Exhibit 4.1

---



DEPARTMENT OF THE ENVIRONMENT







Instrument
  of Appointment by
  the Secretary of State for the Environment
  of North West Water Limited
  as a water and sewerage undertaker under the Water Act 
  1989











Department
  of the Environment
  August 1989

---



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 April, 2004

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Back to Contents

























Printed
  with amendments up to 14 April, 2004

---



Table of Contents

THE APPOINTMENTS

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

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|TABLE OF CONTENTS                                    |                                                                                                                                              
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------
|                                                     |                                                                                                                                              
|THEAPPOINTMENTS                                      |                                                                                                                                              
|                                                     |                                                                                                                                              
|                                                     | The Appointments
    to be a water and sewerage undertaker                                                                                   
|                                                     |                                                                                                                                              
|SCHEDULE 1: AREA FOR WHICH THE APPOINTMENTS ARE MADE |                                                                                                                                              
|                                                     |                                                                                                                                              
|1.                                                   | The Water Supply Area                                                                                                                        
|                                                     |                                                                                                                                              
|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                                                                                     
|                                                     |                                                                                                                                              
|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          
|                                                     |                                                                                                                                              
|CONDITIONB: CHARGES                                  |                                                                                                                                              
|                                                     |                                                                                                                                              
|Part I.                                              | Explanatory Provisions                                                                                                                       
|                                                     |                                                                                                                                              

---



|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 theMonopoliesCompetition
    Commission                                                                                    |  
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | -
|                                       |                                                                                                                                          |  
|17.                                    | Modification of Condition
        B following Periodic Reviews and references to the Director or theMonopoliesCompetition
    Commission |  
|                                       |                                                                                                                                          |  
|Part VI.                               | Provision of Information
    to the Director                                                                                             |  
|                                       |                                                                                                                                          |  
|18.                                    | Information required to
    be furnished by the Appointee to the Director                                                                |  
|                                       |                                                                                                                                         
|CONDITIONC:
    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 theMonopoliesCompetition
    Commission                                                                                    |  
|                                       |                                                                                                                                          |  
|15.                                    | Modification of this Condition                                                                                                           |  
|                                       |                                                                                                                                          |  
|                                       | Appendix: Calculation of
    Relevant Multiplier                                                                                         |  
|                                       |                                                                                                                                          |  
|                                       | Explanatory Note                                                                                                                         |  
|                                       |                                                                                                                                         
|                                       |                                                                                                                                         

---





|CONDITION
    D: CHARGES SCHEMES                                                                                   |                                                                                                                                    
|------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                   |                                                                                                                                    
|1.                                                                                                                 | Interpretation and Construction                                                                                                    
|                                                                                                                   |                                                                                                                                    
|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                                                                                               
|                                                                                                                   |                                                                                                                                    
|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                                                                                                                       
|                                                                                                                   |                                                                                                                                    
|2.                                                                                                                 | Interpretation and Construction                                                                                                    
|                                                                                                                   |                                                                                                                                    
|3.                                                                                                                 | Accounting Records                                                                                                                 
|                                                                                                                   |                                                                                                                                    
|4.                                                                                                                 | Accounting Statements                                                                                                              
|                                                                                                                   |                                                                                                                                    
|5.                                                                                                                 | Segmental Information                                                                                                              

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|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 theMonopoliesCompetitionCommission                                                                                                             |  
|                                                                                                             |                                                                                                                                                                                   
|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                                                                                                                                                                          |  
|                                                                                                             |                                                                                                                                                                                    |  

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|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                                 |  

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|                                                                              | Target Reports                                                                                                      |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | -
|                                                                              |                                                                                                                    
|CONDITION
    K: "RING FENCING", DISPOSALS OF LAND AND CHANGES OF USE OF LAND |                                                                                                                    
|                                                                              |                                                                                                                     |  
|1.                                                                            | Introduction                                                                                                        | K
|                                                                              |                                                                                                                     |  
|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                                                                                     | L
|                                                                              |                                                                                                                     |  
|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                                                                  | M
|                                                                              |                                                                                                                     |  
|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                                                                                     | N
|                                                                              |                                                                                                                     |  
|2.                                                                            | Fees                                                                                                                |  
|                                                                              |                                                                                                                     |  
|3.                                                                            | Limit on renewal fee and special fee                                                                                |  
|                                                                              |                                                                                                                     |  
|4.                                                                            | Protocol for the Application of Licence Condition N3.2.                                                             |  

