles which apply by virtue of
    Part I of the Act in relation to the Directors determination, including,
    without limitation, any change in circumstance which has
occurred since the transfer date or, as the case may be, thelast
Periodic Review or which is to occur) the Adjustment Factor should be changed
(and if so, what change should be made to it the Adjustment Factor)
for:(strikethrough and highlighted
italics effective from 1 April 2000)
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|9.2 | The Appointee shall furnish to the Director not later than 31st March
    immediately following the Review Notice Datesuch Information (including
    further detail about or explanation of Information previously supplied, whether
    or not under this sub-paragraph 9.2)as the Director may reasonably
    require                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   

B19

---



Back to Contents

|     | by notice reasonably requireto the Appointee on or before the
Review
Notice Dateto enable him to carry out the Periodic Review and,
as soon as reasonably practicable, such further Information as the Director may
from time to time by notice to the Appointee reasonably require to enable him
to carry out the Periodic Review.(strikethrough and highlighted italics
effective from 1
April 2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|10.  | Periodic Reviews of the Appointed Business Initiated by the Appointee
    at Five-yearly Intervals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|10.1 | Subject to sub-paragraph 10.2, the Appointee may refer to the Director
    for determination by him the question whether (having regard to all the circumstances
    which are relevant in the light of the principles which apply by virtue of
    Part I of the Act in relation to the Directors determination, including,
    without limitation, any change in circumstances which has occurred since
    the transfer date or, as the case may be, the last Periodic Review or which
    is to occur) the Adjustment Factor should be changed (and if so what change
    should be made to the Adjustment Factor) for the ten consecutive Charging
    Years starting with the Relevant Charging Year.                                                                                                                                                                                                                       
|    
|10.2 | No reference may be made under sub-paragraph 10.1 if the Director
    shall have given a Review Notice to the Appointee under sub-paragraph 8.1
    in respect of the period of ten consecutive Charging Years beginning with
    the next Relevant Charging Year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|10.3 | A reference to the Director under this paragraph 10 shall be made by notice given to the Director not earlier than 2nd January and not later than 14th January immediately following the Review
Notice Date.(strikethrough and highlighted italics effective from 1 April 2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|11.  | Periodic Reviews of the Appointed Business where a Termination Notice
    has been given                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|11.1 | Where a Termination Notice has been given by the Secretary of State to the
    Appointee, the Appointee may refer to the Director for determination by him
    the question whether, on the assumption that such a Termination Notice had
    not been given, (but subject thereto, having regard to all the circumstances
    which are relevant in the light of the principles which apply by virtue of
    Part I of the Act in relation to the Directors determination, including,
    without limitation, any change in circumstance which has occurred since the
    transfer date or, as the case may be, the last Periodic Review or which is
    to occur) the Adjustment Factor should be changed (and if so what change
    should be made to the Adjustment Factor) for the ten consecutive Charging
    Years starting with the Charging Year starting 1st April last before the
    Termination Notice is to expire.
|    

B20

---



Back to Contents

|11.2     | A reference to the Director under this paragraph 11 shall be made by notice
    given to the Director not earlier than 1st July and not later than 14th July
    in the Charging Year next but one before that commencing on the said 1st
    April.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        
|12.      | Effect of Termination of the Appointments (or either of them) on Periodic
    Reviews                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        
|         | Subject to paragraph 11, if the Secretary of State shall
have served a Termination Notice on the Appointee then this Condition shall have
effect as though, in the case of the Appointment in respect of  which the Termination
Notice has been given, references to a Periodic Review being carried out in respect
of a period of tenfive consecutive Charging Years were references to	a
Periodic Review being carried out in respect of the relevant Appointment in respect
of a period of that number of consecutive Charging Years which is the lesser
of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        
|         | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        
|         | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        
|Part IV: |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|13.      | Matters of Interpretation
    and Construction which apply for the purposes of this Part IV                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|13.1     | In this Part of this Condition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | the
            Appropriate Discount Ratemeans
            such rate of return as, at the time at which the Appropriate Discount
            Rate falls to be applied from time to time under this Condition,
            investors and creditors would reasonably expect of a properly managed
            company holding the Appointments whose sole business consists of
            being a water undertaker and a sewerage undertaker and, without excluding
            other considerations which may also be relevant, having its equity
            share capital listed on The International Stock Exchange of the United
            Kingdom and the Republic of Ireland Limited, and the same Appropriate
            Discount Rate shall be applied for all purposes in determining questions
            the subject of the same reference (including questions determined
            by the Director under paragraph 15 when he determines questions referred
    to him by the Appointee under paragraph 14);
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | equity share capitalhas
    the same meaning as in the 1985 Act;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

B21

---



Back to Contents

| | Interim
              Determinationmeans the determination
              by the Director of the relevant questions the subject of a reference
              by the Appointee under paragraph 14 or pursuant to paragraph 15
              or, as the case may be, the determination by theMonopolies Competition
              Commission of the relevant questions or of the disputed determinations
              the subject of a reference to it pursuant to sub-paragraph 16(2)
              or 16(3), which relates to a reference by the Appointee under paragraph
    14 or a determination pursuant to paragraph 15;                                                      
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | making
            a Relevant Determinationmeans
            determining the Adjustment factor initially or determining, in carrying
            out the most recent Periodic Review, or making any subsequent Interim
            Determination (or, where there has been no Periodic Review, in making
            any Interim Determination) whether the adjustment factor should be
            changed (and if so, what change should be made to the Adjustment
            Factor), and Relevant Determination shall be construed accordingly;                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Net
              Present Valuemeans the net
              present value calculated as at 30th September in the year in which
              the relevant Reference Notice is given or, where in any year no
              Reference Notice is given under paragraph 14 but the Director gives
              a notice to the Appointee under paragraph 15, as at 30th September
              in the year in which the Director gives the notice, by discounting
              subsequent cash flows and inflating earlier cash flows at the Appropriate
              Discount Rate, assuming all cash flows in any Charging Year occur
    on 30th September in that Charging Year;
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | a Notified
            Itemis any item notified by the Directorto the
            Appointee as not having been allowed for (either in full or at all)
            in making a Relevant Determination; and for the purpose of this definition:                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | a Relevant
    Change of Circumstance is any of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

B22

---



Back to Contents

| |     | (b)                                                                                                                                                                                                                                                                                                                                                                                                                           | any change to any legal requirement which applies to the Appointee (including any legal requirement ceasing to apply, being withdrawn or not being renewed);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) | either of the following circumstances for any Charging Year in respect of which the Secretary of State, or, as the case may be, the Director, notified the Water Authority or, as the case may be, the
Appointee that variations in value received or expected to be received from Relevant Disposals of Land shall constitute a Relevant Change of Circumstance:                                                            
|
| |     | (a)                                                                                                                                                                                                                                                                                                                                                                                                                           | where for any Charging Year the value received or expected to be received from a Relevant Disposal of any Identified Land is, or is expected to be, different from the value which the Secretary of State,
or, as the case may be, the Director, notified the Water Authority or, as the case may be, the Appointee was the value attributable to a Relevant Disposal of that Identified Land for that Charging Year which had been allowed for in determining the
Adjustment Factor initially or whether the Adjustment Factor should be changed (and if so what change should be made to the Adjustment Factor); or                                                    
|
| |     | (b)                                                                                                                                                                                                                                                                                                                                                                                                                           | where for any Charging Year, and to the extent not taken into account under (a) above, the aggregate value received or expected to be received from Relevant Disposals of Non- identified Land is, or is
expected to be, different from the value which the Secretary of State, or, as the case may be, the Director notified the Water Authority or, as the case may be, the Appointee was the value attributable to Relevant Disposals of Non-identified Land
for that Charging Year which had been allowed for in determining the Adjustment Factor or whether the Adjustment Factor should be changed (and if so what change should be made to the Adjustment Factor)
|
| |     | and so that any notification by the Director for purposes of this sub- paragraph (2) shall be relevant for the purposes of this sub-paragraph (2) to the exclusion of any earlier notification by the
Secretary of State or the Director for the purposes of this sub-paragraph (2) to the extent that the first-mentioned notification is made in respect of matters in respect of which that earlier notification was made.
|
| |     | For the purposes of this sub-paragraph (2):                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                           | Identified Landmeans any piece or parcel of protected land identified in any such notification referred to in (a) above as is relevant
for the time being for the purposes of this sub- paragraph (2); or as being included in that notification, not being,                                                                                                                                                                                                                                                                                                                                                                                                           
|

B23

---



Back to Contents

| |  |        | or being part of, a piece or parcel
        of land which has previously been the subject of a transfer under paragraph
    7 of Condition K;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (ii)   | landincludes
    any interest or right in or over land;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (iii)  | Non-identified
          Landmeans any piece or parcel of protected land, not being,
    or being part of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |        | (A)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |        | (B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (iv)   | protected land and disposal have
        the meanings respectively given to them in section 189 (section 219 of
    the 1991 Act);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (v)    | a Relevant Disposal means
        and includes any disposal by the Appointee and any transfer under paragraph
    7 of condition K;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (vi)   | a Relevant Disposal
          of Land means and includes a Relevant Disposal of Identified
    Land and a Relevant Disposal of Non-identified Land;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (vii)  | value includes
        value of any kind including, without limitation, cash, the value of real
        or personal property or any interest in such property, the value of any
        right or benefit (actual or prospective) and the value of any release,
        in whole or in part, of any obligation or claim, provided that to the
        extent that any property, right or benefit shall consist of a right to
        receive cash or any other asset then no value shall be attributed to
        that property, right or benefit but the cash or other asset the subject
        thereof shall be included and treated as value received or expected to
        be received in the Charging Year in which it is received or expected
    to be received;
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (viii) | references to value
          received or expected to
be receivedshall be construed so as to include receipts by, and grants
to, the Appointee, any Associated Company or any other business in which either
the Appointee or any Associated Company has a material direct or indirect interest;                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | (ix)   | for the purpose of computing value
          received or expected to be received in respect of a Relevant
          Disposal of Land which consists of a transfer made under paragraph
          7 of Condition K the value received or expected to be received shall
    be the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

B24

---



Back to Contents

| |     |        | value for which that transfer
    is made under that paragraph 7, but so that where that value includes a right
    to receive cash or any other asset then, for the purpose of this sub-paragraph,
    no value shall be attributed to that right but the cash or other asset the
    subject thereof shall be included and treated as value received or expected
    to be received in the Charging Year in which it is received or expected to
    be received;   
| | --- | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | (x)    | in the case of a right or benefit, but subject to the proviso to (vii) above, value shall be deemed to have been received at the time the right is granted or the benefit arises;                                                                                                                                                                                                                                                                                    
|
| | (3) | where:
|
| |     | (i)    | in making a Relevant Determination, an amount has been allowed for on account of steps taken or to be taken for the purpose of securing or facilitating compliance with a legal requirement (not being one
to comply with which the Water Authority or the Appointee has determined to make a change to the basis on which it charges customers for water supply or sewerage services) or achieving a service standard adopted or to be adopted by the Appointee;
and
|
| |     | (ii)   | in any such case:                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |        | (A)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |        | (B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |        | (C)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (4) | where:
|
| |     | (a)    | in making a Relevant Determination an amount has been allowed for on account of capital expenditure to be incurred by the Appointee; and                                                                                                                                                                                                                                                                                                                             
|

B25

---



Back to Contents

| |  | (b) | for any Charging Year ended
        before the making of the relevant reference under paragraph 14, or, as
        the case may be, the giving of the relevant notice under paragraph 15,
        the Notified Index is at a different level from that which the Director
        last notified the Appointee in connection with a Relevant Determination
        was the level which it had been assumed would pertain in that same Charging
        Year in which it was assumed for the purpose of assessing the amount
        allowed for as aforesaid that capital expenditure would be incurred by
    the Appointee);
| |  | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     | For the purposes
    of this sub-paragraph (4) and sub-paragraph 14.2:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | (A) | the
          Notified Index means the index of national construction costs
          notified by the Director to the Appointee for the purposes of this
          condition, or such other index as the Director, after consultation
          with the Appointee, determines to be appropriate and reasonable for
          those purposes as being the index which is to apply for the purposes
    of the relevant Charging Year.                                                                                                                                                                                      
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | (B) | where:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     | (x)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     | (y)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     | (z)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     | then the question
        as to how changes in construction costs in the relevant Charging Year
        should be allowed for as a Relevant Change of Circumstance shall be determined
        by the Director in such a manner as the Director in such manner as the
        Director, after prior consultation with the Appointee, determines to
    be appropriate and this condition shall be modified accordingly; and                                                                                                                                                                                                  
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | (C) | the Indexed
        Capital Costs Amount is the amount found by multiplying A by B,
    where                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     | A is the aggregate
        amount of capital expenditure which, for the purpose of assessing the
        amount allowed for as described in (a) above, it was assumed would be
        incurred by the Appointee in the relevant
Charging Year                                                                                                                                                                                                                                                                                                                                                                               

B26

---



Back to Contents

|     |                                                                                                                                                                                                                                                                                      |                                                   | B is the percentage
        difference between the level of the Notified Index for the relevant Charging
        year and the level notified for that same Charging Year by the Director,
    as described in (b) above;]                                                                                                                                                                                                                                                                                                
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                     
|     | aRelevant
    Itemis any of the following:                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                      |                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                      | (1)                                               | a Relevant Change of Circumstance
        (other than a Relevant Change of Circumstance falling within sub-paragraph
    (2) of the definition);                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                      |                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                      | (2)                                               | a Notified Item; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                      |                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                      | (3)                                               | a Relevant Disposal of
    Land                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                      |                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | and
        references to a Relevant Item are to a Relevant Change of Circumstance
        (other than a Relevant Change of Circumstance falling within sub-paragraph
        (2) of the definition), a Notified Item or a Relevant Disposal of Land
    as the context may require.
|     |                                                                                                                                                                                                                                                                                     
|13.2 | In the definition of a Relevant
    Change of Circumstance and for the purpose of that definition:                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                      |                                                  
|     | (1)                                                                                                                                                                                                                                                                                  | a legal
    requirementis any of the following:
|     |                                                                                                                                                                                                                                                                                      |                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                      | (a)                                               | any enactment or subordinate
        legislation to the extent that it applies to the Appointee in its capacity
        as a water undertaker or sewerage undertaker (and for this purpose, but
        without prejudice to the
generality of the foregoing, subordinate legislation includes any
order made under section 20 (section 18 of the 1991 Act), and any authorisation
granted, approval given, or prohibition imposed, by the Secretary of State under
The Water
Supply
(Water Quality) Regulations 1989);
|     |                                                                                                                                                                                                                                                                                      |                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                      | (b)                                               | any regulation made by
        the Council or the Commission of the European Communities to the extent
        that it applies to the Appointee in its capacity as a water undertaker
        or sewerage undertaker, or decision taken by the said Commission which
        is binding on the Appointee in its capacity as a water undertaker or
    sewerage undertaker and to the extent that it is so binding;                                                                                                       
|     |                                                                                                                                                                                                                                                                                      |                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                      | (c)                                               | any licence, consent or
        authorisation given or to be given by the Secretary of State, the Authority
        or other body of competent jurisdiction to the Appointee for the purpose
        of carrying on any of the functions of a water undertaker or sewerage
    undertaker;                                                                                                                                                                                                                               

B27

---



Back to Contents

| |  | (d)                                                                                      | any undertaking given by the Appointee to, and accepted by, the Secretary
    of State or, as the case may be, the Director for the purposes of section
    20(5)(b) (section 19(1)(b) of the 1991
Act);                                                                                         
| |  | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (e)                                                                                      | other than any such undertaking as is referred to in (d), any undertaking
    given by the Appointee to any enforcement authority, and accepted by that
    enforcement authority, to take all such
steps:                                                                                       
|
| |  |                                                                                          | (i)                                                                                                                                                                                                                                                                                              
|
| |  |                                                                                          | (ii)                                                                                                                                                                                                                                                                                             
|
| |  | (f)                                                                                      | the Conditions of these Appointments; and                                                                                                                                                                                                                                                        
|
| |  | (g)                                                                                      | any interpretation of law, or finding, contained in any judgment given by
    a court or tribunal of competent jurisdiction in respect of which the period
    for making an appeal has expired which requires any legal requirement falling
    within (a) to (f) above to have effect in a way:
|
| |  |                                                                                          | (i)                                                                                                                                                                                                                                                                                              
|
| |  |                                                                                          | (ii)                                                                                                                                                                                                                                                                                             
|
| |  |                                                                                          |                                                                                                                                                                                                                                                                                                  
|
| |  |                                                                                          |                                                                                                                                                                                                                                                                                                  
| |  |                                                                                          |                                                                                                                                                                                                                                                                                                  
| |  | but so that nothing in sub-paragraphs
    (a) to (g) above shall apply so as to include:
| |  |                                                                                          |                                                                                                                                                                                                                                                                                                  
| |  |                                                                                          | (i)                                                                                                                                                                                                                                                                                              

B28

---



Back to Contents

|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | (ii) | those sections
|---- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------------
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |               
|     |                                                                                   | to the extent in either
        case that they require the Appointee to pay fees or charges to the relevant
    enforcement authority; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |               
|     | (2)                                                                               | enforcement authoritymeans
          any person or body having jurisdiction to enforce or to take action
          under or in respect of the relevant
legal requirement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |               
|13.3 | In paragraph 14 and in
    the definition of a Relevant Change of Circumstance:
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |               
|     |                                                                                   | (1)     references
        to costs include references to expenditure and loss of revenue and references
        to costs being incurred include references to expenditure being made
        and loss of revenue being suffered;
[and] [deleted with effect from
24/07/02]                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |               
|     |                                                                                   | (2)     references
        to receipts include references to receipts, cash or other assets of any
        sort, whether of a capital or revenue nature and including receipts of
        grants, contributions, gifts and loans[;
and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |               
|     |                                                                                   | (3)     without
        prejudice to subparagraph (1) above, Operating Expenditure in
        subparagraph 14.2(6) includes those items currently so identified in
        Regulatory Accounting Guidelines 3 and 4 and in the July Return 1999
        Reporting Requirement, line 22 in table 21 and line 23 in table 22. For
        the avoidance of doubt, depreciation, the write-down/off of assets, the
        profits/loss on disposal of assets and infrastructure renewals expenditure
    or charges are excluded.] [inserted with effect from 24/07/02]                                                                                                                                                                
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |               
|13.4 | (1)                                                                               | For
        the purposes of sub-paragraphs 14.2(1) costs, receipts and savings shall
        be ascertained at the general price level prevailing, or expected to
        prevail, on 30 September in the year in which the Appointee gives notice
        under sub-paragraph 14.1, or the director gives notice under paragraph
    15(1).                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | (2)                                                                               | In sub-paragraphs 14.2(8)
        and 14.2(9) and sub-paragraph (3) below at Outturn Prices, in
        relation to the amount of any Base Cash Flow or depreciation, means that
        amount as adjusted to take account of the actual or expected cumulative
        percentage change in the Retail Prices Index from that prevailing, or
        expected to prevail, on 30 September in the year in which the Appointee
        gives notice under sub-paragraph 14.1 or the Director gives notice under
        [sub-] paragraph 15 [.1], up to and including that prevailing, or expected
        to prevail, on 30 September in the year in which the Base Cash Flow or
    depreciation occurred, or is expected to occur.
|     |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | (3)                                                                               | In sub-paragraph 14.2(8) Current
          Value, in relation to any Base Cash Flow or depreciation at Outturn
          Prices, means that amount, as adjusted to take account of the actual
          or expected cumulative percentage change in the Retail Prices Index
          from 30 September in the year in which that Base Cash Flow or depreciation
          occurred or
is                                                                                                                                                                                                                                                                                                                                            

