Trust Deed YED

TERMS AND CONDITIONS OF THE BONDS

The £200,000,000 5.125 per cent. Bonds due 2035 (the "Bonds", which expression shall, unless the context otherwise requires, include any Further Bonds (as defined in Condition 3 (Definitions)) of Yorkshire Electricity Distribution plc (the "Issuer") are constituted by and subject to a trust deed dated 5 May 2005 (as the same may be amended and/or supplemented from time to time, the "Trust Deed") between the Issuer, Ambac Assurance UK Limited ("Ambac") and HSBC Trustee (C.I.) Limited (the "Trustee", which expression shall, wherever the context so admits, include its successors as trustee under the Trust Deed) as trustee for the holders of the Bonds (the "Bondholders"). The Bonds are unconditionally and irrevocably guaranteed as to scheduled payments of principal and interest and in respect of certain additional amounts in respect of United Kingdom withholding taxes pursuant to a financial guarantee dated 5 May 2005 (the "Financial Guarantee") issued by Ambac to the Trustee. The statements in these Terms and Conditions include summaries of and are subject to, the detailed provisions of the Trust Deed. Copies of the Trust Deed and the Paying Agency Agreement dated 5 May 2005 (the "Paying Agency Agreement") between the Issuer, Ambac, the Paying Agents referred to below and the Trustee will be available for inspection by Bondholders and the holders of the interest coupons appertaining to the Bonds (respectively, the "Couponholders" and the "Coupons") at the registered office for the time being of the Trustee, being as of the date hereof at 1 Grenville Street, St. Helier, Jersey, JE4 9PF and at the specified office(s) of each of the Paying Agents. The Bondholders and the Couponholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the provisions of the Paying Agency Agreement applicable to them.

1.	Form, Denomination and Title

The Bonds are serially numbered and in bearer form in the denominations of £50,000 and £100,000 each with Coupons and talons (each, a "Talon") for further Coupons attached on issue, and title thereto and to the Coupons and Talons will pass by delivery. Bonds of one denomination may not be exchanged for Bonds of the other denomination. The holder of any Bond, Coupon or Talon will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust, or any interest in it, any writing on it, or its theft or loss) and no person will be liable for so treating the holder. No person shall have any right to enforce any term or condition of the Bonds or the Trust Deed under the Contracts (Rights of Third Parties) Act 1999.

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2.	Status and Financial Guarantee

(a)

Status of the Bonds

The Bonds and Coupons constitute direct, unconditional and (subject to the provisions of Condition 4 (Negative Pledge)) unsecured obligations of the Issuer and rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Bonds and the Coupons shall, subject as aforesaid and save for such obligations as may be preferred by laws that are mandatory or of general application, at all times rank at least equally with all its present and future unsecured and unsubordinated obligations.

(b)

Financial Guarantee

The Bonds have the benefit of the Financial Guarantee which has been issued by Ambac pursuant to a reimbursement and indemnity agreement to be dated on or about the Issue Date (as defined below) between the Issuer and Ambac (the "Reimbursement and Indemnity Agreement"). Pursuant to the Financial Guarantee, Ambac has unconditionally and irrevocably agreed to pay to the Trustee all sums due and payable but unpaid by the Issuer in respect of Scheduled Principal and Scheduled Interest (each as defined in these Conditions) (but excluding Default Interest (as defined in Condition 5 (Interest))) on the Bonds, all as more particularly described in the Financial Guarantee.

The terms of the Financial Guarantee provide that amounts of principal of any Bonds which have become immediately due and payable (whether by virtue of acceleration, prepayment or otherwise) other than on the final maturity date will not be treated as Guaranteed Amounts (as defined in Condition 3 (Definitions)) which are Due for Payment (as defined in Condition 3 (Definitions)) unless Ambac in its sole discretion elects to do so by notice in writing to the Issuer and the Trustee. If no such election is made, Ambac will continue to be liable to make payments in respect of the Bonds pursuant to the Financial Guarantee on the dates on which such payments would have been required to be made if such amounts had not become immediately due and payable.