---



|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                            |                                                                                                                                                         
|                                                                              |                                                                                                                                                         
|1.                                                                            | The
        procurement and contents of the undertaking                                                                                                 
|                                                                              |                                                                                                                                                         
|2.                                                                            | Production
        of the undertaking to the Director General                                                                                           
|                                                                              |                                                                                                                                                         
|3.                                                                            | Duty
        to inform Director General if not 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                                                    |                                                                                                                                                         

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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

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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

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| |  | "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 the Secretary 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

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SCHEDULE 2: Conditions of the Appointment

Condition A: Interpretation and Construction

|1. | Unless
      the contrary intention appears:                                                                                                                                 
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                              
|   | (1)                                                                                                                                                                          
|   |                                                                                                                                                                              
|   | (2)                                                                                                                                                                          
|   |                                                                                                                                                                              
|   | (3)                                                                                                                                                                          
|   |                                                                                                                                                                              
|   | (4)                                                                                                                                                                          
|   |                                                                                                                                                                              
|   | (5)                                                                                                                                                                          
|   |                                                                                                                                                                              
|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 | 
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| | "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 theMonopoliesCompetition 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                                                                                                                                                                                                                                                                                                                                                                                                    

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|   | 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.                                                                                                                                                                                                                                                                                                                                                              

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|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.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Condition B: Charges

|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
        10 five-yearly
        intervals, so
        that the Director can determine whether the Adjustment Factor should
        be changed. Except as where expressly
        provided in this Condition all reviews will cover periods of ten five consecutive
        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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | These
    matters are dealt with in Part IV under the heading "Interim Determinations."                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|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 Monopolies Competition
    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                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | 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;                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | "Basket
    Items"are                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |  | (a) | a measured supply or service is one where all or some of the charges for that supply or service are based on measured quantities of volume and an unmeasured supply or service is any other; and
| |  | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |                                                                                                                                                                                                 
| |  | (b) | sewerage services includes sewage treatment and disposal and excludes reception, treatment and disposal of trade effluent;                                                                      

"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) | amounts payable in respect of an unmeasured supply of water by means of stand-pipes or water tanks and in respect of the erection or maintenance of stand-pipes or water tanks;                                                                                                                         
| |  | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |                                                                                                                                                                                                                                                                                                         
| |  | (2) | charges
    for a supply of water provided by the Appointee under section48 (section 59 of the 1991 Act);                                                                                                                                                                                               
| |  |     |                                                                                                                                                                                                                                                                                                         
| |  | (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 for supplies of water (or for the provision
of sewerage services or for the reception, treatment and disposal of trade effluent)
when the requirement for water is not less than 250 megalitres per year; but
so that the reference to 250 megalitres will be reduced to the amount for the
time being referred to in any Order made under section 7(6) of the Water Industry
Act 1991; (effective from 1 April 2000)


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

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| |  |      | 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
        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

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| |  |     | 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 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";                                                                                                                                        
| |  | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |                                                                                                                                                                                                                                                                                              
| |  | (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";

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| |  | (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;                                                                                                                          



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| |                                                                                                                                                                                                                                                                                                                                | "Weighted
      Average Charges Increase"means the sum calculated as follows:                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                | 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 Itemsi                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                | 'requires
      summation over the three Measured Basket Itemsj                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                | At(i)
      is the Average Charge Per Chargeable Supply in respect of Unmeasured
      Basket Item i for the
      Charging Year                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                | At-1(i)
      is the Average Charge Per Chargeable Supply in respect of Unmeasured Basket
      Item i for the Prior Year                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                | Bt(j)
        is the Weighting Year Revenue in respect of Measured Basket Item j forthe
      Charging Year                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                | Bt-1(j)
      is the Weighting Year Revenue in respect of Measured Basket Item j forthe
      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 or to be made in



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|               |                                                                                                                                                                                                                                                                                         | 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      
| |  | 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
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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|    |                                                                                                                                                                                                                                                                                                         | 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)                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                         | (b)                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
|5.2 |                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
|6.  | Verification
    of Compliance with the Charges Limit                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                        
|6.1 | Statements                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                        
|    | The
    Appointee shall deliver to the Director the following statements:                                                                                                                                                                                                                              