B29

---



Back to Contents

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | expected to occur, up to and including
    30 September in the relevant year.                                                                                                                                                                                                                                                  
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|13.5 | For the purpose of section 15(5)(b) (section 13(5)(b) of the 1991 Act), the
    provisions of this Condition, to the extent that they relate to a Relevant
    Change of Circumstance falling within sub-paragraph (2) of that definition,
    are provisions of the Appointments which cannot be modified. This sub- paragraph
    shall cease to have effect if, but only if, this Condition ceases to contain
    any provision relating to changes to the Adjustment Factor to allow for Notified
    Items and Relevant Changes of Circumstance.                                                                                                    
|    
|14.  | References to the Director relating to Notified Items and Relevant Changes
    of Circumstance and circumstances having a substantial effect on the Appointed
    Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|14.1 | The Appointee may from time to time refer to the Director for determination
    by him (having considered the proposals of the Appointee) the questions set
    out in sub-paragraph 14.2 or, as the case may be, sub-paragraph 14.3. Such
    reference shall be made by notice given to the Director, which, in the case
    of questions set out in sub-paragraph 14.2, shall be given in accordance
    with sub-paragraph 14.4. For the purposes of sub-paragraph 14.2 a single
    reference may be made in respect of any number of Notified Items and Relevant
    Changes of Circumstance and sub-paragraph 14.2 shall be construed accordingly.
|    
|14.2 | In the case of a Notified Item or where there has been or is to be a Relevant
    Change of Circumstance all of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|     | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | what are, or are likely to be, the costs, receipts and savings reasonably
    attributable to the Relevant Item and also, in the case of a Relevant Change
    of Circumstance falling within sub-paragraph (2) of the definition, the costs,
    receipts and savings reasonably connected with the Relevant Disposal of Land.
|    
|     | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | except in the case of a Relevant Change of Circumstance falling within sub-paragraph
    (2) of the definition, to what extent:                                                                                                                                                                                                
|    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (a)                                                                                                                                                                                                                                                                                                                            
|    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (b)                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | and where it is determined
      that such costs are reasonably recoverable as aforesaid or, as the case
    may be, that the Relevant Item is relevant                                                                                                                                                                        

B30

---



Back to Contents

| |     | as aforesaid, either in full or to an extent, then references hereafter to costs,
receipts and savings reasonably attributable to a Relevant Item are to those
costs, receipts and savings except to that
extent;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (3) | both of the following:                                                                                                                                                                                           
|
| |     | (a)                                                                                                                                                                                                              
|
| |     | (b)                                                                                                                                                                                                              
|
| |     | and for the purpose of determining the separate amounts under (a) and (b), but
without prejudice to the generality of the foregoing:                                                                             
|
| |     | (i)                                                                                                                                                                                                              
|
| |     |                                                                                                                                                                                                                  
|
| |     |                                                                                                                                                                                                                  
|
| |     |                                                                                                                                                                                                                  
|
| |     |                                                                                                                                                                                                                  
|

B31

---



Back to Contents

| |  | (ii) | in
      the case of a Relevant Change of Circumstance falling within sub-paragraph
    (1) of the definition, regard shall be had to whether either:
| |  | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  |      |                                                                                                                                                      
| |  |      | (a)                                                                                                                                                  
| |  |      |                                                                                                                                                      
| |  |      | (b)                                                                                                                                                  
|

| | (4) | having determined under (3) the separate amounts of costs and of receipts
    and savings in respect of each Relevant Item, what are the annual cash flows
    thereof (costs being netted off against the amount of receipts and savings
    for this purpose) over each Charging year included in the timing determined
    under (3) (those annual cash flows being hereinafter referred to as the
    Base Cash
Flows);
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (5) | what is the annual aggregate of:                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     | (a)                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     | (b)                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     | in both cases the subject of the notice or notices under sub-paragraph 14.4 or
paragraph 15;                                                                                                                                                                                                                                                                                                                                 
|
| | (6) | (a)     where any part of an annual aggregate derived
    under sub- paragraph (5) consists of items to which (b) below does not apply,
    what is the Net Present Value of that part of the annual aggregate, calculated
    up to the start of the first of the Charging Years for which the next Periodic
    Review falls to be carried out;                                                                            
|
| |     | (b)where any part of the annual aggregate derived under sub-    paragraph (5) consists of revenue and/or Operating
    Expenditure, what is the Net Present Value of that part of the annual aggregate,
    calculated over 15 years; and                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | (c)     what
    is the aggregate of the Net Present Values calculated under                                                                                                                                                                                                                                                                                                                                                 
| |     | (a) and (b) (the Materiality
    Amount);                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (7) | is the Materiality Amount equal
      to or does it exceed ten per cent of the turnover attributable to the Appointed
      Business in the latest financial year for which accounting statements have
      been prepared
and                                                                                                                                                                                               

B32

---



Back to Contents

| |     | delivered to the Director under Condition F, as shown by those accounting statements,
and for this purpose where the Materiality Amount is a negative figure it shall
be treated as though it were a
positive figure;                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (8) | if so, for each year (the relevant year) until the first
    of the Charging Years for which the next Periodic Review falls to be carried
    out (having regard to any Review Notice or Reference Notice which has been
    given at the time when the reference is made),
|
| |     | (a)                                                                                                                                                                                                                                                                          
|
| |     |                                                                                                                                                                                                                                                                              
|
| |     |                                                                                                                                                                                                                                                                              
|
| |     |                                                                                                                                                                                                                                                                              
|
| |     |                                                                                                                                                                                                                                                                              
|
| |     |                                                                                                                                                                                                                                                                              
|
| |     |                                                                                                                                                                                                                                                                              
|
| |     |                                                                                                                                                                                                                                                                              

B33

---



Back to Contents

|     |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (vii)                                                                                                                                                                                                                                                                                                                                                                                                            | the Appropriate Discount Rate, adjusted so as to exclude	any
allowance for changes in the Retail Price Index, multiplied by the sum of:
|---- | --------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------
|    
|     |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                  | A.                                                                                                                                     
|    
|     |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                  | B.                                                                                                                                     
|    
|     |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                  | (the Allowable Return); and                                                                                                          
|    
|     |                       | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | what is the sum of:                                                                                                                                                                                                                                                                                                                                                                                             
|    
|     |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (i)                                                                                                                                                                                                                                                                                                                                                                                                              | Other Allowable Expenditure;                                                                                                           
|    
|     |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                             | Allowable Depreciation; and                                                                                                            
|    
|     |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (iii)                                                                                                                                                                                                                                                                                                                                                                                                            | the Allowable Return;                                                                                                                  
|    
|     |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                  | (the Annual Allowable Amount);                                                                                                       
|    
|     | (9)                   | what change to the Adjustment Factor over the period from the beginning of
    the first of the Charging Years referred to in sub- paragraph 14.4(1) (in
    any case where a Reference Notice has been given in respect of sub-paragraph
    14.2) or sub-paragraph 15 [.1](1) (in any other case) until the first of
    the Charging Years for which the next Periodic Review falls to be carried
    out (having regard to any Review Notice or Reference Notice which has been
    given at the time when the reference is made) (the Relevant Period)
    is most likely to allow, or, as the case may be, require, the Appointee to
    make such charges over the Relevant Period (Adjusted Charges),
    in such a manner as to secure that the increase, or, as the case may be,
    decrease, in revenue attributable to the making of Adjusted Charges would,
    in each year of the Relevant Period, be equal to
|    
|     |                       | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | the Annual Allowable Amount for that year,                                                                                                                                                                                                                                                                                                                                                                      
|    
|     |                       | plus                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|     |                       | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | where Base Cash Flows at Outturn
    Prices have occurred prior to the first year of the Relevant Period, the
    amount, which, calculated as a constant annual amount over the Relevant Period,
    would result in the sum of the Net Present Values of these amounts equalling
    the sum of the Net Present Values of the Annual Allowable Amounts for each
    of the years prior to the Relevant Period.
|    
|14.3 | All of the following:
|     |                      
|     | (1)                   | whether any circumstance (other
      than a relevant Change of Circumstance) has occurred which has or will
    have:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

B34

---



Back to Contents

|     |                                                                                                                                                                                                                                                                                                                           | (a)                                                                                                                                                                                                                                                                                                                                                                                                             | a substantial adverse effect on the Appointed Business or on its assets,
    liabilities, financial position, or profits or losses, not being one which
    would have been avoided by prudent management action taken since the transfer
    date; or
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |                                                                                                                                                                                                                                                                                                                           | (b)                                                                                                                                                                                                                                                                                                                                                                                                             | a substantial favourable effect on the
      Appointed Business, or on its assets, liabilities, financial position,
      or profits or losses, being one which is fortuitous and not attributable
      to prudent
management action; and            
|     |                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                       
|     | (2)                                                                                                                                                                                                                                                                                                                       | if so, what change
      should be made to the Adjustment
Factor.                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                
|     | For this purpose:                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                          
|     | (i)                                                                                                                                                                                                                                                                                                                       | what constitutes prudent
      management action shall be assessed by reference to the circumstances
      which were known or which ought reasonably to have been known to the Appointee
      at the relevant
time;                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (ii)                                                                                                                                                                                                                                                                                                                      | an effect shall not be regarded
      as a substantial adverse effect or a substantial favourable effect in any
      case unless, if the questions set out in sub-paragraph 14.2 were to be
      asked in relation to the circumstance giving rise to it, the answer to
      that in 14.2(7) (taking the reference in it to ten per cent as a reference
    to twenty per cent) would be in the affirmative.
|     |                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                
|14.4 | A Reference Notice
      given to the Director in respect of sub-paragraph 14.2 shall contain or
      be accompanied by reasonable details of the Relevant Item in respect of
      which the Reference Notice is given and, unless the Director otherwise
    consents, shall be given not later than:                 
|     |                                                                                                                                                                                                                                                                                                                          
|     | (1)                                                                                                                                                                                                                                                                                                                       | the fifteenth
      day of September immediately preceding the first of the Charging Years
      in respect of which the Appointee wishes the change to the Adjustment Factor
    to take effect; or                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (2)                                                                                                                                                                                                                                                                                                                       | if later, where
      the Director has given a notice to the Appointee under paragraph 15.1 in
      respect of the same Charging Year, within fourteen days from the receipt
      by the Appointee of that
notice.                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                
|15.  | Changes to
        the Adjustment Factor initiated by the Director relating to Notified
    Items and Relevant Changes of Circumstance                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                          
|15.1 | In the case of
      a Notified Item or where any Relevant Change of Circumstance has occurred
      or is to occur, the Director may, having given notice to the Appointee
      specifying the Notified Item or, as the case may be, the Relevant Change
    of Circumstance, of his intention so to do not later than:
|     |                                                                                                                                                                                                                                                                                                                          
|     | (1)                                                                                                                                                                                                                                                                                                                       | the fifteenth
      day of September immediately preceding the first of the Charging Years
      in respect of which he proposes the change to the Adjustment Factor to
    take effect; or                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (2)                                                                                                                                                                                                                                                                                                                       | if later, where
      the Appointee has given a Reference Notice to the Director in respect of
    sub-paragraph 14.2 and falling within sub-                                                                                                                                                                                                                                                                  

B35

---



Back to Contents

|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                        | paragraph 14.4(1) in respect of the
        same Charging Year, within fourteen days from the receipt by the Director
    of that Reference Notice                                                                                                                                                                                                                                                                                                                                                         
|------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                             | determine the questions set out in sub-paragraph 14.2 in respect of
        that Notified Item or, as the case may be, that Relevant Change of Circumstance.
        A single notice may be given under this sub-paragraph 15.1 in respect
        of any number of Notified Items and Relevant Changes of Circumstance
        and sub-paragraph 14.2 shall be construed accordingly.
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|15.2                                                                                                         | Where sub-paragraph 14.4(2)
        or 15.1(2) applies, the questions set out in (5) to (9) inclusive of
        sub-paragraph 14.2 shall be determined in respect of all Notified Items
        and Relevant Changes of Circumstance in respect of which the Appointee
    and the Director have given notice, taken as a whole.                                                     
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                       
|15.3                                                                                                         | In the case of sub-paragraph
        14.3, the Director shall give notice to the Appointee of his intention
    to determine the questions set out in sub-paragraph 14.3(1)(b) and (2).                                                                                                                                                                                               
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                       
|Part
          V- References to the Monopolies Competition Commission
    and Modification of this Condition
|                                                                                                            
|16.                                                                                                          | References
          to the MonopoliesCompetition
Commission                                                                                                                                                                                                                                                                                                                          
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                             | Where:                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                             | (1)                                                                                                                                                                                                                                                                                                                                                                                    | pursuant to following
          the giving of a Review Notice under paragraph 8 or the giving of Information
          to the Director in accordance withparagraph 9 or following
          a reference under paragraph 10 or11, the Director
          has not given notice to the Appointee of his determination within 1one
          year from the Review Notice Date or, in the case of a reference under
          paragraph 11, within 1one year from the date of the
    relevant Reference Notice;
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                             | (2)                                                                                                                                                                                                                                                                                                                                                                                    | following a reference
        under paragraph 14, the Director has not given notice to the Appointee
        of his determinations (including any determinations under paragraph 15
        which fall to be taken into account in determining the questions the
        subject of the reference under paragraph 14) within 3 months from the
    date of the relevant Reference Notice; or                                                                                                               
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                             | (3)                                                                                                                                                                                                                                                                                                                                                                                    | the Appointee disputes
        any determination made by the Director under Part III or Part IV of this
    Condition.                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                             | the Appointee
    may, by notice given to the Director within:                                                                                                                                                                                                                                                                                                                        
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                             | (a)                                                                                                                                                                                                                                                                                                                                                                                    | 13 months from the Review
        Notice Date or, in the case of a reference under paragraph 11, from the
        date of the relevant Reference Notice (in the cases referred to in sub-paragraph
    (1));                                                                                                                                                                                                                                                                                               
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                             | (b)                                                                                                                                                                                                                                                                                                                                                                                    | 4 months from the date
        of the relevant Reference Notice (in the case referred to in sub-paragraph
    (2)); or                                                                                                                                                                                                                                                                                                                                                                                     

B36

---



Back to Contents

|         | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2 months from the date on which the Director gives notice of his determination
    to the Appointee (in the case referred to in sub- paragraph (3))                                                                                                                   
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        
|         | require the Director to refer
      to the Monopolies Competition Commission for determination
    by it:                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | in any case referred to in sub-paragraph
      (1) or (2), the relevant question or questions (including, where relevant,
      the questions in respect of any Notified Item or Relevant Change of Circumstance
      the
subject of a notice under paragraph 15); or
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                       
|         | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | in any case referred to in sub-paragraph
    (3), the disputed determination.                                                                                                                                                                                         
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                       
|17.      | Modification
        of this Condition following Periodic Reviews and references to the Director
    or the MonopoliesCompetition Commission                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|17.1     | Except in the
      case of a Periodic Review carried out under paragraph 11, this Condition
      shall be modified by the change (if any) to the Adjustment Factor (which
      may be a different number for any Charging Year and may be a positive or
      negative number, or zero) necessary to give effect to any determination
      made by the Director or the MonopoliesCompetition Commission
      under, or, as the case may be, following a reference under, Part III, Part
    IV or Part V of this Condition.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|17.2     | Where the Appointee
      requires the Director to make a reference to the Monopolies Commission
      under paragraph 16 in the case referred to in sub- paragraph (3) of that
      paragraph this Condition shall be modified by the change (if any) to the
      Adjustment Factor necessary to give effect to the Directors determination
      but so that sub-paragraph 17.1 shall then apply to the determination made
      by the MonopoliesCompetition Commission following such
    reference.                     
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Part VI. | Provision of
    Information to the Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|18.1     | The Appointee
    shall furnish to the Director:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | not later than 31st
        March immediately following the date of the relevant Reference Notice
    (in the case of a reference under paragraph 10);                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                       
|         | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | not later than 30th September
      immediately following the date of the Reference Notice (in the case of
    a reference under paragraph 11);                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                       
|         | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | at the time when it gives
      the relevant Reference Notice to the Director (in the case of a reference
    under paragraph 14 falling within sub- paragraph 14.4(1);                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                       
|         | (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | as soon as reasonably practicable
      and in any event not later than the expiry of one month from the date of
      the Directors notice to the Appointee under paragraph 15 (in the
      case of such a notice,
including                                       

B37

---



Back to Contents

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                    | the case of a reference under
    paragraph 14 falling within sub-paragraph 14.4(2))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     | such Information as the Appointee reasonably believes is necessary or, as the case may be, as the Director may reasonably require in his said notice, to enable the Director to make his determination. The
Appointee shall also furnish to the Director as soon as reasonably practicable such further Information as the Director may from time to time by notice to the Appointee reasonably require to make his determination.
|    
|18.2 | The Appointee shall also furnish to the Director from time to time when so requested by the Director such Information as the Director may reasonably require to decide whether or not to make
determinations under paragraph 15.                                                                                                                                                                                                  
|    
|18.3 | Any Information furnished to the Director under this paragraph 18 or under
    paragraph 8 or9 shall, if the Director so requires to make
    his determination, be reported on by a person appointed by the Appointee
    and approved by the Director (such approval not to be unreasonably withheld)
    (the Reporter).                                                                                                     
|    
|18.4 | The Appointee shall enter into a written contract of engagement with the Reporter which shall:                                                                                                                                                                                                                                                                                                                                    
|    
|     | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                | where such a report is required by the Director under sub-paragraph 18.3, require the Reporter to prepare and furnish to the Director, and separately to the Appointee, a written report addressed jointly
to the Director and the Appointee in form and substance such as may be specified by, or consistent with any guidelines specified by, the Director at the time when he requires the report to be furnished, the matters so specified being reasonably
appropriate to enable the Director to make his determination (to the extent that the Information in respect of which that report is required to be prepared and furnished is relevant to that determination); and
|    
|     | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                | include a term that the Reporter will provide such further explanation or clarification of his report as the Director may reasonably require and such further Information in respect of, or verification
of, the matters which are the subject of his report as the Director may reasonably require.                                                                                                                                                                                                                                                                                                                                                                             
|    
|     | The contract of engagement may also include provisions requiring the Reporter, his employees and agents to keep confidential and not to disclose, except to the Director or as required by law, any
Information which the Reporter obtains in the course of preparing his report.                                                                                                                                                 
|    
|18.5 | The Appointee shall co-operate fully with the Reporter to enable him to prepare his report, including without limitation, so far as is necessary for that purpose:                                                                                                                                                                                                                                                                
|    
|     | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                | subject to reasonable prior notice to the Appointee, giving to the Reporter access at reasonable hours to any Relevant Plant and to any premises occupied by the Appointee in relation to the Appointed
Business; and                                                                                                                                                                                                                                                                                                                                                                                                                                                            



B38


---



Back to Contents

|     | (2)                                                        | subject to reasonable prior notice to the Appointee, allowing the Reporter at reasonable hours:                                                                                                                  
|---- | ---------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |                                                            | (a)                                                                                                                                                                                                              
|    
|     |                                                            | (b)                                                                                                                                                                                                              
|    
|     |                                                            | (c)                                                                                                                                                                                                              
|    
|18.6 | Nothing in sub-paragraph 18.5 shall require the Appointee:
|    
|     | (1)                                                        | to do anything which is outside its reasonable control; or                                                                                                                                                       
|    
|     | (2)                                                        | to do, or to allow the Reporter to do, anything which would materially disrupt the Appointees business (unless it is essential that that thing be done to enable the Reporter to prepare his
report).           
|    
|18.7 | In sub-paragraphs 18.4 and 18.5:                          
|    
|     | (1)                                                        | references to the Reporter include references to his employees and agents; and                                                                                                                                   
|    
|     | (2)                                                        | Relevant Plant means any plant used by the Appointee for the purpose
    of carrying out the Regulated Activities including, without limitation, water
    mains, sewers and other pipes and their accessories.