To the extent that the Redemption Price (as defined in Condition 7 (Redemption and Purchase)) payable on any early redemption of the Bonds exceeds the outstanding principal amount of any Bonds to be redeemed, payment of the excess is not guaranteed by Ambac under the Financial Guarantee.

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(c)

Status of Financial Guarantee

The Financial Guarantee provided by Ambac constitutes a direct, unsecured obligation of Ambac which will rank at least pari passu with all other unsecured obligations of Ambac, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.

(d)

Subrogation of Ambac

The Trust Deed and the Financial Guarantee provide that Ambac shall be subrogated to any rights of the Bondholders and/or the Couponholders (as applicable) against the Issuer in respect of amounts due under the Bonds which have been paid by Ambac under the Financial Guarantee.

3.	Definitions

"Ambac Event of Default" means any of the events set out in Condition 12 (Ambac Events of Default).

"Auditors" means the auditors for the time being of the Issuer or, in the event of their being unable or unwilling to carry out any action requested of them pursuant to the terms of the Trust Deed, such other firm of internationally recognised chartered accountants as the Issuer may select for the purpose.

"Business Day" means any day (other than a Saturday or Sunday) on which banks and other financial institutions are open for business in London.

"Calculation Date" means each of 30 June and 31 December in any year save that the first Calculation Date shall be 31 December 2005.

"Capital Investment" means expenditure of a capital nature.

"Capitalised Lease Obligations" means all lease obligations of the Issuer and its Subsidiaries which, under UK GAAP, are or will be required to be capitalised, in each case taken at the amount thereof accounted for as indebtedness in conformity with such principles.

"Cash Equivalents" means investments in sterling demand or time deposits, certificates of deposit and short term debt obligations (including commercial paper), synthetic sterling deposits, shares in money market liquidity funds or a guaranteed investment contract, provided that in all cases such investments have a maturity of not longer than nine months from the date of their acquisition subject to meeting the following credit criteria: (1) money market funds with a minimum credit rating of AAA or equivalent from any two Rating Agencies (or, in the case of shares in money market liquidity funds, from any single Rating Agency); (2) all other counterparties and other specific instruments with a minimum short term credit rating of A-1 from S&P or of P-1 from Moody's.

"Companies Act" means the Companies Act 1985 as amended or re-enacted from time to time and all subordinate legislation made pursuant thereto.

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"Controlling Party" at any time means Ambac unless an Ambac Event of Default has occurred and is continuing in which event, "Controlling Party" shall mean the Trustee.

"Currency or Interest Rate Agreement" means an agreement or transaction involving any currency or interest rate swap, cap or collar arrangement, forward exchange transaction, option, warrant, forward rate agreement, futures contract or other derivative instrument of any kind for the hedging or management of foreign exchange or interest rate risks.

"Distribution" means any dividend, distribution or payment (including by way of redemption, repurchase, retirement, return or repayment) in respect of the share capital of the Issuer.

"Due for Payment" means, in relation to principal or interest, that the Scheduled Payment Date for such amount has been reached. For the avoidance of doubt, "Due for Payment" does not refer to any earlier date upon which payment of any principal or interest may become due under the Bonds by reason of prepayment, acceleration of maturity or otherwise.

"EBIT" means, for the Relevant Period, the profit shown in the financial statements of the Issuer for that Relevant Period on the line entitled "profits on ordinary activities before interest":

(i)	before taking into account any items treated as exceptional items;

(ii)	after deducting the amount of any profit of any member of the Group which is attributable to minority interests;

(iii)

after deducting the amount of any profit of any investment or entity (which is not itself a member of the Group) in which any member of the Group has an ownership interest to the extent that the amount of such profit included in the Issuer's financial statements exceeds the amount (net of applicable withholding tax) received in cash by members of the Group through distributions by such investment or entity;

(iv)	before taking into account any realised and unrealised exchange gains and losses including those arising on translation of currency debt;

(v)	before taking into account any gain or loss arising from an upward or downward revaluation of any asset,

in each case, to the extent added, deducted or taken into account, as the case may be, for the purposes of determining profits of the Issuer from ordinary activities before taxation (and without double counting).