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|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | not
       later than two months before the start of each Charging Year a statement
       in writing (a"Principal
       Statement")
    of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | not
       later than two months, or such later date as the Director may allow, before
       the date during any Charging Year as from which the Appointee proposes
       to make or fix a new Standard Charge (which is not an Excluded Charge)
       for the supply of water or the provision of sewerage services or the reception,
       treatment or disposal of trade effluent or to increase or decrease the
       amount of any such charge a statement in writing (a"Supplemental
       Statement")
       of the new charge or the amount by which the Appointee proposes to increase
    or decrease the amount of that charge.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|    | 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.Periodic
    Reviews
|---------------------------------

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                             
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------
|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 theDirector
          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 on1st
          April 1995 or any such later date specified in the relevant Review
          Notice whichisthe
    fifth anniversary of:
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                             
|     | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 1st
    April 1995; or                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                             
|     | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | the
          first day of the first of the Charging Years in respect of which the
    last Periodic Review was carried out.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                             
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|relation to the
        Director's determination, including, without limitation, any change in
        circumstance which has occurred since thetransfer
        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 itthe
        Adjustment Factor)
    for:(strikethrough and highlighted italics effective from 1 April 2000)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|9.2                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.1                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.2                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.3                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|11.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|11.1                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|             | 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.                                                                                                                                                                                                                                                                                                                                                                                        
|------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|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 oftenfive
        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: | Interim Determinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|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;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|             | "Interim
          Determination"means
          the determination by the Director of the relevant questions the subject
    of a reference by the Appointee under paragraph 14 or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| | pursuant to paragraph
        15 or, as the case may be, the determination by theMonopoliesCompetition
        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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| | (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, 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)                                                                                                                                   | a 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
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                       |                                                                                                                                                                                  
| |      | (B)                                                                                                                                   | a piece
      or parcel of protected land which has previously been the subject of a
    transfer under paragraph 7 of Condition K;                                              
| |      |                                                                                                                                       |                                                                                                                                                                                  
| | (iv) | "protected
     land"and"disposal"have
     the meanings respectively given to them in section 189 (section 219 of the
    1991 Act);

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| | (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 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)   
|    |       
|    | (ii)  
|    |       
|    |       



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|    |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | as aforesaid
      it would take those steps) any or all of those steps which, for the purpose
      of assessing the amount allowed for as aforesaid, it was assumed it would
    take; and                                                                                                                                
|--- | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                             
|    |        | (B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | as a result, the amount allowed for as aforesaid is substantially greater than the sum of (a) the costs (if any) actually incurred by the Appointee for the relevant purpose specified in (i) above and (b) so much (if any) of that amount as has been otherwise offset by prudent management of the capital programme; and
|    |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                             
|    |        | (C)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | that purpose has not been otherwise achieved;                                                                                                                                                                                                                                                                               
|    |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                             
|(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                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |       
|    | (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               



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| |                                                        | (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
| |                                                        |     |                                                                                                                                                                                                                                           
| |                                                        |     | 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)                                                                                                       
|     |                                                                                                           
|     |                                                                                                           
|     |                                                                                                           
|     |                                                                                                           
|     |                                                                                                           
|     |                                                                                                           

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| |     |                                                                                                                                          | jurisdiction
      to the Appointee for the purpose of carrying on any of the functions of
    a water undertaker or sewerage undertaker;                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                          |                                                                                                                                                                                                                                                                                      
| |     | (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)                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                         
| | (A) | for the purpose of determining the Adjustment Factor; or, as the case may be,                                                           
| |     |                                                                                                                                         
| | (B) | in determining whether the Adjustment Factor should be changed (and if so what change should be made to the Adjustment Factor)          
| |     |                                                                                                                                         
| |     | but
      so that nothing in sub-paragraphs (a) to (g) above shall apply so as to
    include:                                          
| |     |                                                                                                                                         
| |     |                                                                                                                                          | (i)                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                          |                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                          | (ii)                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                          |                                                                                                                                                                                                                                                                                      
| |     | to
      the extent in either case that they require the Appointee to pay fees or
    charges to the relevant enforcement authority; and

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|     | (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 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|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. Such reference shall be made by notice given to the Director, which,
        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 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)                                                                                                                                                                                                                                                                                                                                                                                        