B39

---



Back to Contents

THIS MODIFICATION MADE ON 21 FEBRUARY 1996
COMING INTO
EFFECT ON 22 FEBRUARY 1996

|1.  | Interpretation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | In this Condition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|1.1 | Infrastructure Chargemeans a Water Infrastructure Charge or a Sewerage Infrastructure Charge;                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|1.2 | Housemeans any building or part of a building which is occupied as a private dwelling house or which, if unoccupied, is likely to be so
occupied and, accordingly, includes a flat;                                                                                                                                                                                                                                                                                                                         
|   
|1.3 | Common Billing Agreementmeans an agreement between the Appointee and any other person under which that person has undertaken to pay, on
terms agreed between them charges for water supply or sewerage services, or both, in respect of two or more Houses which have a common Supply Pipe and which, in any case where that agreement relates to one of those services only, are also subject to
a similar agreement for common billing between that person and the undertaker providing the other service;
|   
|1.4 | Relevant Multipliermeans a number (which may be one or more or less than one) calculated in the manner set out in the Appendix to this
Condition;                                                                                                                                                                                                                                                                                                                                                           
|   
|1.5 | Standard Amount, in relation to any Infrastructure Charge, means the amount of that charge specified in sub-paragraph 2.1.3, as adjusted
pursuant to 
sub-paragraph 2.2 (in respect of any Charging Year starting on or after 1st April 1996);                                                                                                                                                                                                                                                              
|   
|1.6 | Supply Pipemeans
    any part of a service pipe which a water undertaker could not be, or have
    been required to lay under section 42 of the
Act (section 46(2)&(3) of the 1991 Act); and                                                                                                                                                                                                                                                                                                                
|   
|1.7 | references to a connection are to such a connection as is mentioned in section
    79(2)(a) or (b) of the Act (section 146 of 1991 Act), [and references to
    the Appointee include, where appropriate,
references to the Water Authority].                                                                                                                                                                                                                                                                 
|   
|    | Note: the words in square brackets are omitted from the water only Licence.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|2.  | Level of Infrastructure Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|2.1 | Subject to the following provisions of this Condition, in respect of each
    Charging Year starting on or after 1st April 1995, the amount of any Infrastructure
    Charge shall be -                                                                                                                                                                                                                                                                                                                       



C41

---



Back to Contents

|      | 2.1.1                                                                                                                                                                                                                                                                                                                                                                                                                         | in the case of a House subject to a Common Billing Agreement, the Standard Amount multiplied by the Relevant Multiplier for that house;                                                                                                                                                                                               
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|      | 2.1.2                                                                                                                                                                                                                                                                                                                                                                                                                         | in the case of premises which do not consist in a House or Houses and to which water is provided by a Supply Pipe with an internal diameter larger than the standard size for the time being adopted by the
Appointee for new connections of Houses, the Standard Amount multiplied by the Relevant Multiplier for those premises; and
|     
|      | 2.1.3                                                                                                                                                                                                                                                                                                                                                                                                                         | in the case of any other premises -                                                                                                                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|2.2   | In respect of each Charging Year starting
    on or after 1st April 1996 -                                                                                                                                                                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|2.2.1 | the amounts specified in sub-paragraph
      2.1.3 shall be adjusted by the percentage of any change in the Retail Prices
      Index between that published for the month of November in the Prior Year
      and
that published for November 1994;                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|      | and                                                                                                                                                                                                                                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|      | 2.2.2                                                                                                                                                                                                                                                                                                                                                                                                                         | sub-paragraph 4/5.2 of Condition
      B shall apply to this Condition as if the reference in it to the Charges
    Limit were a reference to the Standard Amount.                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                                                                               | Note: 4.2 in Water Only Licence,
    5.2 in Water and Sewerage Licence                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1   | Subject to sub-paragraph
      3.2, where an amount has been paid or agreed to be paid to the Appointee
      on account of works which have been allowed for in determining the limits
      on Infrastructure Charges under the Appointment, that amount shall, to
      the extent that it is actually paid and is referable to a connection, count
    towards the level of charge for that connection under paragraph 2.
|      |                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.2   | Where any such
      amount referable to a connection is greater than the level of charge for
      that connection under paragraph 2, nothing in this Condition shall preclude
      the Appointee from retaining or
recovering the greater amount.                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.    | Where, prior to
      1st April 1990 the Appointee has entered into an agreement under which
      a person has agreed to pay an amount in respect of works referable to a
      connection and that amount is greater than the amount which would otherwise
      be charged pursuant to paragraph 2, nothing in this Condition shall preclude
    the Appointee from recovering the greater amount.                        
|      |                                                                                                                                                                                                                                                                                                                                                                                                                              
|5.1   | Subject to sub-paragraph
      5.2, where a site is developed or redeveloped (including by means of conversion
    of a building or buildings on it) the total                                                                                                                                                                                                                                                               

C42

---



Back to Contents

|    | amount of Water Infrastructure Charges or, as the case may be, Sewerage Infrastructure Charges which may be recovered in respect of Houses and other premises on the site resulting from the development or
redevelopment shall not exceed the Standard Amount multiplied by X, where X equals -
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (1)                                                                                                                                                                                                                                                                                             
|   
|    | (2)                                                                                                                                                                                                                                                                                             
|   
|5.2 | For the purpose of calculating the amount of the limit imposed by this paragraph -                                                                                                                                                                                                              
|   
|    | (a)                                                                                                                                                                                                                                                                                             
|   
|    | (b)                                                                                                                                                                                                                                                                                             
|   
|6.1 | Subject to sub-paragraph 6.2, where -                                                                                                                                                                                                                                                           
|   
|    | (a)                                                                                                                                                                                                                                                                                             
|   
|    | (b)                                                                                                                                                                                                                                                                                             
|   
|    | nothing in this Condition shall preclude the Appointee from recovering, whether from that person or from the occupier of each House subject to the agreement, Infrastructure Charges in respect of that
House at the Standard Amount.                                                           
|   
|6.2 | Whenever it takes advantage of sub-paragraph 6.1, the Appointee shall give credit for any amount already paid by way of Infrastructure Charges in respect of that House for the connection
concerned.                                                                                           
|   
|7.  | Paragraph 2 does not apply to the interest element of any Instalment Amount payable in accordance with Condition D.                                                                                                                                                                             

C43

---




Back to Contents

|8.1  | Nothing in this Condition precludes the Appointee from charging less in any particular case than the level of Infrastructure Charge applying under paragraph 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|8.2  | Nothing in this Condition restricts the recovery or amount of any expenses or charges recoverable otherwise than under section 79 of the Act (section 146 of 1991 Act) or (except if and to the extent that
sub-paragraph 3.1 applies to the amount) restricts the recovery or level of any Infrastructure Charge by reference to any such amount.                                                                                                                                                                                                                                                                                      
|    
|9.   | Notification to Sewerage Undertakers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|     | Where the Appointee makes a connection or connections to premises in respect of water supply services, it shall as soon as reasonably practicable inform any sewerage undertaker which provides services to
those premises of the number of premises connected, the date or dates of connection, the address(es) of the premises, the name and address of the person(s) responsible for payment of charges for the supply of water to the premises and (if different)
of the person(s) responsible for payment of Infrastructure Charges in respect of the premises and (where appropriate) the Relevant Multiplier(s) for the premises.
|    
|10.  | Arbitration                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|     | If, in any case to which a Relevant Multiplier applies, there is any dispute between the Appointee and the person on whom any Infrastructure Charge has been levied about the calculation of the Relevant
Multiplier, or the number or type of fittings on which that calculation is based, it may be referred by either party for determination by the Director.                                                                                                                                                                                                                                                                       
|    
|11.  | Periodic Review of Level of Infrastructure Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|11.1 | Where a Periodic Review is to be carried out under paragraph 7/8 or 9 of Condition B, the Appointee may, by notice given to the Director in relation to water or sewerage connections or both, refer to the
Director, for determination by him, the question whether any (and if so, what) change to the Standard Amount or the manner of calculation of any Relevant Multiplier should be made for the 10 consecutive Charging Years to which that review
relates.                                                                                                                                                                     
|    
|11.2 | Where a Periodic Review is to be carried out under paragraph 7/ 8 or 9 of Condition B, the Director may, after giving notice to the Appointee in relation to water or sewerage connections or both,
determine the question specified in sub-paragraph 11.1.                                                                                                                                                                                                                                                                                                                                                                             
|     | Note: lower numbers in Water Only Licence; higher ones in Water and Sewerage Licence                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

C44

---



Back to Contents

|11.3 | Notice under sub-paragraph 11.1 or 11.2 shall be given not later than 30 days after the Review Notice Date for the Periodic Review concerned.                                                                                                                                                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|12.  | Interim Review of Level of Infrastructure Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|12.1 | The Appointee may, by notice given to the Director in relation to water or sewerage connections or both, refer to the Director, for determination by him, the question whether any (and if so, what)
change to the Standard Amount or the manner of calculation of any Relevant Multiplier should be made, in respect of the Subsequent Period, in order to ensure that -                                                                                                                                     
|    
|     | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|     | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|12.2 | In sub-paragraph 12.1 the Subsequent Period means the period from 1st April immediately following the Charging Year in which the reference is made until 31st March 1995 (or, if there is no Periodic
Review at the first 5-yearly interval, 31st March 2000) and the Prior Period means the period from 1st April 1991 until the end of the Charging Year in which the reference is made.                                                                                                                
|    
|12.3 | The Director may, after giving notice to the Appointee in relation to water or sewerage connections or both, determine the question specified in sub- paragraph 12.1.                                                                                                                                                                                                                                                                                                                                         
|    
|12.4 | Notice under sub-paragraph 12.1 or 12.3 may be given not more than once in any Charging Year and not later than 31st December.                                                                                                                                                                                                                                                                                                                                                                                
|    
|13.  | Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|13.1 | The Appointee shall furnish to the Director, at the time when it gives notice to him under sub-paragraph 11.1 or 12.1, such Information as the Appointee reasonably believes is necessary to enable the
Director to make his determination. The Appointee shall also furnish to the Director, after receipt by it of notice given under sub-paragraph 11.2 or 12.3 or this sub-paragraph, such further Information, specified in the notice, as the Director may
reasonably require to make his determination.

C45

---



Back to Contents

|13.2 | The Appointee shall also furnish to the Director from time to time, when so requested by him, such Information as he may reasonably require, to decide whether or not to give notice under sub-paragraph
11.2 or 12.3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|13.3 | Any Information furnished to the Director under this paragraph shall, if
    the Director so requires to make his determination, be reported on by a person
    (the Reporter) appointed by the Appointee and approved
    by the Director (such approval not to be unreasonably withheld). The provisions
    of sub- paragraphs 17/4, 17/5(2), 17/6 and 17/7(1) of Condition B shall apply
    to the engagement and terms of reference of each Reporter appointed pursuant
    to this Condition as they apply to those of each Reporter appointed pursuant
    to that Condition, save that the reference in sub-paragraph 17/4(1) to sub-
    paragraph17/3 of that Condition shall be taken as a reference to this sub-
    paragraph.
|    
|14.  | References to the Competition Commission                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|     | Where -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|     | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|     | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|     | the Appointee may, by notice given to the Director within -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    

| | (a)                                                                                        | 13 months from the Review Notice Date (in the cases referred to in (1) above); or                                                      
| | ------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------
|
| | (b)                                                                                        | 2 months from the date on which the notice under sub-paragraph 12.1 or 12.3 is given (in the cases referred to in (2) above); or       
|
| | (c)                                                                                        | 2 months from the date on which the Director gives notice of his determination to the Appointee (in the cases referred to in (3) above)
| |                                                                                            |                                                                                                                                        
| | require the Director to refer to the
    Competition Commission, for determination by it -
| |                                                                                            |                                                                                                                                        
| | (i)                                                                                        | in any case referred to in (1) or (2)
    above, the relevant question; or                                                             

C46

---



Back to Contents

|     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                | in the case referred to in (3) above, the disputed
determination.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------
|    
|15.  | Modification of this Condition                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|15.1 | This Condition shall be modified by the change (if any) to the Standard Amount or the manner of calculation of any Relevant Multiplier, necessary to give effect to any determination made by the Director
or the Competition Commission under, or, as the case may be, following a reference under, this Condition.                                                                                                                               
|    
|15.2 | Where the Appointee requires the Director to make a reference to the Competition Commission under paragraph 14, this Condition shall be modified by the change (if any) to the Standard Amount or the
manner of calculation of any Relevant Multiplier, necessary to give effect to the Directors determination, but so that sub-paragraph 15.1 shall then apply to the determination made by the Competition Commission following that
reference.
|    
|15.3 | In this paragraph this Condition includes the Appendix to it.                                                                                                                                                                                                                                                                                                                                                                                    

C47

---



Back to Contents

APPENDIX

CALCULATION OF RELEVANT MULTIPLIER

|1. | To calculate the Relevant Multiplier for a House to which sub-paragraph 2.1.1
    of Condition C applies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | 1.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | 1.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | 1.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | 1.4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|2. | To calculate the Relevant Multiplier for premises to which sub-paragraph
    2.1.2 of Condition C applies, ascertain in respect of the premises the total
    number of water fittings in all the categories specified in column 1 of the
    Table below; calculate by reference to column 2 of the Table the aggregate
    loading units attributable to that total number of water fittings; divide
    the aggregate loading units by 24; and the resulting number will be the Relevant
    Multiplier, provided that if the resulting number is less than 1, the Relevant
    Multiplier will be 1.
|  

C48

---



Back to Contents

|TABLE                                                                                          |              
|---------------------------------------------------------------------------------------------- | -------------
|Column 1                                                                                       | Column 2     
|Water Fitting (note 1)                                                                         | Loading Units
|                                                                                               |              
|WC flushing cistern                                                                            | 2            
|Wash basin in a House                                                                          | 1.5          
|Wash basin elsewhere                                                                           | 3            
|Bath (tap nominal size 3⁄4 in/20 mm) (note 2)                                                    | 10           
|Bath (tap nominal size larger than 3⁄4 in/20 mm (note 2)                                         | 22           
|Shower                                                                                         | 3            
|Sink (tap nominal size 1⁄2 in/15 mm)                                                             | 3            
|Sink (tap nominal size larger than 1⁄2 in/15 mm)                                                 | 5            
|Spray tap                                                                                      | 0.5          
|Bidet                                                                                          | 1.5          
|Domestic appliance (subject
    to a minimum of 6 L.U.s per House - (notes 3 & 4)              | 3            
|Communal or commercial appliance (note 3)                                                      | 10           
|Any other water fitting or outlet (including
    a tap but excluding a urine or watersoftener) | 3            
|                                                                                               |              
|                                                                                               |              

|Notes to be
    read with the Table:
|------------------------------------
|                                    
|1                                   
|                                    
|2                                   
|                                    
|3                                   
|                                    
|4                                   
|                                    
|5                                   
|                                    

C49

---



Back to Contents

Condition C: Infrastructure Charges

Explanatory Note

(This note does not form part of the Condition and does not affect the interpretation of it)

|1. | Section 79 (2) of the 1989
        Water Act(section 146 of 1991 Act) introduced
        a power whereby water and sewerage undertakers could levy a charge for
        the initial connection of premises to a water supply or to a public sewer
        for domestic purposes. These charges, which were first levied from 1
        April 1990, are termed infrastructure charges. They relate
        to the additional capital expenditure costs incurred by undertakers in
        extending the network of reservoirs, mains, sewers and treatment works,
    and developing other resources, to provide capacity for new customers.                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | This condition places limits
        (which are different for each company) on the amount of infrastructure
        charges for each water or sewerage connection. It also contains provisions
        for adjusting charges. The
Condition is structured as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Condition
        applies only to the charges under section 79 (2), (section
        146 of 1991 Act), and does not apply for example, to amounts recoverable
        under sections 41, 42 or 72 of the 1989 Act (section
        42,
45, 99 & 100 of 1991 Act), or s.36 of the Public Health Act 1936,
or any
local enactment.                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3. | The intention
        of the Condition, in placing a limit on infrastructure charges levied
        in different situations, is to reflect broadly the expected additional
        load placed on the system by different categories of property. In the
        case of houses and flats with a common supply pipe and subject to a common
        billing agreement for water supply and sewerage services, and in the
        case of properties (other than houses and flats) served by pipes larger
        than the standard size, the standard charge set out in paragraph 2 is
        increased by a multiplier reflecting estimated loadings. The basis on
    which these loadings are to be
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

C50

---



Back to Contents

|   | calculated is set out in the Appendix to the Condition. Paragraph 2 also provides
for the levels of charge to be adjusted annually by the change in the retail
prices index.                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. | Paragraphs 3 and 4 deal with cases where an amount has been agreed to be
    paid in respect of a connection which meets (wholly or inpart) the cost of
    infrastructure related to the connection.                                                                                                                                                                                                                                                                                                                                                                          
|  
|5. | Where a site is redeveloped or a building is converted paragraph 5 provides
    that credit shall be given for the number of premises on the site in the
    five years beforehand, in calculating the limit on
infrastructure charges.                                                                                                                                                                                                                                                                                                                                        
|  
|6. | Paragraph 6 provides that, where infrastructure charges are calculated on
    the basis of the multiplier in cases where a Common Billing Agreement exists,
    and either they are not paid in full within 14 days of the date of the connection,
    or the agreement is terminated prematurely by the customer, charges can be
    recovered at the standard rate.                                                                                                                                                                                                          
|  
|7. | Under paragraph 11 the levels of infrastructure charges can be reviewed at
    the same time that the K factor specified in Condition B is reviewed. Paragraph
    12 provides for interim determinations up to the first Periodic Review, to
    ensure that the average charge per connection remains at the level originally
    intended, taking account of fresh information about the mix of connections
    and their relative loadings.                                                                                                                                
|  
|8. | Paragraph 10 provides for arbitration by the Director General where there
    is a dispute about the calculation of the multiplier in cases where one applies.                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|9. | The revised Condition (and especially the three possible bases for calculating
    charges - see Paragraph 3 above) will have the effect that individual charges
    should more nearly reflect the differing estimates of additional demand,
    for new capacity upon the undertakers systems, which arise from the
    domestic element of various types of development. In order to assess the
    extent to which this is achieved, the Director General will collect, from
    each undertaker, information about numbers and types of connections in each
    category.
|  

C51

---



Back to Contents

Condition D: Charges Schemes

|1.  | In this Condition:                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | the
            Instalment Amountmeans
            the aggregate amount which would fall to be paid in the relevant
            year by way of payments of interest and repayments of capital if
            an amount equal to the Water Infrastructure Charge or, as the case
            may be, the Sewerage Infrastructure Charge payable for the relevant
    connection had been borrowed by the Appointee on terms:                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | the reference to domestic
        purposes in relation to the drainage of premises is a reference to the
        purposes specified in section 71(2)(a)(i), (ii) and (iii). (section
        117 & 98(5)(a)
        of 1991
Act)                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.1 | It shall be the duty of
        the Appointee to ensure that at all times on and after the relevant date
        specified in sub-paragraph 2.2 there is in effect a charges scheme in
        accordance with section 76 by
which (section 143 of 1991 Act):                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.2 | The relevant date for the
        purpose of sub-paragraph 2.1(1) is the transfer date and for the purpose
    of sub-paragraph 2.1(2) is 1st April 1990.                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3.  | For the purposes of paragraph
        2 so much of any such charges scheme made by the Water Authority under
        section 31 of the 1973 Act as by virtue of paragraph 16(1) of Schedule
        26 has effect on and after the transfer date as if it were a scheme made
        under section 76 (section 143 of 1991 Act), by the Appointee shall be
        treated as a charges scheme in accordance with section 76(section 143
    of 1991 Act).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.  | Any such charges scheme
        as is required to be in effect by virtue of sub-paragraph 2.1(2) shall
        provide that in the case of a connection to a water supply or, as the
        case may be, to a public sewer of a building or part of a building which
        is occupied as a dwelling house immediately before the connection is
    made:                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           