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (A)                                                                                                                                                     | any trivial amounts;                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (B)                                                                                                                                                     | any costs, to the
        extent that they would have been, or would be, avoided by prudent management
        action taken since the transfer date (and for this purpose 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);                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (C)                                                                                                                                                     | any savings achieved
        by management action taken since the transfer date over and above those
        which would have been achieved by prudent management action (and for
        this purpose what constitutes "prudent management action" shall be assessed
    by reference to the circumstances at the relevant time); or                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (D)                                                                                                                                                     | any amounts attributable
        to matters allowed for in making a Relevant Determination, except to
        such an extent that such amounts otherwise fall to be taken into account
        as amounts reasonably attributable to, or connected with, the Relevant
        Item under this sub-paragraph (3) and sub-paragraph (1) by virtue of
        the definition of a Notified Item and a Relevant Change of Circumstance;
    and
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | (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)                                                                                                                                                                                                                                                                                                                                                                                                                                                  | one half of the
        Base Cash Flows in respect of Relevant Changes of Circumstance falling
    within sub-paragraph (2) of that definition; and    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                  | the Base Cash Flows
        in respect of all other Relevant Changes of Circumstance and Notified
    Items                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                        
| |     | in
        both cases the subject of the notice or notices under sub-paragraph 14.4
    or paragraph 15;                                                                                                                                                                                                                                                                                                                                            

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| |      | [(6) what
          is the Net Present Value of the amounts determined under (5) calculated
          up to the start of the first of the Charging Years for which the next
          Periodic Review falls to be carried out (having regard to any Review
          Notice orReference
          Notice which has been given at the time when the reference is made)
          and what is the aggregate of those Net Present Values ("theMateriality
          Amount");][deleted
    with effect from 24/07/02]
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | [(6) | (a) where any
        Base Cash Flows under (5) consist of items to which (b) below does not
        apply, what is the Net Present Value of those Base Cash Flows 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 Base
        Cash Flows under (5) consist of loss of revenue and/or Operating Expenditure,
        what is the Net Present Value of those Base Cash Flows calculated over
    15 years                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | and what is the
        aggregate of those Net Present Values calculated under (a) and (b) (the
        Materiality Amount);]
        [inserted
    with effect from 24/07/02]                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (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 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|     |                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                            | Allowable
      Depreciation occurring up to and including the relevant year ("Allowable
      Net Asset Value");                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (vi)                                                                                                                                                                                                                                                                                                                                                                                                                       | the
      sum of the Current Valueof
      all Allowable Infrastructure Asset Expenditure occurring up to and including
      the relevant year ("Allowable
      Infrastructure Asset Value");
|     |                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (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 | not used                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                
|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:

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|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                        | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | the first day of
      October 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 [sub-] paragraph 15[.1](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                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                            | 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 first
      day of October 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-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.
|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                 
|Where
      sub-paragraph 14.4(2) or 15(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.
|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                 
|Part
      V- References to theMonopoliesCompetitionCommission
      and Modification of this Condition                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                 
|16.                                                                                                                                                                                                                                                                                                                         | References
      to theMonopoliesCompetition
      Commission                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                            | Where:                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                            | (1)                                                                                                                                                                                                                                                                                                                                                                                    | pursuant
      tofollowing
      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 paragraph10
      or11,
      the Director has not given notice to the Appointee of his determination
      within1one
      year from the Review Notice Date or, in the case of a reference under paragraph
      11, within1one
      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                                                                                                             

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|               | (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                                                                                                                                                
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                       
|               | (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 theMonopoliesCompetition 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 theMonopoliesCompetition
      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 theMonopoliesCompetition 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 theMonopoliesCompetition
      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 relevantReference 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);                                                                                              

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|     | (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 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 paragraph8
        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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | subject to reasonable
    prior notice to the Appointee, allowing the Reporter at reasonable hours:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|     |                                                                | (b)                                                                                                                                                                                                                                         | to carry out inspections,
        measurements and tests on or in relation to any such premises or Relevant
    Plant; and                                                                             
|---- | -------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                |                                                                                                                                                                                                                                             |                                                                                                                                                                                                        
|     |                                                                | (c)                                                                                                                                                                                                                                         | to take on to such
        premises or on to or in to any Relevant Plant such other persons and
        such equipment as may be necessary for the purposes of preparing and
    completing his report.
|     |                                                                |                                                                                                                                                                                                                                             |                                                                                                                                                                                                        
|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.

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Condition C: Infrastructure
  Charges

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 –                                                                                                                                                                                                                                                                                                                                                         

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|    | 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                                                                                                                                                                                                                                                               

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|    | 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.                                                                                                                                                                                         

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|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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|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.

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|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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | require
        the Director to refer to the Competition Commission, for determination
    by it –                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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|     | (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.                                                                                                                                                                                                                                                                                                                                                                                                                        

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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.

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|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 water softener) |  | 3            

Notes to be read with the Table:

|1 | Reference to any
        fitting includes reference to any plumbing, outlet, dedicated space or
    planning or other provision for that fitting;                                                                                                                                                                                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|2 | "Bath" includes
    a whirlpool bath and a jacuzzi;                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3 | "Domestic appliance" means
        an appliance (including a dishwasher, a washing machine and waste disposal
        unit) in a House and "communal or commercial appliance" means an appliance
        (including a dishwasher, a washing machine and a waste disposal unit)
    elsewhere than in a House (including in communal facilities);                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4 | In any calculation
        under paragraph 1, a minimum of six loading units shall be included,
        in respect of each House, for domestic appliances (whether or not the
        House has any such appliances) except, in the case of any House, where
        neither a washing machine nor a dishwasher can be provided (and there
        is no plumbing, outlet, dedicated space or planning or other provision
        for either appliance)
in the House;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5 | In the case of
        any premises with a sewerage only connection and no water fittings, the
    Relevant Multiplier will be one.                                                                                                                                                                                                                                                                                                                                  

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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



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|   | 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.



C46

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|Condition
      D: Charges Schemes
|----------------------------------
|                                  
|1.                                
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|2.1                               
|                                  
|                                  
|                                  
|                                  
|                                  
|2.2                               
|                                  
|3.                                
|                                  
|4.                                
|                                  
|                                  



D1

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|   |                                                                                                                                                                 | 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

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D3

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|Condition
      E: Prohibition on Undue Discrimination and Undue Preference and Information
    on Charges
|----------------------------------------------------------------------------------------------------------
|                                                                                                          
|1.                                                                                                        
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          

E1

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|    | 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

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|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|   | (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.                                                                                                                                                   
|   |                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                       

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Condition F : Accounts and accounting information (modified on 28th September 1996)

|1.1 | Introduction                                             
|--- | ---------------------------------------------------------
|    |                                                          
|    | The
      purposes of this Condition are to ensure that: 
|    |                                                          
|    | (1)                                                      
|    |                                                          
|    | (2)                                                      
|    |                                                          
|    | (3)                                                      
|    |                                                          
|    | (4)                                                      
|    |                                                          
|    | (4A)                                                     
|    |                                                          
|    | (5)                                                      
|    |                                                          
|    | (6)                                                      
|    |                                                          
|2.  | Interpretation
      and Construction                    
|    |                                                          
|2.1 | In this Condition and for the purposes of this Condition:
|    |                                                          
|    |                                                          
|    |                                                          
|    |                                                          
|    |                                                          
|    |                                                          
|    |                                                          
|    |                                                          
|    |                                                          
|    |                                                          

F5

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|    |                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                 | (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

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|    | 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

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| |  |  | (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: 
| | --- | -----------------------------------------------------------------------------------------------------
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| | (3) | an analysis of total tangible fixed assets attributable to the Appointed Business showing separately:
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      
| |     |                                                                                                      

F8

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                      | 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.                                                                                                                                                             

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|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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|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.                                                                                                             



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|(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
          opinion of the Director is that the dividend policy should comply with
          two basic principles, namely:                                                                                                                                                     
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|Ring-Fencing                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                         
|6A.1                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|6A.2A                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         



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|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.                                         
|      |  |                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|6A.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;                                                                                                                                                                                                                                                                                                    



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| |  | (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 6.12
      of 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-             