D1

---



Back to Contents

|   |                                                                                                                                                                                               | charges are payable is made; or, at the
      option of the person liable to pay the relevant charges,                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                               | (2)      an amount
      equal to the Instalment Amount shall be paid in each of the twelve years
      following the relevant connection being made, subject only to that person
      giving such undertakings to that effect as the Appointee may reasonably
      require.                                                    
|   |                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                   
|5. | The Appointee shall:                                                                                                                                                                         
|   |                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                   
|   | (1)                                                                                                                                                                                           | inform persons who enquire about charges
      for such connections as are described in section 79(2) (section
      143 of 1991 Act) that it is required to have in effect a charges
      scheme in respect of such charges and of the provisions required to be included
      in that charges scheme by virtue of paragraph 4;
|  
|   | (2) make
      a copy of any such charges scheme as is required to be in effect
      by virtue of paragraph 2 in its latest form available for inspection at
    each Relevant Premises; and
|   |                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                   
|   | (3)      send a
      copy of any such scheme in its latest form free of charge to any
    person requesting it.                                                                             
|  
|6. | Nothing in this
      Condition shall prevent the Appointee from entering into such an agreement
      as is referred to in section 75 (section 142 of 1991
      Act):                      
|  

D2


---



Back to Contents

Condition E: Prohibition on
Undue Discrimination and Undue Preference and Information on Charges

|1. | This
      Condition applies in relation to charges:
|-- | ----------------------------------------------------
|   |                                                     
|   | (1)                                                 

| |  |     |                                                                                                                                    
| |  | --- | -----------------------------------------------------------------------------------------------------------------------------------
| |  | (a) | for any water supply or sewerage services
          provided by the Appointee in the course of carrying out its functions;
      or
| |  |     |                                                                                                                                    
| |  | (b) | in any of the cases described in section
      76(1)(b) (section 143 of 1991 Act) ;                                                
| |  |     |                                                                                                                                    

| | (2) | for any water supply or sewerage
      services provided by the Appointee in the course of carrying out its functions
      or in connection with the carrying out of the Appointees trade effluent
      functions payable under any such agreement as is referred to in section
      75 (section 142 of 1991 Act), (including any
      such agreement made or entered into by the Water Authority under section
      30 of the 1973 Act as, in accordance with a scheme under Schedule 2, is
      transferred to the Appointee) which are in accordance with standard charges
      published or fixed by the Appointee;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (3) | payable where a discharge
      is made in pursuance of a consent given by the Appointee or, as the case
      may be, the Water Authority for the purposes of the 1937 Act which are in
      accordance with standard charges published or fixed by the Appointee;                                                                                                                                                                                                                                                                                                                                                           
|
| | (4) | determined by agreement in
      respect of a supply of water for non- domestic purposes which are in accordance
      with standard charges published or fixed by the Appointee;                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (5) | for any water supply or sewerage
      services provided by the Appointee fixed under any such charges scheme made
      by the Water Authority under section 31 of the 1973 Act as by virtue of
      paragraph 16(1) of Schedule 26 has effect on and after the transfer date
      as if it were a charges scheme made under section 76(section 143 of 1991 Act), by the Appointee;                                                                                                                                                                                                                                         
|
| | (6) | for any water supply or sewerage
      services provided by the Appointee in the course of carrying out its functions
      or in connection with the carrying out of the Appointees trade effluent
      functions payable under any such agreement as is referred to in section
      75 (section 142 of 1991 Act), which are not
      in accordance with standard charges published or fixed by the Appointee;                                                                                                                                                                                                            
|
| | (7) | payable where a discharge
      is made in pursuance of a consent given by the Appointee or, as the case
      may be, the Water Authority for the                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|

E1

---



Back to Contents

| |  |     | purposes of the 1937 Act
      which are not in accordance with standard charges published or fixed by
      the Appointee; and                                                      
| |  | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (8) | determined by agreement
      in respect of a supply of water for non- domestic purposes which are not
      in accordance with standard charges published or fixed by the Appointee.

E2

---



Back to Contents

|   | In this paragraph references
      to standard charges published or fixed by the Appointee are to such charges,
    whether published or fixed under a charges scheme or otherwise.                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | It shall be the duty of the
      Appointee in fixing or agreeing charges falling within any of sub-paragraphs
      1(1) to 1(5) inclusive to ensure that no undue preference is shown to, and
      that there is no undue discrimination against, any class of customers or
    potential customers.                                                                                                                                                                      
|  
|3. | It shall be the duty of the
      Appointee in fixing or agreeing charges falling within any of sub-paragraphs
      1(6) to 1(8) inclusive to ensure that no undue preference is shown to, and
      that there is no undue discrimination against, any customer or potential
      customer, but so that nothing in this paragraph shall require the Appointee
      to have regard to any charges fixed or agreed by the Water Authority prior
    to the transfer date.  
|  
|4. | The Appointee shall provide
      to the Director such Information as the Director may reasonably request
      in order to satisfy himself that the Appointee is complying with this Condition,
      it being acknowledged that Information with which the Director is furnished
      from time to time under Condition F may not be sufficient or relevant of
    itself for this purpose.                                                                               
|  
|5. | The Appointee shall provide
      to the Director such Information as the Director may from time to time reasonably
      request about the nature of any supply, service or trade effluent function
      made, provided or carried out under any such agreement or consent as is
      referred to in sub- paragraphs 1(6), 1(7) and 1(8) and the terms and conditions
      on which that supply, service or trade effluent function is made, provided
    or carried out.
|  
|6. | This Condition shall not apply:                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  

---



Back to Contents

|   | (3)                                                                                                                                                                                                                                              | so as to require the Appointee
    to contravene any local statutory provision;                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                       
|   | (4)                                                                                                                                                                                                                                              | to:                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                  | (a)                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                  | (b)                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                  | (c)                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                       
|   | (5)to
        any Water Infrastructure Charge or Sewerage
Infrastructure Charge
        the amount of which does not exceed the relevant
amount specified in  Condition C which applies from time to time for the purposes
of that Condition; or
|   |                                                                                                                                                                                                                                                 
|   | (6)                                                                                                                                                                                                                                              | to any terms and conditions on which any supply
    of water in bulk is given by the Appointee to another water undertaker.                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                       
|7. | The Appointee shall not be treated
        as having fixed or agreed charges for the purposes of paragraph 2 or
    3 solely by reason that:                                                                                                    
|   |                                                                                                                                                                                                                                                 
|   | (1)                                                                                                                                                                                                                                              | any charges scheme made
        by the Water Authority under section 31 of the 1973 Act has effect on
        and after the transfer date by virtue of paragraph 16(1) of Schedule
        26 as if it were a charges scheme made under section 76 (section
    143 of 1991 Act), by the Appointee; or
|   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                       
|   | (2)                                                                                                                                                                                                                                              | any agreement made or entered into by the Water
        Authority is transferred to the Appointee in accordance with a scheme
    under Schedule 2.                                                                                                                                                   
|   |                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                       

---



Back to Contents

|Condition F : Accounts and accounting
    information (modified on 28th September 1996)
|---------------------------------------------------------------------------------------
|                                                                                       
|1.1                                                                                    
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|2.                                                                                     
|                                                                                       
|2.1                                                                                    
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       

| |  |  | (1) | Network Assets, as defined in paragraph
    1 of Condition L; and
| |  |  | --- | -----------------------------------------------------------------
| |  |  |     |                                                                  
| |  |  | (2) | all of the following:                                            
| |  |  |     |                                                                  

| |  |  |  | (a) | valves and hydrants forming part of the
    water and trunk main systems;
| |  |  |  | --- | -------------------------------------------------------------------------
| |  |  |  |     |                                                                          

F5

---



Back to Contents

|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         | (b)               | impounding and pumped raw water storage
    reservoirs;                                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ----------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         | (c)               | dams;                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         | (d)               | sludge pipe lines; and                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         | (e)               | outfall pipes and other pipes for the
        conveyance of effluent from any sewage disposal works of the Appointee
        which discharge directly
into the sea or coastal waters;
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   | infrastructure renewals
          expendituremeans expenditure
          on maintaining or restoring the original operating capability, qualitative
          performance and condition of infrastructure assets, other than expenditure
          which is capitalised and routine day to day maintenance expenditure
    which is charged as an operating cost to the profit and loss account;
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   | Principal Servicesmeans                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    | (1)                                                                                                     | water supply; and
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    | (2)                                                                                                     | sewerage services
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    | and references to a Principal Service
    are to either and each of water supply and sewerage services;
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   | sewerage
          servicesincludes
          sewage treatment and disposal and reception, treatment and disposal
          of trade
effluent.                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|2.2 | Except where otherwise expressly provided,
        references in this Condition to costs or liabilities shall be construed
        as including taxation, and references to any profit and loss account
        shall be
construed accordingly.                                  
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|2.3 | For the purposes of this Condition:                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    | (1)                                                                                                                                                                                                                                                                               | all forms of property shall be assets,
    whether situated in the United Kingdom or not, including:                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   | (a)                                                                                                                                                                                                                                                                                                                                                                                                | options, debts and incorporeal property
    generally; and                                             
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                   | (b)                                                                                                                                                                                                                                                                                                                                                                                                | any currency including sterling;                                                                       
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    | (2)                                                                                                                                                                                                                                                                               | references to the supply of a service
        include references to anything (including the service of any employee)
    being made available; and                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    | (3)                                                                                                                                                                                                                                                                               | references to a transfer of an asset
        or liability include references to a part transfer of an asset or liability
        and, without limitation, there is a part transfer of an asset where an
        interest or
right in or over the asset is created.                                                                                                                                
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|3.  | Accounting Records                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                         |                   |                                                                                                                                                                                      
|    | The Appointee shall keep proper accounting
        records in a form which enables the revenues, costs, assets and liabilities
        of, or reasonably attributable to, the respective businesses and activities
    of the Appointee described in this Condition and the other

F6

---



Back to Contents

|    | matters mentioned in this Condition to
        be separately identified, having regard to the terms of any guidelines
        notified from time to time by the Director to the Appointee under paragraph
        5,6,7, or
8.                                                                                
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                               
|4.  | Accounting Statements                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                               
|4.1 | The Appointee shall prepare on a consistent
        basis in respect of each financial year ending after the transfer date
        accounting statements which shall comprise, and show separately in respect
        of
each of:                                                                             
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    | a profit and loss account,
    a statement of assets and liabilities and a statement of source and application
    of funds, together with notes thereto, setting out the revenues, costs (including
    depreciation, where charged), assets and liabilities thereof, or reasonably
    attributable thereto.
|    |                                                                                                                                                                                                                                                                                                               
|4A  | The transfer of the assets
    (including the provision of financial support) to Associated Companies does
    not adversely affect the Appointees ability to carry out its functions
    as a water and a sewerage undertaker or to finance those activities;                                               
|    |                                                                                                                                                                                                                                                                                                               
|4.2 | Accounting statements prepared
    under sub-paragraph 4.1 shall:                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|5.  | Segmental Information                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                               
|5.1 | Accounting statements prepared
    under paragraph 4 shall show or disclose separately:                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                               
|    | (1)                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                               

F7

---



Back to Content

| | (e) | water charges (including abstraction charges and amounts payable for taking supplies of water in bulk)
| | --- | ------------------------------------------------------------------------------------------------------
|
| | (f) | local authority sewerage agencies                                                                     
|
| | (g) | materials and consumables                                                                             
|
| | (h) | hired and contracted services                                                                         
|
| | (i) | charges for bad and doubtful debts                                                                    
|
| | (j) | depreciation and amortisation (where charged)                                                         
|
| | (k) | intangible assets written off                                                                         
|
| | (l) | infrastructure renewals expenditure                                                                   
|
| | (m) | exceptional items, and                                                                                
|
| | (n) | on an aggregated basis, all other operating costs.                                                    
|

|    | The analysis shall include
        the details reasonably necessary to reconcile the operating costs shown
        in it with the total operating costs (excluding interest and taxation)
        of the Appointee shown in the accounting statements prepared under paragraph
    4 in respect of the same period;
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                    
|(2) | an analysis of total turnover
    of the Appointed Business showing separately turnover attributable to:                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                    

|    | (a)                                                                                                   | water supply and, separately on an aggregated basis, sewerage and sewage teatment and disposal (excluding reception, treatment and disposal of trade effluent), distinguishing in each case between
the provision of those services on a measured and unmeasured basis respectively;
|--- | ----------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (b)                                                                                                   | on an aggregated basis, recepton, treatment and disposal of trade effluent;                                                                                                                                                                                                         
|   
|    | (c)                                                                                                   | grants; and                                                                                                                                                                                                                                                                         
|   
|    | (d)                                                                                                   | on an aggregated basis, all other sources;                                                                                                                                                                                                                                          
|   
|(3) | an analysis of total tangible fixed assets attributable to the Appointed Business showing separately:
|   
|    | (a)                                                                                                   | for each of the items included in the annual accounts of the Appointee prepared under the 1985 Act required to be disclosed under section B of Part I of Schedule 4 to the 1985 Act; or                                                                                             
|   
|    | (b)                                                                                                   | for each of the items included in such other analysis of tangible fixed assets by asset type as is disclosed in those annual accounts; and                                                                                                                                          
|   
|    | (c)                                                                                                   | if not separately disclosed in those annual accounts, for infrastructure assets                                                                                                                                                                                                     
|   

F8

---



Back to Contents

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | amounts
      attributable to each Principal Service, and as a separate category, on an
      aggregated basis tangible fixed assets which are not attributable to either
      Principal Service.                                                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | The
      analysis shall include:                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (i)                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (ii)                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (iii)                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    | (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                             | details
      necessary to reconcile expenditure made or incurred in relation to infrastructure
      assets with the expenditure made or incurred in relation to Network Assets
      during the same financial year as shown in the statement required to be
      delivered to the Director under sub-paragraph 5.3 of Condition L.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|5.2 | Accounting
      statements prepared under paragraph 4 shall show separately for each item
      relating to sewerage services included in the analyses under sub-paragraphs
      5.1(1) (operating costs) and 5.1(3) (tangible fixed assets) an analysis
      between amounts which are attributable to sewerage (including reception
      of trade affluent) and sewage treatment and disposal (including treatment
      and disposal of trade effluent).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|5.3 | The
      Director may, after consulting with such bodies as are reasonably representative
      of undertakers holding appointments under Chapter 1 of Part II of the Act,
      or if none, the Appointee, from time to time by reasonable notice to the
      Appointee specify in such guidelines as are reasonable and appropriate for
      the purpose set out in sub-paragraph 1(5), variations of:                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                             | the
      matters required to be shown or disclosed under sub-paragraph 5.1(1) (but
      not so as to require separate analyses of matters comprised within any of
      the items listed in that sub-paragraph); and                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                             | the
      items in respect of which the analysis of total fixed assets is to be prepared
      under sub-paragraph 5.1(3)                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                       
|    | and
      thereafter the Appointee shall show or disclose information under sub-paragraph
      5.1(1) in respect of those matters or, as the case may be, shall prepare
      the analysis under sub-paragraph 5.1(3) in respect of those items, in each
      case as so varied from time to time.                                                                                                                                                           

F9

---



Back to Contents

|6.  | Transactions
      entered into by the Appointee or the Appointed Business with or for the
      benefit of Associated Companies or other businesses or activities of the
      Appointee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6.1 | The
      Appointee shall ensure that every transaction between the Appointed Business
      and Associated Company (or between the Appointed Business and any other
      business or activity of the Appointee) is at arms length, so that neither
      gives to or receives from the other any cross-subsidy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6.2 | Subject
      to sub-paragraphs 6.3 to 6.7, accounting statements prepared under paragraph
      4 shall disclose in relation to each transaction of a description specified
      in the first column of the Appendix to this Condition which took place during
      the financial year to which those statements relate, the company or, as
      the case may be, the business or activity which was party to the transaction
      with the Appointee or, as the case may be, the Appointed Business or which
      otherwise benefited from the transaction and the information in relation
      to that transaction specified in the second column of that Appendix.                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6.3 | Subject
      to sub-paragraph 6.4, any amount required to be disclosed in relation to
      a transaction specified in paragraph 3,4,5, or 6 of the Appendix may be
      aggregated with any amount relating to any other transaction falling within
      the same paragraph with the same company or other business or activity of
      the Appointee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6.4 | Subject
      to sub-paragraph 6.7, if the amount to be disclosed under sub-paragraph
      6.2 in respect of any single transaction between the Appointee and any Associated
      Company (or between the Appointed Business and any other business or activity
      of the Appointee) exceeds 0.5% of the turnover of the Appointed Business,
      or£100,000, whichever is the greater, then that transaction shall
      not be aggregated under sub- paragraph 6.3 and the Appointee shall include
      in any accounting statement prepared under paragraph 4 the information about
      that transaction which is specified in the Appendix in relation to a transaction
      of that kind and which complies with any guidelines issued by the Director
      for this purpose.                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6.5 | The
      Appointee shall, when submitting accounting statements prepared under paragraph
      4 to the Director, report to him the turnover of any Associated Company
      with which the Appointed Business has undertaken any transaction of any
      kind specified in the Appendix.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6.6 | Nothing
      in sub-paragraph 6.2 shall require the disclosure of any information if
      the aggregate of any amounts required to be disclosed under paragraphs 3,4,5
      and 6 of the Appendix relating to transactions with the same company or
      other business or activity of the Appointee is not material to the Appointed
      Business as a whole. For the avoidance of doubt, if the aggregate of such
      amounts is material to the Appointed Business as a whole then information
      shall be disclosed in accordance with this paragraph and the Appendix in
      relation to each such transaction (subject always to sub-paragraph 6.3).
      For the purpose of this sub-paragraph the question whether an amount is
      material to the Appointed Business as a whole shall be determined by the
      Auditors by reference to whichever is the greater of:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F10

---



Back to Contents

|6.7  | Nothing
      in this paragraph 6 or the Appendix shall require the disclosure of information
      which relates solely to a transaction wholly unconnected with the Appointed
      Business.                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|6.8  | The
      Appointee shall not, in respect of any Charging Year make any payments to
      the Associated Company in respect of the services rendered to the Appointee
      by that company, which exceeds -                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (i)                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|6.9  | Without
      prejudice to paragraphs 6.1 to 6.7 above, the Appointee shall obtain from
      any Associated Company referred to in paragraph 6.8, such information about
      the latters costs as the Director may reasonably requrie.                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|6.10 | The
      Appointee shall not, without the consent of the Director and otherwise than
      in compliance with his directions concerning the valuation of the asset
      and the treatment of the consideration in the Appointees accounts, transfer
      to any Associated Company to which paragraph 6.8 applies any right or asset
      to which paragraph 3 of condition K of these conditions applies.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|6.11 | (1)                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|6.11 | (2)                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                
|6.12 | Without
      prejudice to the application of paragraphs 6.2 the Appointee shall declare
      or pay dividends only in accordance with a dividend policy which, in the
      written opinion of the Director, will not impair the ability of the Appointee
      to finance the Appointed Business.                                                                                                           