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|    | 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)                                                                                                    | specify the form and content of current cost accounting statements, including information on specified types of revenue, cost, asset or liability and information on the revenues, costs, assets and liabilities attributable to specified activities, provided that the guidelines may not require the Appointee to disclose information in such current cost accounting statements in respect of items in respect of which the Appointee is not required to give information in accounting statements prepared under paragraph 4 from time to time;
|--- | ------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (2)                                                                                                    | require any reconciliation that may be required with the annual accounts of the Appointee prepared under the 1985 Act;                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (3)                                                                                                    | specify the accounting principles and the bases of valuation to be used in preparing current cost accounting statements; and                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (4)                                                                                                    | specify the nature of the report by the Auditors required to be given in respect of accounting statements.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|9.  | Audit
          and publication of Accounting Statements                                              
|    |                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|9.1 | The
      Appointee shall procure the following reports by the Auditors addressed
    to the Director:
|    |                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | (1) | in respect
       of each set of accounting statements prepared under this Condition, a
    report stating whether in their opinion:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                     
| |     | (a)                                                                                                                                 
| |     |                                                                                                                                     
| |     | (b)                                                                                                                                 



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|     | (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



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APPENDIXCOLUMN 11.
   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.




COLUMN 21.
   The principal of the amount borrowed or lent, the date on which or the dates between which repayment is to be made and the rate of interest payable.1A
  The basis
      on which the dividend has been established.2.
   The form of the guarantee or other security given, the assets, the subject of the security, the amount of the obligation (including where relevant the rate of interest payable) and the date of maturity of the obligation.3.
   The asset or liability the subject of the transfer, the amount of the consideration for the transfer and the value attributed to the asset or liability in the accounting records kept by the Appointee.4.
   The nature of the service supplied, the terms on which it was supplied and the total charge made for the service.5.
   The company omitting to exercise the right and the amount by which the value* of the net assets of the Appointee is decreased.6.
   The amount or the consideration, remuneration of payment waived.




|* | For this
        purpose the value shall be taken to be thevalue
        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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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                      

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|    | 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.                                                                                                                                                                                                                                                                                                                                                                                           

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|Condition
       H : Code of Practice and Procedure on Disconnection
|--------------------------------------------------------------------
|                                                                    
|1.                                                                  
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|2.                                                                  
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|3.                                                                  
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|4.                                                                  
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|5.                                                                  
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|6.                                                                  
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|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | send a copy of the Code in its latest form free of charge to any person requesting it.                                                                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|7.1 | The
      Appointee shall adopt a procedure in relation to disconnections of water
      supply to domestic premises for non-payment of charges due to the Appointee
      or, as the case may be, the Water Authority in respect of the supply of
      water to those premises ("Relevant Charges")which shall be consistent
      with the provisions of section 49 (section 60-63 of the 1991 Act) and with
    the principles set out in sub-paragraphs 7.2 to 7.5.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|7.2 | A
      supply of water to domestic premises should not be disconnected if the
      occupier of those premises has been served with notice requiring him to
      pay Relevant Charges and within seven days beginning with the day after
      which the notice was served serves a notice on the Appointee stating that
    he disputes his liability to pay those Relevant Charges	except where:                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | the Appointee or, as the case may be, the Water Authority, has obtained an enforceable judgment against him for the payment of those Relevant Charges but they remain unpaid for any reason (other than by virtue of compliance with the terms of the judgment); or         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | he is in breach of a payment agreement for the payment of those Relevant Charges entered into with the Appointee since the service of his notice                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|    | and in
      either of the cases mentioned in (1) and (2) except at a time when the
    person liable to pay those Relevant Charges is the occupier of the premises.                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|7.3 | A supply
    of water to domestic premises should not be disconnected:                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | if the person liable to pay Relevant Charges informs the Appointee that he is applying for help to the Social Security Office or local Social Services Department, for so long as that Office or Department asks the Appointee to delay disconnection; or                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | for so long as the person liable to pay those Relevant Charges complies with an agreement entered into with the Appointee or, as the case may be, the Water Authority, for the payment of those Relevant Charges.                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|7.4 | Where
      neither sub-paragraph 7.2 nor sub-paragraph 7.3 applies a supply of water
    to domestic premises should not be disconnected:                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | except at a time when the person liable to pay Relevant Charges is the occupier of those premises; and                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                             
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | except where the Appointee or, as the case may be, the Water Authority, has obtained an enforceable judgment against him for the payment of those Relevant Charges but they remain unpaid for any reason (other than by virtue of compliance with the terms of the judgment)
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | but
      so that if prior to the date of the bill in respect of the Relevant Charges
      an order for payment of charges due in respect of a supply of water has
      been made by a court of competent jurisdiction against the occupier of
    those premises in proceedings                                                                                                                                                                                      

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|    | brought against
        that person by any water undertaker but the charges remain unpaid for
        any reason (other than by virtue of compliance with the terms of that
        order) sub-paragraph (2) shall not apply and the supply of water to those
    premises may be disconnected without court proceedings being taken.                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|7.5 | Before a supply
        of water to domestic premises is disconnected in accordance with the
        procedure adopted by the Appointee under this paragraph the Appointee
        should make reasonable attempts to contact the occupier with a view to
        agreeing a payment arrangement, failing which arrangement the Appointee
    should give notice of disconnection.                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|7.6 | In this paragraph
        references to a supply of water being disconnected include references
        to the disconnection of a service pipe which for the purposes of providing
        a supply of water to the premises in question is connected with any water
        main of the Appointee and to a supply of water to those premises being
    otherwise cut off.                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|7.7 | For the purposes
        of this
paragraph "notice" means a notice served in accordance with section 187 (section
216 of the 1991 Act).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|8.  | The Appointee shall
        inform the Customer Service Committee of the number of domestic premises
        in respect of which the supply of water has been disconnected for non-payment
        of charges during each consecutive period of six months, commencing with
        the period of six months starting on the transfer date. Such information
        shall be provided within one month of the expiry of the period to which
        it relates and shall show separately the number of such premises in each
        part of the Area which is administered by the Appointee as an operating
    division, or equivalent, of the Appointed Business.

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Condition I : Code of
Practice and Procedure on Leakage

|1. | In this Condition"supply
          pipe"means
    that part of the service pipe for which the owner is responsible.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|2. | The Appointee shall
        within two months after the transfer date prepare and submit to the Director
        for his approval a Code of Practice concerning liability for charges
        of domestic customers occupying metered premises where there is an unidentified
        leak on the supply pipe. The Code shall contain information as to the
        procedures described in paragraph 8 and such other information as the
    Appointee considers appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3. | 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 been operated, with a view to
        determining whether any modification should be made to it or the manner
    of its operation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4. | In carrying out
        any review of, or making any substantive revision of, the Code or its
        operation (whether under paragraph 3 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|5. | 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 4, it wishes to make.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|6. | 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 of the date on which the Code or, as the case may be, the
        relevant revision is submitted to him under paragraph 2 or, as the case
        may be, under paragraph 5 as a condition of approving the Code under
        paragraph 2 or, as the case may be, approving any revision of the Code
        under paragraph 5, being such modifications as in the Director's opinion
        are necessary to ensure that the Code contains the information required
        by paragraph 2. 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|7. | The Appointee shall:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |     |                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 which are fixed by reference to volume, 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                                                                                                                  

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|    | (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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | such further Information
        as the Director reasonably requires in respect of the quality of Services;
    and                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Information in respect
        of the quality of Services in respect of any reasonable period other
        than a Charging Year and/or more frequently than once in a Charging Year
        (but not more frequently than is reasonable) as may be specified by the
        Director. Such Information, at the Appointee's option, may consist of
        updating Information previously furnished to the Director under sub-paragraph
    1.1, 1.2 or 1.3(1).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|             | (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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|              | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|               | 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. |                                                                                                                                                                                                                                                                                                                                                   
|               |                                                                                                                                                                                                                                                                                                                                                   
|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:                                      

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| | (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.                                                                             
| |     |                                                                                                                                                                                                                                                                                   

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|Condition
          K: "Ring Fencing", and
Disposals of Land 
(made on 27/03/1996- effective 01/04/1996)
|--------------------------------------------------------------------------------------------------------
|                                                                                                        
|1.                                                                                                      
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|2.                                                                                                      
|                                                                                                        
|2.1                                                                                                     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        

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|    | "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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | "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.

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|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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|3.3 | Where
        any such rights and assets as are mentioned in sub-paragraph 3.1 are
        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:                                                                                                                                                                                                                                                                                                                                               

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| | (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)                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| | (i)                                                                                                                                           | such protected land; and                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| | (ii)                                                                                                                                          | all other land contiguous or adjacent to such protected land in or over 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 any interest or right and 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;
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                               | (b)                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                               | (c)                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                               | (d)                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| | (i)                                                                                                                                           | the
    consideration to be received or expected to be received; and                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| | (ii)                                                                                                                                          | separately, any other value which, in the reasonable opinion of the Appointee, is to be received or derived, or expected to be received or derived                                                                                                                                                                                                                                                   
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| | in
      each case from or in connection with the proposed disposal by the Appointee
    and the timing of the receipt or derivation thereof;
| |                                                                                                                                              
| |                                                                                                                                               | (e)                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                               | (f)                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                               | (g)                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                      

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                        | (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).