F11

---



Back to Contents

|(Extract
      from MD119, 26 July 1996, being the statement of the Directors opinion
      for the purpose of condition F6.12.                                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                               
|Licence
      Modifications                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                               
|North
      West Water, Dwr Cymru and Southern Water shall declare or pay dividends,
      only in accordance with a dividend policy which, in the written opinion
      of the Director, will not impair the ability of the Appointee to finance
      the Appointed Business.
|                                                                                                                                                                                                                                                                               
|The
      Principles                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                               
|The
      written opinionof
      the Director is that the dividend policy should comply with two basic principles,
      namely:                                                                                                                                              
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|Ring-Fencing                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                               
|6A.1                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|6A.2A                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                               

F12

---



Back to Contents

|6A.2B | (1)                                                                                                                                                                                                                                                                                                               | The Appointee shall when it complies with
      6A.2A, submit with each certificate
      a statement of the main factors which the Directors have taken into
      account in giving that certificate.                                                                                                                                                                                                                                                                                                                         
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6A.2B | (2)                                                                                                                                                                                                                                                                                                               | Without prejudice to paragraph 6A.3 below,
      the Directors shall inform the Director
      in writing as soon as they become aware of any circumstance which
      causes them to believe that the most recent certificate under paragraph
      F6A.2A could not be repeated in the light of that circumstance.                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6A.3  | (1)                                                                                                                                                                                                                                                                                                               | Not later than 14 days after the directors
      become aware that the Appointee or
      any Group Company has embarked (or is proposing to embark) upon any
      activity which is not one of those described in sub-paragraph 6A.1
      above and which could be material in relation
      to the Appointees ability to finance
      the carrying out of the functions mentioned in sub-paragraph 6A.1,
      they shall submit to the Director a certificate
      in the terms specified in sub- paragraph
      6A.4.
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6A.3  | (2)                                                                                                                                                                                                                                                                                                               | Not later than 14 days after the directors
      become aware that the Appointee or
      any Group Company has embarked upon any activity to which sub- paragraph
      6A.3 (1) applies, they shall submit to the Director a Certificate in
      the terms specified in sub-paragraph 6A.2.                                                                                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6A.4  | Each
      Certificate under sub-paragraph 6A.2A, 6A.2B or 6A.3 shall be either -                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | (1)                                                                                                                                                                                                                                                                                                               | signed by all the directors of the Appointee
      for the time being, or                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | (2)                                                                                                                                                                                                                                                                                                               | approved by a duly-convened meeting of
      the board of Directors of the Appointee for the time being, signed (in confirmation
      of that approval) by a director or the Secretary of the Appointee and have
      attached to it a certified copy of an extract of the minutes of the relevant
      meeting containing the resolution to approve it; and                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | (3)                                                                                                                                                                                                                                                                                                               | in the case of each certificate under
      paragraph 6A.2A, shall be accompanied by a report prepared by the Appointees
      Auditors and addressed to the Director, stating whether they are aware of
      any inconsistancies between that certificate and either the statements referred
      to in paragraph 9.3 or any information which the Auditors obtained in the
      course of their work as the Appointees Auditors and, if so, what they are.                                                               
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6 A.5 | The
      Appointee shall, at all times, conduct the Appointed Business as if it were
      substantially the Appointees sole business and the Appointee were
      a separate public limited company. The Appointee should have particular
      regard to the following in the application of this condition:-
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | (a)                                                                                                                                                                                                                                                                                                               | the composition of the Board of Appointee
      should be such that the Directors, acting as such, act independently of
      the parent company or controlling shareholder;                                                                                                                                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | (b)                                                                                                                                                                                                                                                                                                               | the Appointee must ensure that each of
      its Directors must disclose, to the Appointee and the Director, conflicts
      between the duties of the Directors as directors of the Appointee and other
      duties;                                                                                                                                                                                                                                                                                                          

F13

---



Back to Contents

| | (c) | where potential conflicts exist between the interests of the Appointee as a water and sewerage undertaker and those of other Group Companies, the Appointee and its Directors must ensure that, in
acting as Directors of the Appointee, they should have regard exclusively to the interests of the Appointee as a water and a sewerage undertaker;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) | no Director of the Appointee should vote on any contract or arrangement or any other proposal in which he has an interest by virtue of other directorships. This arrangement should be reflected in
the Articles of Association of the Appointee;                                                                                                   
|
| | (e) | the Appointee should inform the Director without delay when:-                                                                                                                                                                                                                                                                                       
|
| |     | (i)                                                                                                                                                                                                                                                                                                                                                 
|
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                
|
| |     | (iii)                                                                                                                                                                                                                                                                                                                                               
|
| |     | The Appointee should notify the Director of the effective date of the change and, in the case of an appointment, whether the position is executive or non-executive and the nature of any specific
function or responsibility; and                                                                                                                  
|
| | (f) | the dividend policy adopted by the Appointee in the light of paragraph 6.12of this condition F.                                                                                                                                                                                                                                                     
|

|7.  | Basis of allocations and apportionments                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|7.1 | The analyses of operating costs and tangible fixed assets prepared under sub- paragraphs 5.1(1) and 5.1(3) and 5.2 shall give a description of the bases of any apportionments or allocations of
costs and assets and shall be prepared in accordance with any guidelines which may be issued from time to time by the Director under sub- paragraph 7.3.
|   
|7.2 | Accounting statements prepared under paragraph 4 and, where relevant, the description of transactions prepared under paragraph 6 shall;                                                                                                                                                                                                                  
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                      
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                      
|   
|    | (3)                                                                                                                                                                                                                                                                                                                                                      
|   
|7.3 | The Director may, after consulting such bodies as are reasonably representative of undertakers holding appointments made under Chapter I of Part II of the Act, or if none, the Appointee, from time
to time by reasonable notice to the Appointee issue such guidelines as are reasonable and appropriate for the purpose set out in sub-               
|   

F14

---



Back to Contents

|    | paragraph 1(5) as to the bases of allocations and apportionments to be adopted in preparing the analyses required under sub-paragraphs 5.1(1) and 5.1(3) and 5.2 and in making the allocations and
apportionments referred to in sub-paragraph 7.2(1) and thereafter the Appointee shall prepare the analyses and make the allocations and apportionments in accordance with such guidelines as may apply from time to time.                                                                                                                                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|8.  | Current Cost Accounting Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|8.1 | In addition to preparing accounting statements under paragraph 4, the Appointee shall prepare accounting statements, on the current cost basis in respect of the same period in accordance with such
guidelines as are reasonable and appropriate for the purposes of this Condition as the Director may from time to time, after consulting with such bodies as are reasonably representative of undertakers holding appointments made under Chapter I of
Part II of the Act, or if none, the Appointee, notify to the Appointee for the purposes of this paragraph.
|   
|8.2 | Guidelines notified by the Director to the Appointee under sub-paragraph 8.1 may:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    | (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|9.  | Audit and publication of Accounting Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|9.1 | The Appointee shall procure the following reports by the Auditors addressed to the Director:                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F15

---



Back to Contents

|     | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | in respect of each set of accounting statements prepared under paragraph 4, a report stating whether in their opinion that set of accounting statements represents a true and fair view of the
revenues, costs, assets and liabilities of, or reasonably attributable to, the business and activities mentioned in paragraph 4; and
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | in respect of each set of accounting statements prepared under paragraph 8, a statement of opinion as to such other matters as may be specified in the guidelines applying to those accounting
statements.                                                                                                                         
|    
|9.2  | The Appointee shall enter into a contract of appointment with the Auditors which shall include a term that the Auditors will provide such further explanation or clarification of their reports, and
such further Information in respect of the matters which are the subject of their reports, as the Director may reasonably require.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|9.3  | The Appointee shall deliver to the Director a copy of each set of accounting statements prepared under this Condition and of each report referred to in sub- paragraph 9.1 as soon as reasonably
practicable and in any event not later than 15th July(effective from 8th May 1997)following the end of the
financial year to which they relate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|9.4  | Accounting statements prepared under this Condition (excluding the information required to be disclosed under sub-paragraphs 5.1(4) and 5.2, paragraph 6 and sub- paragraphs 7.1 and 7.2 and any
information exempted from this sub-paragraph from time to time by the Director by notice to the Appointee), together with the Auditors reports delivered to the Director under sub-paragraph 9.3 in respect of those accounting statements (but
excluding any part of any such report to the extent that it relates specifically to any information excluded or exempted from this sub-paragraph as aforesaid), shall be published with the annual accounts of the Appointee prepared under the 1985 Act
or, at the Appointees option, with the annual accounts of its holding company prepared under the 1985 Act and copies thereof made available upon request to customers.
|    
|10.  | Guidelines and references to the Monopolies Commission                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|10.1 | The Appointee may, by notice given to the Director within 1 month of the date of any such notice or notification as is referred to in paragraphs 5, 6, 7 and 8, require the Director to refer to the
Monopolies Commission for determination by it the question whether the guidelines the subject relevant notice or notification are appropriate and reasonable for the purposes specified in the relevant paragraph.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|10.2 | Where the Appointee requires the Director to make a reference to the Monopolies Commission under sub-paragraph 10.1 any guidelines issued by the Director which are the subject of that reference
shall not apply unless and until the Monopolies Commission determines that they shall apply.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F16

---



Back to Contents

APPENDIX

|COLUMN 1 |                                                                                                                                                                                                                                          | COLUMN 2
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------
|         |                                                                                                                                                                                                                                          |         
|1.       | Any borrowings or sums lent:                                                                                                                                                                                                             |         
|         |                                                                                                                                                                                                                                          |         
|(a)      | by or to the Appointed Business to or
    by any other business or activity of the Appointee; or                                                                                                                                         |         
|         |                                                                                                                                                                                                                                          |         
|(b)      | by or to the Appointee to or by any Associated
    Company.                                                                                                                                                                              |         
|         |                                                                                                                                                                                                                                          |         
|1A       | Any dividend paid to any Associated Company.                                                                                                                                                                                             |         
|         |                                                                                                                                                                                                                                          |         
|2.       | The giving of any guarantee or any other
        form of security by the Appointee for or in respect of any obligations
    of any Associated Company.                                                                                   |         
|         |                                                                                                                                                                                                                                          |         
|3.       | The transfer of any asset or liability:                                                                                                                                                                                                  |         
|         |                                                                                                                                                                                                                                          |         
|(a)      | to or by the Appointee by or to an Associated
    Company; or                                                                                                                                                                            |         
|         |                                                                                                                                                                                                                                          |         
|(b)      | to or by the Appointed Business by or
    to any other business or activity of the Appointee.                                                                                                                                            |         
|         |                                                                                                                                                                                                                                          |         
|4.       | The supply of any service by or to the
        Appointee to or by an Associated Company or by or to the Appointed Business
    to or by any other business or activity of the Appointee.                                                 |         
|         |                                                                                                                                                                                                                                          |         
|5.       | The omission by the Appointee or any
        Associated Company to exercise a right as a result of which the value*
        of the aggregate assets less the aggregate liabilities (net assets)
        of the Appointee
is decreased. |         
|         |                                                                                                                                                                                                                                          |         
|6.       | The waiver by the Appointee or the Appointed
        Business of any consideration, remuneration or other payment owed to
        it by any Associated Company or other business or activity of the
Appointee.                           |         



|* | For this purpose the value shall be taken to bethe value
attributed to the relevant items in the accounting records kept by the Appointee or, in case of an interest in land or buildings which is effected by the omission, the open market value of that interest or, where under Condition K a Certificate as
to the best price of that interest has been furnished to the Director, that best price.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F17

---



Back to Contents

Condition G: Code of Practice for Customers and relations with the Customer Service Committee

|1. | The Appointee shall within two months after the transfer date prepare and submit to the Director for his approval a Code of Practice:                                                                                                                                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | (1)                                                                                                                                                                                                                                                                                                                                                      
|  
|   | (2)                                                                                                                                                                                                                                                                                                                                                      
|  
|   | (3)                                                                                                                                                                                                                                                                                                                                                      
|  
|   | (4)                                                                                                                                                                                                                                                                                                                                                      
|  
|   | (5)                                                                                                                                                                                                                                                                                                                                                      
|  
|   | (6)                                                                                                                                                                                                                                                                                                                                                      
|  
|   | (7)                                                                                                                                                                                                                                                                                                                                                      
|  
|2. | The Appointee shall, not less frequently than once every three years and if and whenever requested to do so by the Director but not more frequently than once a year, review the Code and the manner
in which it has operated, with a view to determining whether any modification should be made to it or to the manner of its operation.               
|  
|3. | In carrying out any review of, or making any substantive revision of, the Code or its operation (whether under paragraph 2 or otherwise) the Appointee shall consult the Customer Service Committee
and shall consider any representations made by it about the Code or the manner in which it is likely to be or, as the case may be, has been operated.
|  
|4. | The Appointee shall submit to the Director for his approval any revision of the Code which, after consulting the Customer Service Committee if so required under paragraph 3, it wishes to
make.                                                                                                                                                         
|  
|5. | The Appointee shall make such modifications to the Code and any revision of the Code as the Director, after prior consultation with the Appointee, may specify within two months after the date on
which the Code or, as the case may be, the relevant revision is submitted to him under paragraph 1 or, as the case may be, under                      

G1

---



Back to Contents

|    | paragraph 4 as a condition of approving the Code under paragraph 1 or, as the case may be, approving any revision of the Code under paragraph 4, being such modifications as in the Directors
opinion are necessary to ensure that the Code complies with the requirements specified in paragraph 1. The Directors approval shall be deemed to have been given if, within the said period of two months, he shall not have specified any such
modifications to the Code or, as the case may be, the relevant revision.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|6.  | The Appointee shall:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | (5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|7.  | The Appointee shall establish within two months after the transfer date a procedure for handling complaints from customers about the manner in which the Appointee carries out the Appointed
Business, which shall include particulars of the training to be given to staff in the handling of complaints.                                                                                                                                                                                                              
|   
|8.  | The Appointee shall provide special means of identifying officers authorised by the Appointee when they visit customers premises.                                                                                                                                                                                                                                                                                                                                                                                      
|   
|9.  | Subject to paragraph 10, the Appointee shall at the request of the Customer Service Committee meet the Customer Service Committee not less frequently than once in each Charging Year and on such
other occasions as the Customer Service Committee may reasonably request.                                                                                                                                                                                                                                             
|   
|10. | The Appointee shall not be required to meet the Customer Service Committee under this Condition before the expiry of three months after the transfer date.                                                                                                                                                                                                                                                                                                                                                              
|   
|11. | At not less than one meeting in each Charging Year held pursuant to paragraph 9 the Appointee shall be represented by at least one Director of the Appointee.                                                                                                                                                                                                                                                                                                                                                           

G2

---



Back to Contents

|Condition H :
    Code of Practice and Procedure on Debt Recovery
|-----------------------------------------------------------------
|                                                                 
|1.                                                               
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|2.                                                               
|                                                                 
|3.                                                               
|                                                                 
|4.                                                               
|                                                                 
|5.                                                               
|                                                                 
|6.                                                               

G3

---



Back to Contents

| | (1) | send a copy of the Code and each revision of it (in each case, in the form approved,
or deemed approved, by the Director) to the Customer Service Committee;                 
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) | with every demand for payment of charges, draw the attention of domestic customers
to the existence of the Code in its latest form and how they may inspect or obtain
a copy;
|
| | (3) | make a copy of the Code in its latest form available for inspection at each Relevant
Premises; and                                                                           
|
| | (4) | send a copy of the Code in its latest form free of charge to any person requesting
it.                                                                                       
|

H4

---



Back to Contents

|Condition I : Code
    of Practice and Procedure on Leakage
|-----------------------------------------------------------
|                                                           
|1.                                                         
|                                                           
|2.                                                         
|                                                           
|3.                                                         
|                                                           
|4.                                                         
|                                                           
|5.                                                         
|                                                           
|6.                                                         
|                                                           
|7.                                                         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           

I1

---



Back to Contents

|    | (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | send a copy of the Code in its latest form free of charge to any person requesting it.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------
|   
|8.1 | The Appointee shall follow the procedures described in this paragraph.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|8.2 | At the time when a meter is installed, the Appointee shall check the supply pipe between the meter and the customers tap to establish if there are significant leaks in that pipe. Where as a
result of that check a leak is detected in the supply pipe which can be repaired without additional excavation at the time the meter is installed the Appointee shall repair the leak at the Appointees expense. Where as a result of that check a leak
is detected which cannot be repaired without additional excavation, the Appointee shall notify the customer of the leak and ask the customer to repair it at the customers expense. If the customer then fails to repair the leak, the Appointee shall
be entitled to treat any subsequent loss of water as consumption by the customer and to charge the customer accordingly.                                                                                                                       
|   
|8.3 | Subject to sub-paragraph 8.2, where, after a meter has been installed, a subsequent meter reading indicates that a customer has an abnormally high consumption which could be due to an undetected
leak in the supply pipe, then if a leak is subsequently discovered the Appointee shall make an adjustment to the customers measured charges provided that the customer (or the owner responsible for the supply pipe) carries out the necessary remedial
work at the customers, or as the case may be, the owner’s direction and expense within a reasonable period of time specified by the Appointee. The Appointee shall not be required to make such an adjustment in the event of a subsequent leak or where
a leak has been caused through the negligence of the customer (or the owner responsible for the supply pipe) or their respective agents or where the customer knew or ought to have known that there was a leak and failed to repair it.
|   
|8.4 | Where the Appointee is required to make an adjustment to the customers measured charges under sub-paragraph 8.3, the adjustment shall be based upon the customers past normal consumption. Where
there is no record of past consumption, the adjustment shall be based upon typical usage for property of a similar type and the customers measured charges shall be further adjusted if the customers subsequent actual usage is significantly
different.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|8.5 | Where the Appointee is required to make an adjustment to a customers measured charges for water supply under this paragraph it shall make a similar adjustment to the customers measured charges
for sewerage services, provided that where sewerage services are provided in relation to the same premises by a different undertaker then the Appointee shall inform that undertaker as soon as reasonably practicable that the Appointee is required to
make such an adjustment to the customers measured charges for water supply and of the basis on which the adjustment has been, or will be, made.                                                                                                                                                                                                                                                                                                                                                   
|   
|8.6 | Where the Appointee is informed by any water undertaker that it is required to make an adjustment to a customers measured charges for a supply of water to any premises in relation to which the
Appointee provides sewerage services the Appointee shall make an adjustment to the customers measured charges for sewerage services on a basis similar to that made by that water undertaker                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