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|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|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)                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            
|    | (2)                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                            
|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:                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                            

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|    |                                                        | (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                                                                                                                                                                                                                      

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|    | (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.



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|Condition
      L : Underground Asset Management Plans
|------------------------------------------------------
|                                                      
|1.                                                    
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      



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|    |                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                     | 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.                                                                                                                                                                                     

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|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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 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                                                                                                                                                                                                                                                                                                       

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|                                                                                                                                                                                                                                                                                                        | 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.



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|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                                                                                                                                                                                                                                                                                                                                                                                                                          



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| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|Condition N: Fees
        (revised with effect from 1 April 1993(as amended in respect of subparagraphs
        3.1 and 3.2, (and protocol) in accordance with the Secretary of States
    approval, dated 1999/2000
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                     
|1.                                                                                                                                                                                                                   
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|2.                                                                                                                                                                                                                   
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     
|                                                                                                                                                                                                                     

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|    | (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; and                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | (7)                                                                                                                                                                                                                                                                                                                                                            | where the Director
        so determines, on 1st January in any year, a special 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 the amount, if any, by which the aggregate of the costs estimated
        by the Director to have been already incurred in that Charging Year and
        to be incurred in the remainder of that Charging Year by the Director
        in the regulation and enforcement of appointments made under Chapter
        I of Part II of the Act (including the Appointments) and in the carrying
        out of his other functions under the Act, including payments made by
        him under Schedule 4 [Schedule 4 of the Act] (schedule 4 of the 1991
    Act), exceeds the aggregate of:
|    |                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                | subject to his
        apportioning the special fee, according to the nature of the costs intended
        to be covered by it, between the renewal fee, the additional fee and
    the amounts referred to in paragraph (b).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|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 1st April 1993 (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 of September 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,

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|                                                                                                                                                                                                                                                                                                                            | "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 exceed a
        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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                            | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                            | 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.

N3

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PROTOCOL FOR THE APPLICATION OF LICENCE CONDITION N3.2:

Condition N places limits on the fees which the Director General can levy to cover expenditure on a Periodic Review.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.

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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  | = | Total additional
    fees incurred before the Periodic Review Year;                                                                              
|--- | - | -------------------------------------------------------------------------------------------------------------------------------------------------
|    |   |                                                                                                                                                  
|PRY | = | The total renewal
        fee
charged in the Periodic Review Year;                                                                               
|    |   |                                                                                                                                                  
|Y   | = | X per paragraph
        3.1 plus 0.1% of the average annual turnover of the five years concluding
        with the
previous Periodic Review Year.

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      | 0.29  |  | 0.60  |  | 0.91  |  | 1.23  |  | 1.56  | 
| | annum £m             |       |  |       |  |       |  |       |  |       | 
| |                      |       |  |       |  |       |  |       |  |       | 
| | 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          |       |  |       |  |       |  |       |  | 1.2   | 
| | Periodic Review year |       |  |       |  |       |  |       |  |       | 
| |                      |       |  |       |  |       |  |       |  |       | 
| | 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 million    
|  |                                                                                                                                                                                                                                                                           
|  | 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.

N5

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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]

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O2

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|Condition
    P: The Role of United Utilities
as owner of North West Water Ltd
|------------------------------------------------------------------------------
|                                                                              
|1(1)                                                                          
|                                                                              
|1(2)                                                                          
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|2                                                                             
|                                                                              
|3                                                                             
|                                                                              
|4                                                                             
|                                                                              
|                                                                              
|                                                                              
|                                                                              

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P4

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|                                                                                                      |                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                        
|----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                                                                                                                                                                                                                                   | the amount of water charges
        payable by that customer for the supply of water to those premises for
        the Charging Year preceding that in which the interruption or cut-off
    happens or



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| |       |                                                                                                                                                                                                                                                          | (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

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| |  |                                                                                                                                                                                                                                                               |  | 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| |  | 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.                                                                                                                                                                                                                               

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Q4

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Guide to Defined Terms 1.     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 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                              |                              |                           

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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), s167&
      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, para12(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    
|                        |                      |                                

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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

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