I1

---



Back to Contents

|Condition J: | Levels of Service Information and Service Targets
|------------ | -------------------------------------------------
|             |                                                  
|Part I.      | Levels of Service Information                    
|             |                                                  

|1.  | Provision of Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|1.1 | The Appointee shall in respect of each Charging Year, starting with the Charging Year commencing on 1st April 1990, furnish Information to the Director once in each Charging Year in respect of the
matters specified in, and otherwise in accordance with, Appendix A to the letter entitled Levels of Service dated [see Note below] from the Secretary of State to the Water Authority (the Levels of Service Letter).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|1.2 | Where the Director is satisfied that the provision of Information in respect of the matters specified in Appendix A to the Levels of Service Letter is inadequate to enable him properly to keep the
quality of the services provided by the Appointee in the course of the Appointed Business (Services) under review
the Director may, subject to prior consultation with the Appointee, by notice to the Appointee vary the matters specified in that Appendix in respect of which Information is to be furnished under sub-paragraph 1.1 in a manner which is reasonable
having regard to the Directors duties under sub-sections (1) and (2) of section 26 (section
27 of the 1991 Act) and thereafter the Appointee shall in respect of each Charging Year furnish Information to the Director in respect of those matters as
so varied. The Director may, subject as aforesaid, make variations from time to time under this sub- paragraph and references in this sub-paragraph to the matters specified in Appendix A to the Levels of Service Letter shall be read and construed as
though they were references to the matters specified in Appendix A as varied from time to time.
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|1.3 | Where the Director considers it requisite or expedient
for the purpose of deciding whether to make an application to the Secretary of
State under section 38 (section
38 & 39 of the 1991 Act)or 68 (section 95 & 96
of the 1991 Act) (and, if so, what provisions should be set out in the
application) or to require the Appointee to notify a Service Target under sub-paragraph
3.2 the Appointee shall furnish to the Director:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|1.4 | In this Condition
      references to the quality of Services shall include references to the manner
    in which the Appointee carries out the Regulated Activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|2.  | Reports, Certificates
    etc                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Information furnished
      to the Director by the Appointee under paragraph 1 (other than under sub-paragraph
      1.3) and, where the Director so requires, Information furnished to him
      by the Appointee
under that sub-paragraph, (Levels of
Service Information) shall be accompanied
by:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

J1

---



Back to Contents

| | (1) | a report, signed by or on behalf of the Appointee, containing such information as the Director may reasonably specify as to the methods used, and the steps taken, by the Appointee for the purpose
of monitoring, assessing and reporting on the matters in respect of which Levels of Service Information has been furnished; and                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (2) | a statement, signed by or on behalf of the Appointee, of the reasons why, and the extent to which, (if such be the case) the quality of any Services shall have been such that any standard by
reference to which Levels of Service Information has been furnished shall not have been met. The statement shall include, without limitation, information as to the categories of persons to whom those Services have been so provided or who have been
affected by the carrying on of the Appointed Business in that manner and their geographical distribution.
|

|         |                
|-------- | ---------------
|Part II. | Service Targets
|         |                

|3.  | Setting of Service Targets by the Appointee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.1 | The Appointee shall once in each Charging Year, starting with the Charging Year commencing on 1st April 1990, notify the Director of its intentions as to the quality of such Services as are
specified in Appendix B to the Levels of Service Letter in respect of each Charging Year falling within the period beginning at the start of the Charging Year in which the notification falls to be given and ending on the expiry of such number of
Charging Years as is specified in that Appendix and otherwise in accordance with the procedures specified in that Appendix.                                                                                                     
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.2 | Where the Director considers it requisite or expedient for the purpose of enabling him properly to keep the quality of Services under review the Director may require the Appointee to notify him of
its intentions as to the quality of such other Services in accordance with such requirements as the Director may reasonably specify.                                                                                                                                                                                                                                                                                                                                           
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.3 | The Appointees intentions shall be expressed in any notification under sub- paragraph 3.1 or 3.2 as a target (a Service
Target) for achievement by such date or over such period or at such times during such period as may be specified in Appendix B to the Levels of Service Letter or, as the case may be,
as the Director may have specified when he requires the Appointee to notify him of its intentions under sub-paragraph 3.2 and in respect of the whole or such part of the Area as may be specified in the said Appendix B or, as the case may be, as the
Director may have so specified and so as to be capable of verification in accordance with this Condition.
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.  | Monitoring of Service Targets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Appointee shall keep under review during each Charging Year the quality of Services as compared with any relevant Service Target notified by it to the Director under paragraph 3 as a target
for achievement during that Charging Year or by a date or at a time during that Charging Year or over a period including that Charging Year. For this purpose the Appointee shall take such steps to monitor and assess the quality of Services as may be
necessary to enable such comparison to be made and to enable the Appointee to make the report referred to in paragraph 5.                                                                                               
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|5.  | Reporting on Service Targets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   

J2

---



Back to Contents

|5.1 | The Appointee shall furnish to the Director a written report (a Service Target Report) as to the quality of Services as compared with any relevant Service Target.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|5.2 | A Service Target Report shall include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|5.3 | Without prejudice to the generality of sub-paragraph 5.2, a Service Target Report may include a statement of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|5.4 | The Appointee may also specify in a Service Target
Report any revision of any Service Target which the Appointee has determined
to make having regard to any matters included in that Service Target  Report,
including, without limitation, such matters as are referred to in sub-paragraph
5.3. Such revision may be, without limitation, as to the date by, or the period
over, or the times at, which during any period the relevant Service Target was

intended to be achieved, or the part of the Area in respect of which the relevant
Service Target was intended to be achieved. Any such revised Service Target is hereinafter referred to as a Revised Service Target. Paragraphs 4, 5 (including this sub-paragraph) and 6 to 13 inclusive shall apply mutatis mutandis to any Revised Service Target.
|   
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|5.5 | The Appointee shall once in each Charging Year furnish a Service Target Report to the Director in respect of that Charging Year, provided that, if the Director considers it requisite or expedient
for the purpose of deciding whether to make an application to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   

J3

---



Back to Contents

|   | the Secretary of State under section 38 (section
38 & 39 of the 1991 Act) or 68 (section 95 & 96 of the 1991 Act) (and, if so, what provisions should be set out in the application) the
Appointee shall furnish a Service Target Report more frequently (but not more frequently than is reasonable).                                                                                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|6. | Measures to achieve Service Targets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Where, following receipt by the Director of any Service Target Report, he considers it requisite or expedient for the purpose of deciding whether to make an application to the Secretary of State
under section 38 (section 38 & 39 of the 1991 Act) or 68 (section
95 & 96 of the 1991 Act) (and, if so, what provisions should be set out in the application), the Appointee shall furnish to the Director in writing within such reasonable
period as the Director may specify such further Information as the Director may reasonably require, including, but not limited to, Information as to:
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  

|          |                                                  
|--------- | -------------------------------------------------
|Part III. | Certification and Verification
    of Information
|          |                                                  

|7. | Levels of Service Information and Service Target Reports required to be furnished once in each Charging Year shall be accompanied by a certificate, signed by the Auditors (or by such other person
as the Director may approve, such approval not to be unreasonably withheld) stating whether, in their opinion, the relevant Levels of Service Information and Information contained in the relevant Service Target Report has been ascertained by the use
of the methods and the taking of the steps which the Appointee has informed the Director it has used and taken and whether, in their opinion, the methods used and the steps taken are adequate for the purpose of ascertaining that Levels of Service
Information and the Information contained in that Service Target Report. To the extent that Levels of Service Information and a Service Target Report contain the same Information and are furnished at the same time only one certificate need be
provided under this paragraph. Levels of Service Information and Service Target Reports furnished in accordance with any requirement of the Director under sub-paragraph 1.3 or sub-paragraph 5.5 shall also be accompanied by a like certificate if the
Director so requires.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|8. | The Appointee shall co-operate fully with the Director in any investigation of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  

J4

---



Back to Contents

|    | which the Director may carry out for the purpose of deciding whether to make an application to the Secretary of State under section 38 (section
38 & 39 of the 1991 Act) or 68 (section 95 &
96 of the 1991 Act).                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                                                                                                                                                                                                                                                                                           
|9.  | Such co-operation shall include, without limitation:                                                                                                                                                                                                                                                                      
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    | (1)                                                                                                                                                                                                                                                                                                                       
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    | (2)                                                                                                                                                                                                                                                                                                                       
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                           
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                           
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                           
|   
|    |                                                                                                                                                                                                                                                                                                                           
|10. | Nothing in paragraphs 8 and 9 shall require the Appointee:                                                                                                                                                                                                                                                                
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    | (1)                                                                                                                                                                                                                                                                                                                       
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    | (2)                                                                                                                                                                                                                                                                                                                       
|   
|    |                                                                                                                                                                                                                                                                                                                           
|11. | The Appointee shall not be liable to the Director for any loss or damage to persons or property which arises out of the Director having such access or doing any such thing as is mentioned in
paragraphs 8 and 9 except to the extent that such loss or damage is caused by the Appointees negligence or wilful default.
|   
|    |                                                                                                                                                                                                                                                                                                                           
|12. | In paragraphs 9, 10 and 11:                                                                                                                                                                                                                                                                                               
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    | (1)                                                                                                                                                                                                                                                                                                                       
|   
|    |                                                                                                                                                                                                                                                                                                                           
|    | (2)                                                                                                                                                                                                                                                                                                                       
|   

|         |                           
|-------- | --------------------------
|Part IV. | Publication of Information
|         |                           

|13. | Unless the Director otherwise consents in writing (such consent not to be unreasonably withheld) pursuant to an application to him in that behalf by the Appointee when the relevant Information and
Reports are furnished to the Director under this Condition the Appointee shall:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

J5

---



Back to Contents

|(1) | draw the attention of customers to the existence of Levels of Service Information (excluding any report or statement furnished under paragraph 2) and Service Target Reports furnished to the
Director under this Condition in respect of a Charging Year;
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | make a copy of the most recent Levels of Service Information (excluding any report or statement furnished under paragraph 2) and Service Target Report available for inspection at each Relevant
Premises; and                                            
|   
|(3) | send a copy of the most recent Levels of Service Information (excluding any report or statement furnished under paragraph 2) and Service Target Report to any person requesting it.                                                                       
|   

J6

---



Back to Contents

Condition K: Ring Fencing, and Disposals of
Land
(made on 27/03/1996- effective 01/04/1996)

|1.  | Introduction                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The purposes of this Condition are to ensure:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|2.  | Interpretation and Construction                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|2.1 | In this Condition and for the purposes of this Condition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | a Disposal
          Certificate means a certificate
          signed by all the directors of the Appointee for the time being or
          approved by a duly convened meeting of the board of directors of the
          Appointee for the time being and signed by a director or the secretary
          of the Appointee confirming that it has been so approved and having
          attached to it a certified copy of an extract of the minutes of the
    relevant meeting containing the resolution to approve the certificate;
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | formal
        tender means a tender, acceptance
        of which creates a
binding obligation to purchase;                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | land includes
      any interest or right in or over any
land;                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | the
        Materiality Amount for the
    purpose of any disposal of land                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | nominee of
        any person includes any person acting at the direction of, or in concert
        with, that first-mentioned person or pursuant to any agreement or understanding
    with that first mentioned person;                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | a proposed
        disposal is any such disposal
        to which paragraphs
4, 5 or 6 applies;                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | protected
          land and disposal have the
          meanings respectively given to them in section 189 (section
          219 of the 1991 Act) and cognate expressions shall be construed
    accordingly;                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

K1

---



Back to Contents

|    | Short
        term Disposal means a disposal
        which consists of the creation of any interest or right in or over protected
        land which the Appointee has an unconditional right to terminate without
        penalty at any time and from time to time by not more than thirty months
        notice or which expires or otherwise ceases in accordance with its terms
        within thirty months of the date of its creation without any other interest
        or right arising on such expiry or cessation;                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | the Transfer Thresholdfor the purpose of any disposal of land to an Associated Company is                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | £500,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    | or such greater amount as may from time to time be determined by the Director so as to allow for movements in the Retail Prices Index or as may from time to time otherwise be determined by the
Director and approved by the Secretary of State;                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | value includes
      value of any kind including, without limitation, cash, the value of real
      or personal property or any interest in such property and the value of
      any right or benefit, actual or prospective, and the value of any release,
      in whole or in part, of any obligation or claim.                                                                                                                                                                                                                                                                                                                     
|   
|2.2 | For the purpose of calculating best price:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|3.  | Ring Fencing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|3.1 | The Appointee shall at all times ensure, so far is reasonably practicable, that if a special administration order were made in respect of the Appointee the Appointee would have available to it
sufficient rights and assets (other than financial resources) to enable the special administrator so to manage the affairs, business and property of the Appointee that the purposes of such order could be achieved, provided that this paragraph shall
not require the Appointee to seek to re-negotiate the terms of any contract or obligation which, in accordance with a scheme under Schedule 2, is transferred to the Appointee.

K2

---



Back to Contents

|3.2 | The Appointee shall publish with its audited accounts for each financial year a statement as to whether the Appointee was in compliance with sub-paragraph 3.1 as at the end of that financial
year.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

K3

---



Back to Contents

|3.3 | Where any such rights and assets as are mentioned in sub-paragraph 3.1are provided or made available by any Group Company, the Appointees obligations under sub-paragraph 3.1 in respect of such
rights and assets shall be such as they would be if the words so far as reasonably practicable and the proviso were omitted from that sub-paragraph.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|3.4 | The state, condition and capacity of assets used by the Appointee in the Appointed business are the subject of Conditions J and L and accordingly sub-paragraph 3.1 shall not apply
thereto.                                                                                                                                                            
|   
|4.0 | Disposals of protected land other than disposals by auction or formal tender or to Associated Companies                                                                                                                                                                                                                                                 
|   
|4.1 | Subject to sub-paragraph 4.2, the Appointee shall not make any disposal of any protected land, unless the Appointee shall have complied with the provision of sub- paragraph 4.3.                                                                                                                                                                       
|   
|4.2 | Sub-paragraph 4.1 shall not apply:                                                                                                                                                                                                                                                                                                                      
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                     
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                     
|   
|    |                                                                                                                                                                                                                                                                                                                                                         
|   
|    |                                                                                                                                                                                                                                                                                                                                                         
|   
|    |                                                                                                                                                                                                                                                                                                                                                         
|   
|    | (3)                                                                                                                                                                                                                                                                                                                                                     
|   
|    | (4)                                                                                                                                                                                                                                                                                                                                                     
|   
|    | (5)                                                                                                                                                                                                                                                                                                                                                     
|   
|4.3 | Subject to sub-paragraph 4.6, the Appointee shall:                                                                                                                                                                                                                                                                                                      

K4

---



Back to Contents

| | (1) | not less than 10 working days prior to the Appointee entering into an obligation (whether unconditional or subject to conditions) which requires or might require it to make the proposed disposal,
furnish to the Director a Disposal Certificate which:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | (a)                                                                                                                                                                                                                                                      
|
| |     |                                                                                                                                                                                                                                                          
|
| |     |                                                                                                                                                                                                                                                          
|
| |     | (b)                                                                                                                                                                                                                                                      
|
| |     | (c)                                                                                                                                                                                                                                                      
|
| |     | (d)                                                                                                                                                                                                                                                      
|
| |     |                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                          
|
| |     |                                                                                                                                                                                                                                                          
|
| |     |                                                                                                                                                                                                                                                          
|
| |     | (e)                                                                                                                                                                                                                                                      
|
| |     | (f)                                                                                                                                                                                                                                                      
|
| |     | (g)                                                                                                                                                                                                                                                      
|
| |     |                                                                                                                                                                                                                                                          

K5

---



Back to Contents

| |     |                                                                                                                                                                                        | (ii)  | that the consideration and other value (if any) certified under (d) above to be received or derived, or expected to be received or derived, by the Appointee from or in connection therewith is the
total value to be received or derived, or expected to be received or derived, from the proposed disposal, whether by the Appointee or any other person;                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |                                                                                                                                                                                        | (iii) | except where a certificate is furnished under sub-paragraph 4.5, that in the honestly held and reasonable opinion of the Appointee, taking account of proper professional advice obtained by the
Appointee for that purpose, the consideration certified under (ii) is the best price that could reasonably be obtained for the protected land in question, having regard to all the circumstances at the time when the certificate is given (including,
but without limitation, any reasonable prospect of planning permissions being obtained); and                                                                                                            
|
| |     |                                                                                                                                                                                        | (iv)  | that neither the Appointee nor, to the best of the knowledge, information and belief of the Appointee, having made due and careful enquiry, any Associated Company or any company or business in
which the Appointee, or, to the best of the knowledge, information and belief of the Appointee, having made due and careful enquiry, any Associated Company, has a material direct or indirect interest, shall, following the proposed disposal or any
other transaction, a continuing interest whether direct or indirect in the protected land the subject of the proposed disposal or in any development involving or connected with that protected land; and
|
| | (2) | prior to entering into the relevant obligation, furnish to the Director in writing such further Information regarding the proposed disposal which the Director may reasonably request.
|

|4.4 | For the purpose of sub-paragraph 4.3(1)(g)(iv), interest includes an entitlement to a share of profits or participation in assets, rights or benefits but excludes any interest which consists
solely of an entitlement to receive instalments of consideration which as to amount and timing are certain or variable only by reference to the grant of planning permissions.                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|4.5 | The Appointee may, instead of giving the confirmation required by sub-paragraph 4.3(1)(g)(iii), furnish to the Director a certificate by a valuer appointed by the Appointee(the Valuer)addressed to the Director which states that in the opinion of the Valuer the consideration certified under sub-paragraph
4.3(1)(g)(iii) is the best price that could reasonably be obtained for the protected land in question, having regard to all the circumstances at the time when the certificate is given (including, but without limitation, any reasonable prospect of
planning permissions being obtained).

K6

---



Back to Contents

|4.6 | Where the Appointee proposes to make any such disposal as is mentioned in sub- paragraph 4.1 and the terms or circumstances of the proposed disposal are such that	a
Disposal Certificate giving the full confirmation
required by (f) or (g) of sub-paragraph 4.3(1) (including, where relevant, such
a certificate as is referred to in sub- paragraph 4.5) cannot properly be given,
the Appointee shall not enter into any obligation (whether unconditional or subject
to conditions) which requires or might require it to make that proposed disposal
unless:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|5.  | Disposals
    of protected land by auction or formal tender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

K7

---



Back to Contents

|5.1 | Where the Appointee proposes to dispose by auction or formal tender of any protected land, the value of which (when aggregated with the value of any other such protected land as is described in
sub-paragraphs 4.2(2) (a) and (b)), exceeds the Materiality Amount, it shall:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (1)                                                                                                                                                                                                                                                                            
|   
|    |                                                                                                                                                                                                                                                                                
|   
|    |                                                                                                                                                                                                                                                                                
|   
|    |                                                                                                                                                                                                                                                                                
|   

| |  |  | iii) | confirms that the auction will be conducted on the basis that bids will be accepted only on condition that they are not made by an Associated Company or any nominee of any Associated Company or,
as the case may be, that, it will be a term of the invitation to tender that it is not capable of acceptance by an Associated Company or any nominee of any Associated Company;
| |  |  | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| |  | (b) | furnish to the Director a certificate by a Valuer appointed by the Appointee(the Valuer)addressed to the Director which states that in the opinion of the Valuer the disposal of the protected land by auction or, as the case may be, formal tender and the timing of the proposed disposal are
respectively the method and timing of disposal most likely to secure that the best price is obtained for the land in question;
| |  | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | (2) | prior to the date of the auction or the invitation to tender, furnish to the Director in writing such further Information regarding the proposed disposal which the Director may reasonably
request.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

|5.2 | In any case where the full confirmation required by sub-paragraph 5.1(1)(a)(i) or (iii) cannot properly be given, the Appointee shall not proceed with the proposed disposal without the prior
written consent of the Director.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|6.  | Disposals of Protected Land to Associated Companies                                                                                                                                                                            
|   
|6.1 | Subject to sub-paragraph 6.2, the Appointee shall not make any disposal, other than a Short Term Disposal, of any protected land to any Associated Company, unless it has complied with the
provisions of sub-paragraph 6.3.   
|   
|6.2 | Sub-paragraph 6.1 shall not apply:                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                
|    | to any disposal of any protected land the
    value of which, when aggregated with:                                                                                                                                            

K8

---



Back to Contents

|    |                                                    | (a)                                                                                                                                                                                                                                                                                                                                    | the value of any other protected land
    which affects or might affect the  value of such protected land or the value of
  which is or might be affected by such protected land; and                                                                                                                                                         
|--- | -------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                    | (b)                                                                                                                                                                                                                                                                                                                                    | to the extent not taken into account under (a), the value of any other protected land the subject of any other disposal which has taken place, is proposed or contemplated and which in the honestly
held and reasonable opinion of the Appointee is or might be related to, or connected or interdependent with, the first mentioned disposal
|   
|    |                                                    | does not exceed the Transfer Threshold.                                                                                                                                                                                                                                                                                               
|   
|6.3 | Subject to sub-paragraph 6.4, the Appointee shall:
|   
|    | (1)                                                | not later than 10 working days (or such other period to be agreed in advance between the Appointee and the Director) prior to the Appointee entering into any obligation (whether unconditional or
subject to conditions) which requires or might require it to make that disposal (a relevant obligation), furnish to
the Director:
|   
|    |                                                    | (i)                                                                                                                                                                                                                                                                                                                                    | a Disposal Certificate, which contains the information and confirmations required to be contained in a Disposal Certificate furnished under sub-paragraph 4.3(1), including such of the matters
specified in (g) as can properly be certified; and                                                                                            
|   
|    |                                                    | (ii)                                                                                                                                                                                                                                                                                                                                   | a certificate by a Valuer appointed by the Appointee and approved by the Director for the purpose of this sub-paragraph (the
Valuer) addressed to the Director which states:                                                                                                                                                                
|   
|    |                                                    |                                                                                                                                                                                                                                                                                                                                        | (A)                                                                                                                                                                                                                                                                                                                                           
|   
|    |                                                    |                                                                                                                                                                                                                                                                                                                                        | (B)                                                                                                                                                                                                                                                                                                                                           
|   
|    | (2)                                                | shall furnish to the Director in writing such further information regarding the proposed disposal which the Director may reasonably request; and                                                                                                                                                                                      

K9

---



Back to Contents

|    | (3)                                                                                                                                                                                                                                                                                                                                                                                                          | ensure that the terms on which the proposed disposal is made are in accordance with any terms which may have been specified by the Director, either in relation to disposals of protected land to
Associated Companies generally or in relation to the particular proposed disposal, being such terms as the Director considers appropriate to secure that the Appointee receives such share of any value to be derived or expected to be derived by the
Associated Company from the land in question as the Director considers appropriate, having regard to the duty imposed on the Director under section 7(3)(c) (section 2 of the 1991 Act).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|6.4 | In any case where the full confirmation required by (f) of sub-paragraph 4.3(1) cannot properly be given, the Appointee shall not enter into a relevant obligation unless the prior written consent
of the Director to the proposed disposal has been obtained, such consent not to be unreasonably withheld or delayed.                                                                                    
|   
|7.  | Disclosure of Information to Valuers                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Appointee shall disclose to the Valuer
      appointed for the purpose of any provision of this Condition all Information
      which, in the reasonable opinion of the Appointee, has or is likely to
      have
a material bearing on the Valuers certificate to be given under that provision
and such other Information as the Valuer may reasonably require to
enable him to give his certificate.

K10

---



Back to Contents

Condition L : Underground Asset Management Plans

|1. | Interpretation and Construction                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | In this Condition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   | the
        Appointment Obligations means
        the Appointees obligations under the Appointments and for this purpose
        and for this purpose only the Appointee shall be deemed to be subject
        to an obligation under the Appointments to achieve any Service Target
        or Revised Service Target notified to the Director by the Appointee under
    Condition J;                                                                                                       
|  
|   | Network Assetsmeans                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   | Network
        Expenditure means expenditure
        in relation to any Network Assets (whether, having regard to the respective
        purposes referred to in sub-paragraph 2.1, such expenditure is to be
        made or incurred in or in relation to creating, acquiring, renewing,
        repairing, maintaining or improving any Network Assets or executing works
        or procuring the execution of works by other persons in relation to any
    Network Assets or otherwise);
|  
|   | the Plan Periodmeans
      such period as the Appointee shall specify, being a period of not less
      than fifteen years commencing
on:                                                                                                                                                                                                                                                                                                                                                      
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

L1

---



Back to Contents

|    |                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                             | revised Underground Asset Management Plan or, in the case of a revised Underground Asset Management Plan prepared for the purposes of a Periodic Review, the start of the relevant Review Charging
Year;                                                                                                                                                                                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | a Review Datemeans the first date specified in the relevant paragraphs of Condition B by which the Appointee is required
to furnish Information to the Director for the purpose of any Periodic Review.
|   
|2.  | Duty to furnish Information                                                                                                                                                                              
|   
|2.1 | The Appointee shall prepare and furnish to the Director an underground asset management plan (anUnderground Asset Management
Plan) showing separately:                                                 
|   
|    | (1)                                                                                                                                                                                                       | an estimate and other Information in respect of Network Expenditure required to be made or incurred by the Appointee in each year during the Plan Period for the purposes of ensuring:                                                                                                                     
|   
|    |                                                                                                                                                                                                           | (a)                                                                                                                                                                                                                                                                                                         | that Network Assets used by the Appointee as at the transfer date (or, in the case of a revised Underground Asset Management Plan, as at the date of that revised Underground Asset Management Plan)
are, and will throughout the Plan Period be, maintained in such a state or condition as is necessary for the purposes described in sub-paragraph 2.2 (the Relevant
Purposes), insofar as Network Assets are necessary for, or relevant to, the Relevant Purposes; and
|   
|    |                                                                                                                                                                                                           | (b)                                                                                                                                                                                                                                                                                                         | that the capacity of the system of water supply or, as the case may be, of public sewers comprising solely those Network Assets (but not including any other part of the Appointees system of water
supply or, as the case may be, of public sewers) is maintained                                                                                                                                                                                                         
|   
|    |                                                                                                                                                                                                           | and the estimate and other Information shall show expenditure to be capitalised and, separately, expenditure to be expensed; and                                                                                                                                                                           
|   
|    | (2)                                                                                                                                                                                                       | an estimate and other Information in respect of Network Expenditure required to be made or incurred by the Appointee in each year during the Plan Period for the purpose of ensuring that, taking
into account the expenditure to be made or incurred for the purposes referred to in sub-paragraph 2.1(1):
|   
|    |                                                                                                                                                                                                           | (a)                                                                                                                                                                                                                                                                                                         | the Appointee will at all times and from time to time have available to it for use all Network Assets (and in such a state or condition) as are necessary for the Relevant Purposes, insofar as
Network Assets are necessary for, or relevant to, the Relevant Purposes; and                                                                                                                                                                                                
|   
|    |                                                                                                                                                                                                           | (b)                                                                                                                                                                                                                                                                                                         | the capacity of the system of water supply or, as the case may be, of public sewers comprising solely those Network Assets (but not including any other part of the Appointees system of water
supply or, as the case may be, of public sewers) is and will be such as is necessary for the Relevant Purposes.                                                                                                                                                             
|   

L2

---



Back to Contents

|2.2 | The Relevant Purposes referred to in sub-paragraph 2.1 are:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | but so that, unless the context otherwise requires, references in this Condition to the Relevant Purposes shall be read and construed subject to any assumptions as may be specified by the
Appointee in the Underground Asset Management Plan as to the nature and scope of the Regulated Activities or, as the case may be, the Appointment Obligations and as to the effect of any provision of the Act or any other enactment or subordinate
legislation relating to the Regulated Activities.                                                                                                                                                                                                                                                                                                                                             
|   
|2.3 | Where the Appointee has specified any such assumptions as are referred to in sub- paragraph 2.2, the Appointee shall also furnish an estimate and other Information as described in sub-paragraphs
2.1(1) and (2) on the basis of such other assumptions as to the matters referred to in sub-paragraph 2.2 as may be specified by the Director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|2.4 | The Appointee shall keep the Underground Asset Management Plan prepared under sub-paragraph 2.1 under review and shall prepare a revised Underground Asset Management Plan in respect of the Plan
Period from time to time and in any event by each Review Date, to the extent that such revision is necessary having regard to the Relevant Purposes, this Condition and Condition B and shall furnish to the Director any such revised Underground Asset
Management Plan. Sub-paragraph 2.3 shall apply to any such revised Underground Asset Management Plan and references in this Condition to a revised Underground Asset Management Plan shall include references to any estimate and other Information which
the Appointee is required to furnish under sub-paragraph 2.3 in respect of that revised Underground Asset Management Plan.
|   
|2.5 | For the purposes of sub-paragraphs 2.1 and 2.4:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   

L3

---



Back to Contents

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | and other Information in respect of any
      expenditure required to be made or incurred by the Appointee during the
      Plan Period in respect of such Network Assets for the Relevant Purposes;
    and                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | there shall be taken into account any changes in the nature of the Regulated Activities and the Appointment Obligations which the Appointee knows have occurred or will occur or which the Appointee
reasonably believes will, or are likely to, occur (including, without limitation, any change in demand for the provision by the Appointee of any services provided by it in the course of carrying out the Regulated Activities).
|   
|3.  | Information Systems                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|3.1 | The Appointee shall establish and maintain methods and procedures for the purposes of:                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | keeping under review, collecting Information in respect of, and carrying out surveys of, the state, condition, capacity and performance of Network Assets; and                                                                                                                                                                                                                                                                        
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | preparing, keeping under review and revising from time to time the Underground Asset Management Plan for the purposes of:                                                                                                                                                                                                                                                                                                             
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|3.2 | The Appointee shall furnish to the Director a written description of such methods and procedures. The Appointee shall keep under review and shall revise such methods and procedures from time to
time to the extent necessary having regard to the purposes for which such systems and procedures are intended to be used, this Condition and Condition B and shall furnish to the Director a written description of any revision of such methods and
procedures.                                                                                
|   
|4.  | Reports                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|4.1 | Any revised Underground Asset Management Plan and any revision of the methods and procedures referred to in paragraph 3 (which in the reasonable opinion of the Director is material having regard
to the purposes for which the Underground Asset Management Plan and such methods and procedures are intended, to this Condition and to Condition B) shall, if so required by the Director, be reported on by a person appointed by the Appointee and
approved by the Director (such approval not to be unreasonably withheld) (the Assessor).
|   
|4.2 | The Appointee shall enter into a written contract of engagement with the Assessor which shall:                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | where such a report is required by the Director under sub-paragraph 4.1, require the Assessor to prepare and furnish to the Director, and separately to                                                                                                                                                                                                                                                                               
|   

L4

---



Back to Contents

| |                                                                                                                                                                                                                                                                                                           | the
      Appointee, a written report addressed jointly to the Director and the Appointee:                                                                                                                                                                
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                           | (a)                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                           | (b)                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                           
| | (2)                                                                                                                                                                                                                                                                                                       | include
      a term that the Assessor will provide such further explanation or clarification
      of his report as the Director may reasonably require and that where, by
      reason of anything in the Assessors report, it appears to the Director:
| |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                           | (a)                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                           | (b)                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                           | the
      Assessor will provide such further Information in respect of, or verification
      of, the matters which are the subject of his report as the Director may
      reasonably require.                                                           
| |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                           
| | The
      contract of engagement may also include provisions requiring the Assessor,
      his employees and agents to keep confidential and not to disclose, except
      to the Director or as required by law, any Information which the Assessor
      obtains in the course of preparing his report.

L5

---



Back to Contents

|4.3 | The
      Appointee shall co-operate fully with the Assessor to enable him to prepare
      his report, including without limitation, so far as is necessary for that
      purpose:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.4 | Nothing
      in sub-paragraph 4.3 shall require the Appointee:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.5 | In
      sub-paragraphs 4.3 and 4.4 references to the Assessor include references
      to his employees and agents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|5.  | General                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|5.1 | The
      provision by the Water Authority to the Secretary of State of the estimate
      and other information enclosed with the letter entitled Underground Asset
      Management Plan dated 8th August 1989 and the description in the Underground
      Asset Management Plan of the Appointees relevant methods and procedures
      shall be deemed to have been furnished to the Director by the Appointee
      under sub- paragraphs 2.1 and 3.2 and to satisfy the obligations of the
      Appointee under those sub-paragraphs (insofar as sub-paragraph 3.2 requires
      the Appointee to furnish a written description of the methods and procedures
      established by it).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|5.2 | Any
      other Information required to be furnished by the Appointee to the Director
      under this Condition shall be furnished within three months of the revision
      which gives rise to the requirement to furnish Information.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|5.3 | The
      Appointee shall deliver to the Director, at the same time as it delivers
      to him accounting statements in respect of a financial year prepared under
      paragraph 4 of Condition F, a statement of the expenditure made or incurred
      in relation to Network                                                                                                                                                                                                                                                                                                                                                                                                                 

L6

---



Back to Contents

Assets during that financial year, distinguishing between amounts which have been expended and amounts which have been capitalised, together with the details necessary to explain any difference
between that expenditure and the expenditure which the Appointee had informed the Secretary of State or, as the case may be, the Director under this Condition it intended to make or incur in relation to Network Assets during that financial
year.

L7

---



Back to Contents

Condition M:   Provision of
  Information to the Director

|1. | Subject to paragraphs 3, 4 and 5 the Appointee
      shall furnish the Director with such Information as the Director may reasonably
      require for the purpose of carrying out any of his functions under the Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2. | Information required to be furnished under
      this Condition shall be furnished in such form and manner and at such times
      and be accompanied or supplemented by such explanations as the Director
      may reasonably require.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3. | This Condition shall not require the Appointee
      to furnish the Director with Information in respect of any function of the
      Director under sections 16 (section 14 of the 1991
      Act), 26 (section 27 of the 1991 Act)
      and 34 (section 201 of the 1991 Act) but the
      Appointee shall, if requested by the Director, give reasoned comments on
      the accuracy and text of any information or advice which the Director proposes
      to publish pursuant to section 34 (section 201of the
      1991 Act) and, subject always to section 174
      (section 206 of the 1991
      Act), nothing in this paragraph shall prevent the Director from
      using or disclosing any Information with which he has been furnished under
      this Condition or any other Condition of this Appointment for the purpose
      of carrying out his functions under the Act (including, without prejudice
      to the generality, under sections 16 (section 14
      of the 1991 Act), 26 (section 27 of the 1991
      Act) and 34 (section 201 of the 1991 Act)).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4. | Neither this Condition nor any other Condition
      of this Appointment shall require the Appointee to furnish any Information
      for any such purpose as is referred to in section 33
      (section 203 of the 1991
      Act), which it could not be compelled to produce or furnish under
      that section.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|5. | Neither this Condition nor any other Condition
      of these Appointments shall require the Appointee to furnish any Information
      which it would be entitled to refuse to disclose or produce on grounds of
      legal professional privilege in proceedings in the High Court.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|6. | Where, under any other Condition of these
      Appointments, the Appointee is or can be required to furnish Information
      to the Director there shall be a presumption that the furnishing of that
      Information in accordance with that Condition is sufficient for the relevant
      purposes of that Condition but this presumption shall be rebutted, and shall
      not limit the right of the Director to call for further Information under
      paragraph 1, if he states in writing that in his opinion such Information
      is or is likely to be necessary for the purpose of carrying out any of his
      functions under the Act.                                                                                                                                                                                                                                                                                                                                                                                                                              

M1

---



Back to Contents

Condition N: Fees ( replaced with effect from
  1 April 1993(as amended in respect of subparagraphs 3.1 and 3.2, (and protocol)
  in accordance with the Secretary ofStates
  approval, dated 1999/2000, further modified with effect from 24 November 2004.

|1. | Interpretation
      and Construction                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                           
|   | In
      this Condition aPeriodic Review
      Year means the Charging Year
      starting on 1st April immediately preceding the start of a Review Charging
      Year.
|   |                                                                                                                                                                           
|2. | Fees                                                                                                                                                                      
|   |                                                                                                                                                                           
|   | The
      Appointee shall render the following payments to the Secretary of State
      at the times stated:                                                              
|   |                                                                                                                                                                           
|   | (1)                                                                                                                                                                       
|   |                                                                                                                                                                           
|   | (2)                                                                                                                                                                       
|   |                                                                                                                                                                           
|   |                                                                                                                                                                           
|   |                                                                                                                                                                           
|   |                                                                                                                                                                           
|   |                                                                                                                                                                           
|   | (3)                                                                                                                                                                       
|   |                                                                                                                                                                           
|   | (4)                                                                                                                                                                       
|   |                                                                                                                                                                           
|   | (5)                                                                                                                                                                       

N3

---



Back to Contents

|(6) | on 1st April of the first Charging Year after the announcement by the Director of his intention to carry out a Periodic Review, and at the start of each Charging Year up to but not including the
Periodic Review Year, an additional fee, which shall represent a fair proportion, to be determined each year by the Director according to a method which has been disclosed in writing to the Appointee, of additional costs estimated by the Director as
being likely to be incurred in that Charging Year by him in the preparation for or the carrying out of a Periodic Review, over and above the costs estimated by the Director as being likely to be incurred in that Charging Year under paragraph 2(5)
above;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   

|(a) | all renewal and additional fees payable at the start of that Charging Year under the Appointments and all other appointments made under the said Chapter I; and
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                                                                                                                                
|    |                                                                                                                                                                
|    |                                                                                                                                                                
|    |                                                                                                                                                                

| | (8)   | within 30 days of the date on which the
        Director notifies the Appointee of the amount payable under this sub-paragraph,
    the amount derived from the following formula:                                                                                                                               
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       | I =
    M x t/T                                                                                                                                                                                                                                                                                                  
|
| | Where
| |       | I is the amount payable under this sub-paragraph;                                                                                                                                                                                                                                                                
|
| |       | M is the expenses, attributed by the Director
to the Charging Year in which the notification
is given, of the Director, the Secretary of State and the National Assembly for
Wales in relation to the establishment of the Consumer Council for Water;                                                           
|
| |       | t is equal to the turnover of the Appointed
    Business as shown in the accounting statements prepared by the Appointee
    under Paragraph 4 of Condition F for the financial year ending twelve months
    before the start of the Charging Year in which the payment under this sub-paragraph
    is payable;

N4

---



Back to Contents

|    |                                                                                                                                                                                                                                                                                                                                                                   | T is equal to the aggregate of the turnover
      of the Appointed Business of all of the companies holding an Appointment
      under Chapter 1 of Part 2 of the 1991 Act, as shown in their accounting
      statements prepared under Para 4 of Condition F for the financial year
      ending twelve months before the start of the Charging Year in which the
      payment under this paragraph is payable. ; [changes in pink wef 24 November
    2004].
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                  
|3.  | Limits on renewal fee, special fee and additional fee                                                                                                                                                                                                                                                                                                            
|   
|3.1 | The aggregate of the renewal fee payable in respect of any Charging Year starting on or after 1 April 2000 (other than a Periodic Review Year) and part of any special fee apportioned to the
renewal fee payable in the same Charging Year shall not exceed X, where X shall be calculated in any year by the equation:                                         
|    |                                                                                                                                                                                                                                                                                                                                                                  
|    | X = S x t/T                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                  
|    | Where the figures in the equation
    are defined as follows:                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                  
|    | S is equal to the figure of£7.5M,£11.9M
      increased by the percentage increase in the Retail Prices Index between
      that published for the month ofSeptember
      1989November 1998 and that published for the month of November
      immediately preceding the start of the Charging Year in which that renewal
    fee and special fee are payable,
|    |                                                                                                                                                                                                                                                                                                                                                                  
|    | t is equal to the turnover of the Appointed Business as shown
      in the accounting statements prepared by the Appointee under paragraph
      4 of Condition F for the financial year ending twelve months before the
      start of the Charging Year in which that renewal fee and special fee are
    payable;                                           
|    |                                                                                                                                                                                                                                                                                                                                                                  
|    | T is equal to the aggregate
      of the turnover of the Appointed Business of all of the Appointees as shown
      in their accounting statements prepared under Paragraph 4 of Condition
      F for the financial year ending twelve months before the start of the Charging
    Year in which that renewal fee and special fee are payable.                

|3.2 | The aggregate of the renewal fee and any special fee payable in any Periodic Review Year and of the additional fees payable under paragraph 2(6), in the years immediately preceding that Periodic
Review Year, shall not exceeda figure of 0.3, X derived from sub-paragraph 3.1 plus a figure of 0.1, calculated
as the sum of the percentages which each such fee represents of the turnover of the Appointed Business, as shown in the Accounting Statements prepared by the Appointee under paragraph 4 of Condition F,for the financial year ending twelve months before the start of the Charging Year in which that fee is payable.as an average over the five
years concluding with the previous Periodic Review Year.(see protocol at end of this condition)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|3.3 | Where:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   

N5

---



Back to Contents

|    | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | a Reference Notice has been given
    under paragraph 9/10 of Condition B
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------
|   
|    | the Director may, by notice to the Secretary of State, refer to the Secretary of State for determination by him not later than twelve months after the date which is the Review Notice Date for the
purpose of the relevant Periodic Review, the question whether the limits on the fees specified in sub-paragraph 3.1 and 3.2 payable in respect of any Charging Year starting on or after 1st April 2000 should be changed (and if so what change should
be made to that limit).
|   
|3.4 | This Condition shall be modified by the change or changes (if any) to the said limits necessary to give effect to any determination made by the Secretary of State following a reference under
sub-paragraph 3.3.                                                                                                                                                                                                                                                                  

NOTE:Wherever paragraph numbers are quoted in the alternative (e.g. 13/14) the lower number refers to that paragraph in Condition B of the appointment of each water only company and the higher number
refers to the same paragraph in the joint appointment of each water and sewerage undertaker.

N6

---



Back to Contents

PROTOCOL FOR THE APPLICATION OF LICENCE CONDITION N3.2: .

The original (1989) text defined the limit in terms of:

| | * | Amount: ie) a maximum of 0.3% of Turnover;         
| | - | ---------------------------------------------------
|
| | * | Period of levy: ie) the Periodic Review Year (PRY).

In practice work on and consequential expenditure for the Periodic Review is likely to take place over a number of years running up to and including the PRY. The Director General therefore
wished to have the ability to levy fees to reflect the timing of those costs whilst remaining subject to the same overall limit.

Licence paragraph N3.2, as amended, provides a mechanism to facilitate this flexibility within the same overall limit, ie)

The current limit on fees for the PRY is 0.3% of turnover. Paragraph N3.2 allows those fees to be levied in years preceding the PRY, eg)

| | PRY - 2 |  | PRY - 1 | 
| | ------- |  | ------- | 
| |         |  | PRY     | 
| |         |  |         | 
| | 0.05    |  | 0.1%    | 
| |         |  | 0.15%   | 

provided that the sum of the percentages does not exceed the figure of 0.3 from the original Licence Condition.

However bringing forward payment of the fees would result in an increase in the Net Present Value of the fees concerned. In order to off-set this the paragraph requires that the % in each
year is calculated by reference to the turnover appropriate to the Charging Year in question, rather than to the turnover relating to the PRY. The resulting fee is therefore lower in cash terms as the turnover from which it is calculated is
smaller.

N7

---



Back to Contents

|  | Condition N places limits on the fees
        which the DG can levy to cover expenditure on a Periodic Review. Condition
        B of the licence states that companies will have five yearly Periodic
        Reviews, this in turn means that Periodic Review work is likely to be
        spread over the five years leading up to the Periodic Review year eg
        1999-2000, 2004-05 etc. The ceiling on Condition N is governed by the
    following formula:
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | AF + PRY< Y                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | AF                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | PRY                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Y |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | Illustrative Example  Revised
    Condition N                                                                                                                                                                                                                                                                                                                                                                                                                        



|Year                             | 1     | 2     | 3     | 4     | 5    
|-------------------------------- | ----- | ----- | ----- | ----- | -----
|Renewal fee                      | 11.90 | 11.90 | 11.90 | 11.90 | 11.90
|(base) £m                        |       |       |       |       |      
|RPI at 2.5% per
annum £m         | 0.29  | 0.60  | 0.91  | 1.23  | 1.56 
|TOTAL £m                         | 12.19 | 12.50 | 12.81 | 13.13 | 13.46
|Additional fee* £m               | 1.2   | 1.2   | 1.2   | 1.2   | 1.2  
|PR costs in
Periodic Review year |       |       |       |       | 1.2  
|TOTAL £m                         | 13.39 | 13.70 | 14.01 | 14.33 | 14.66
|                                 |       |       |       |       |      



| | *                                                                                                                                                                                          | Assumes average turnover over the five years 1994-95 to 1999-2000                                                                                                                                                                                                    | =
£6 billion     | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | 
| |                                                                                                                                                                                            | 0.1% of £6
billion                                                                                                                                                                                                                                                   | = £6
    billion | 
| |                                                                                                                                                                                            |                                                                                                                                                                                                                                                                      |                  | 
| |                                                                                                                                                                                            | Additional fee
      as per para 2(6) recovered over years 1 to 4. Periodic Review costs in
      year 5 recovered as part of the Renewal Fee. The total of Renewal Fee in
      year 5 and the additional fee years 1 to 4 is constrained by the formula
    above.
| |                                                                                                                                                                                            |                                                                                                                                                                                                                                                                     
| | In
      this example the additional fee is distributed evenly over the four years,
      however in reality, the amount of additional fees will be kept lower, to
    only recover costs.

Ofwat in charging companies intends to keep well below the ceiling and would remain subject to external scrutiny by HMT, NAO and the industry.

N8

---



Back to Contents

Condition O:   Circumstances in which a replacement
appointment may be made

[For the purposes of paragraph (c) of section 12(2),(section 7 & 9 of the 1991 Act)the only circumstances in which an appointment or variation to which section 12(section 7 & 9 of the 1991 Act)applies may be made in relation to the area for which the Appointee holds the Appointment as
water undertaker or, as the case may be, sewerage undertaker under this instrument are where the Secretary of State has given the Appointee at least 10 years notice, expiring not earlier than 25 years after the transfer date, to terminate the
relevant Appointment in relation to the whole of its area and the said period of notice has expired.

For the purposes of paragraph (c) of Section
    7(4) of the Water Industry Act 1991, the only circumstances in which an appointment
    or variation may be made, in relation to the area for which the Appointee
    holds the Appointment as water undertaker or, as the case may be, sewerage
    undertaker under this instrument, are where the Secretary of State has given
    the Appointee
at least 25 years notice to terminate the relevant Appointment in relation
to
the whole of its area and that period of notice has expired.] [deleted and
inserted with effect from 15 October 2002]

O1

---



Back to Contents

Condition P:   The Role of United Utilities as owner
of North West Water Ltd

|1(1) | The Appointee shall, not later than 12
      April 1996,
procure from United Utilities PLC a legally-enforceable
undertaking in favour of the
Appointee in a form specified by the Director
and expressed to remain in force for
as long as the Appointee retains the Appointments
and United Utilities PLC remains
the holding company of the Appointee.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                          
|1(2) | The undertaking referred to in (1) above
    shall provide that -                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                          
|     | (a)                                                                                                                                                                                                                                                                                                                                                      
|    
|     | (b)                                                                                                                                                                                                                                                                                                                                                      
|    
|     | (c)                                                                                                                                                                                                                                                                                                                                                      
|    
|2    | The Appointee shall, not later than 31 October 1997, produce to the Director the undertaking given to it under paragraph 1 of this condition, amended to reflect the requirements in paragraph
1(2)(c) above and provide to him such certified copies of the undertaking as he may require.                                                              
|    
|3    | The Appointee shall immediately inform the Director in writing, if it becomes aware that the undertaking referred to in paragraph 1 of this condition has ceased to be legally-enforceable or that
there has been any breach of its terms.                                                                                                               
|    
|4    | The Appointee shall not, except with the written consent of the Director, enter (directly or indirectly) into any contract or arrangement with United Utilities PLC or any Associated Company (other
than subsidiaries of the Appointee) at a time when:-                                                                                                
|    
|     | (i)                                                                                                                                                                                                                                                                                                                                                      
|    
|     | (ii)                                                                                                                                                                                                                                                                                                                                                     

P3

---



Back to Contents

Condition Q:   Interruptions
    in Supply because of Drought (coming
into effect 19 April 1997)

|1.                                                                                                                                                                                     | Interpretation                                                                                                                                                                                                                                                            
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                       |                                                                                                                                                                                                                                                                           
|business
            customermeans the person who
            is liable to pay the Appointees charges in respect of a supply of
    water to premises other than domestic premises;
|                                                                                                                                                                                       |                                                                                                                                                                                                                                                                           
|drought
            ordermeans an order made under
    section 73 of the Water Resources Act 1991;                                                                                  
|                                                                                                                                                                                       |                                                                                                                                                                                                                                                                           
|household
            customermeans the person who
            is liable to pay the Appointees charges in respect of a supply of
    water to domestic premises.                   
|                                                                                                                                                                                       |                                                                                                                                                                                                                                                                           
|2.                                                                                                                                                                                     | Liability and amounts of payments                                                                                                                                                                                                                                         
|                                                                                                                                                                                      
|2.1                                                                                                                                                                                    | Where a supply of water to premises is interrupted or cut off under the authority of a drought order the Appointee shall, subject to sub- paragraph 2.2, pay to the customer (or credit to his account)
whichever of the amounts referred to in paragraph 3 is applicable.
|                                                                                                                                                                                      
|2.2                                                                                                                                                                                    | The Appointee shall not be liable to make any payments under this Condition where the circumstances were so exceptional that it would have been unreasonable to have expected the interruption or cut-off
to have been avoided.                                           
|                                                                                                                                                                                      
|3.                                                                                                                                                                                     | Amounts payable to household and business customers                                                                                                                                                                                                                       
|                                                                                                                                                                                      
|3.1.1                                                                                                                                                                                  | The Appointee shall pay to a household customer £10 for each day during which (or during part of which) the supply is interrupted or cut off.                                                                                                                             
|                                                                                                                                                                                      
|3.1.2                                                                                                                                                                                  | The amount payable to any household customer in any Charging Year shall not exceed the average amount of water charges payable to the Appointee by household customers for the Charging Year preceding that
in which the interruption or cut-off happens.                 
|                                                                                                                                                                                      
|3.2.1                                                                                                                                                                                  | The Appointee shall pay to a business customer £50 for each day during which (or during part of which) the supply is interrupted or cut off.                                                                                                                              
|                                                                                                                                                                                      
|3.2.2                                                                                                                                                                                  | The amount payable to any business customer in any Charging Year shall not exceed -                                                                                                                                                                                       
|                                                                                                                                                                                      
|                                                                                                                                                                                       | (a)                                                                                                                                                                                                                                                                       

Q1

---



Back to Contents

|      | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                   | if that customer was not liable to
      pay those charges, £500.
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------
|     
|3.2.3 | When calculating the charges
      payable by a business customer for the supply of water services, amounts
      payable in respect of any separate supply which was provided solely for
      purposes other than domestic purposes shall be excluded.                                                                                                                                                                                             
|     
|3.3   | If, when a payment
      becomes due under this Condition, a customer owes money to the Appointee
      and the debt has been outstanding for more than 6 weeks, any payment from
      the Appointee to which the customer is entitled under this Condition shall,
      to the extent that it does not exceed the amount so owed, be made by way
      of credit to that customers account.                                                       
|     
|4.    | Determination of Disputes                                                                                                                                                                                                                                                                                                                                                                                                                            
|     
|4.1   | Where
      any dispute arises between the Appointee and a customer as to the right
      of that customer to a payment or credit under this Condition, the matter
      may be referred to the Director by either party for determination1.                                                                                                                                                                                                         
|     
|4.2   | Any determination
      under this Condition shall be final and, if the Appointee fails to give
      effect to the determination, the customer may set off the amount in question
      against any payment which is due to the Appointee.                                                                                                                                                                                                          
|     
|5.    | Cessation
      or Modification of this Condition                                                                                                                                                                                                                                                                                                                                                                                                    
|     
|5.1   | This
      Condition shall cease to have effect in relation to any interruptions or
      cut-offs occurring on or after the commencement date of any Regulations
      made by the Secretaries of State pursuant to Section 38 of the Water Industry
      Act 1991, implementing the recommendations made to them by the Director
      in May 1996 for the making of payments to customers for interruptions or
      cut-offs because of drought.
|     
|5.2   | If the Regulations
      referred to in sub-paragraph 5.1 relate to either household customers or
      business customers only, this Condition shall cease to have effect in so
      far as it relates to those customers.                                                                                                                                                                                                                         

Q2

---



Back to Contents

Explanatory Note about Condition Q4

The Director has indicated that, when deciding whether to require the Appointee to make a payment under paragraph 4 of Condition Q he will, while not being able to anticipate all relevant circumstances,
take account of the following:

| | (a) | the resources available to the company
	    and its management of those resources, including the exploration of new
    resources;                                                                                                                                                                                                            
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | the promotion by the company of the efficient
    use of water by its customers;                                                                                                                                                                                                                                                              
|
| | (c) | The companys ability to prohibit or restrict
	    the use of water by the exercise of its powers under section 76 of the Water
	    Industry Act 1991 (hosepipe bans) or by obtaining a drought order containing
	    the provision authorised by paragraph (b) of section 74(2) of the Water
    Resources Act 1991 (non-essential use); and
|
| | (d) | the maintenance of the companys assets,
    including the management by the company of leakage.                                                                                                                                                                                                                                              
|

Q3

---



Back to Contents

| | Guide to Defined
    Terms                                                                                                                                                                                       
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                  
| | 1.      The
        words and expressions set out in Column
(1) below, which are usedprincipally in
the Conditions referred to in Column (2) below, are defined in the provision
referred to in Column (3) below:

|                                |  |                        |  |                     
|------------------------------- |  | ---------------------- |  | --------------------
|(1)                             |  | (2)                    |  | (3)                 
|The Appointed Business          |  | Throughout             |  | Condition A         
|The Appointee                   |  | Throughout             |  | The Appointments    
|The Appointments                |  | Throughout             |  | The Appointments    
|The Auditors                    |  | B and F                |  | Condition A         
|Basket Items                    |  | B                      |  | Condition B, Part I 
|Charging Year                   |  | Throughout             |  | Condition A         
|The Customer Service Committee  |  | G, H and I             |  | Condition A         
|Excluded Charges                |  | B                      |  | Condition B, Part I 
|Information                     |  | Throughout             |  | Condition A         
|Legal requirement               |  | B                      |  | Condition B, Part IV
|Measured Basket Items           |  | B                      |  | Condition B, Part I 
|Notified Item                   |  | B                      |  | Condition B, Part IV
|Periodic Review                 |  | B, C, L, N             |  | Condition A         
|Prior Year                      |  | B                      |  | Condition A         
|The Regulated Activities        |  | B, F, J and L          |  | Condition A         
|Relevant Change of Circumstance |  | B                      |  | Condition B, Part IV
|The Relevant Charging Year      |  | B                      |  | Condition B, Part I 
|Relevant Premises               |  | D, G, H, I and J       |  | Condition A         
|The Retail Prices Index         |  | B, C and N             |  | Condition A         
|Review Charging Year            |  | B and N                |  | Condition A         
|Standard Charges                |  | B                      |  | Condition B, Part I 
|Unmeasured Basket Items         |  | B                      |  | Condition B, Part I 
|The Water Authority             |  | B, C, D, E, F, J and L |  | Condition A         
|Weighted Average Charges        |  | B                      |  | Condition B, Part I 
|Increase                        |  |                        |  |                     

Guide page 1

---



Back to Contents

|Guide to Defined Terms cont.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.      The definitions of other words and
        expressions used in the Conditions may be found either in this instrument
        or, by virtue of paragraph 1 of Condition A, in the Act or in the Interpretation
        Act 1978. The words and expressions set out in Column (1) below, which
        are used principally in the Conditions referred to in Column (2) below,
        are defined in the provision of the Act or of the Interpretation Act
        1978 referred to in Column (3)(A) or, as the case may be, Column (3)(B)
    below:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|(1)                     |  | (2)            |  | (3)(A)                    |  | (3)(B)                 | 
|----------------------- |  | -------------- |  | ------------------------- |  | ---------------------- | 
|                        |  |                |  | Relevant provision of     |  | Relevant provision of  | 
|                        |  |                |  | the Water Industry Act    |  | the Interpretation Act | 
|                        |  |                |  | 1991                      |  | 1978                   | 
|                        |  |                |  |                           |  |                        | 
|Accessories             |  | B and J        |  | s.219(1)                  |  |                        | 
|customer or potential   |  | E              |  | s.219(1)                  |  |                        | 
|customer                |  |                |  |                           |  |                        | 
|Director                |  | throughout     |  | s.219(1)                  |  |                        | 
|discharge pipe          |  | L              |  | s.192(1)                  |  |                        | 
|Functions               |  | A, B and E     |  | s. 217&s.219              |  |                        | 
|holding company         |  | A and F        |  |                           |  | Companies Act 1985     | 
|Information             |  | A              |  | s.219(1)                  |  |                        | 
|MonopoliesCompetition   |  | A, B, C, F & N |  | s.219(1)                  |  |                        | 
|Commission              |  |                |  |                           |  |                        | 
|new appointee           |  | B              |  | s.12(6)                   |  |                        | 
|Notice                  |  | Throughout     |  | s.219(1)                  |  |                        | 
|public sewer            |  | L              |  | s.219(1)                  |  |                        | 
|Records                 |  | A              |  | s.219(1)                  |  |                        | 
|resource main           |  | L              |  | s.165(8),
s.167& Sch 19,  |  |                        | 
|                        |  |                |  | para 1                    |  |                        | 
|service pipe            |  | H, I and L     |  | s.219(1) and 189(4)       |  |                        | 
|sewerage services       |  | E and I        |  | s.219(1)                  |  |                        | 
|sewerage undertaker     |  | Throughout     |  | s.11 and 189(1)           |  |                        | 
|special administrator   |  | K              |  | Sch 6, para 12(2)         |  |                        | 
|special administration  |  | K              |  | s.25(6), Sch 5, para 1(4) |  |                        | 
|order                   |  |                |  | Sch 6, para12(2)          |  |                        | 
|subordinate legislation |  | B and L        |  | s.219(1)                  |  | s.21(1)                | 
|Subsidiary              |  | A              |  | s.219(1)                  |  |                        | 
|successor company       |  | A              |  | s.219(1)                  |  |                        | 
|transfer date           |  | throughout     |  | s.189(1) WA 1989          |  |                        | 
|trunk main              |  | F and L        |  | s.219(1)                  |  |                        | 
|water mains             |  | B, J and L     |  | s.219(1)                  |  |                        | 
|water undertaker        |  | throughout     |  | s.11 and 189(1)           |  |                        | 
|Writing                 |  | B, J, M and N  |  |                           |  | s.5 and Schedule 1     | 

Guide page 2

---



Back to Contents

| | 3.      The lists of words and expressions
        under in the Conditions in paragraph 1 and 2 above are not exhaustive
        lists of all the words and expressions used in the Conditions which are
        defined in this
instrument, the Act or the Interpretation Act 1978.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                     
| | 4.      This guide to defined terms is for
        ease of reference only and shall not affect the construction of any provision
    of this instrument.                                                                                                                            

Guide page 3

---