"Electricity Act" means the Electricity Act 1989 as amended or re-enacted from time to time and all subordinate legislation made pursuant thereto.

"Electricity Distribution Licence" means the electricity distribution licence granted or treated as granted to the Issuer under section 6(1)(c) of the Electricity Act.

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"Energy Act" means the Energy Act 2004 as amended or re-enacted from time to time and all subordinate legislation made pursuant thereto.

"Energy Administrator" means a special energy administrator appointed pursuant to Part 3 of the Energy Act.

"Exchange Act" means the United States Securities Exchange Act of 1934, as amended.

"Existing Negative Pledge" means the obligations contained in Condition 5 of the terms and conditions of Yorkshire Electricity Distribution plc's £200,000,000 9.25 per cent. Guaranteed Bonds due 2020.

"Final Proposals" means the final proposals document published by OFGEM for each electricity distribution price control review.

"Financial Indebtedness" means, at any time, the outstanding principal, capital or nominal amount and any fixed or minimum premium payable on prepayment or redemption of any indebtedness for or in respect of:

(i)	moneys borrowed and debit balances with financial institutions;

(ii)	any amount raised by acceptance under any acceptance credit facility;

(iii)

any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(iv)	the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with UK GAAP, be treated as a finance or capital lease;

(v)	receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

(vi)	any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution (excluding any given in respect of trade credit arising in the ordinary course of business);

(vii)

any amount raised by the issue of redeemable shares which are redeemable prior to 4 May 2035;

(viii)

any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; and

(ix)	(without double counting) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (i) to (viii) above.

"Further Bonds" means all further bonds created and issued by the Issuer in accordance with Condition 20 (Further Bonds) and/or the time being outstanding or, as the context may require, a specific proportion thereof.

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"GIC" means (i) the investment agreement dated on or about 28 April 2005 between Ambac Capital Funding Inc, Ambac Assurance UK Limited and the Issuer and (ii) any other guaranteed investment contract or similar investment agreement with a maturity of 60 months or less from the date of purchase and which is provided by a counterparty which has or whose obligations under such guaranteed investment contract or other agreement are guaranteed by an entity that has a credit rating of at least AA- from S&P and Aa3 from Moody's.

"Group" means the Issuer and its Subsidiaries and "member of the Group" shall be construed accordingly.

"Guaranteed Amounts" means, with respect to any Scheduled Payment Date, the sum of (i) the interest (calculated in accordance with Condition 5 (Interest)) due on the Bonds as of such Scheduled Payment Date and (ii) the principal due on the Bonds on such Scheduled Payment Date (net of any amount of premium or of such principal in excess of par).

"Incur" means, with respect to any Indebtedness, to incur, create, issue, assume or guarantee such Indebtedness.

"Indebtedness" means, for the purposes of Condition 10(a)(iii) only, with respect to the Issuer or any of its Subsidiaries at any date of determination (without duplication), (i) all Indebtedness for Borrowed Money, (ii) all obligations in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iii) all obligations to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except trade payables, (iv) all Capitalised Lease Obligations, (v) all indebtedness of other persons secured by a mortgage, charge, lien, pledge or other security interest on any asset of the Issuer or any of its Subsidiaries, whether or not such indebtedness is assumed; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of the secured indebtedness, (vi) all indebtedness of other persons of the types specified in the preceding clauses (i) to (v) to the extent such indebtedness is guaranteed by the Issuer or any of its Subsidiaries, and (vii) to the extent not otherwise included in this definition, obligations under Currency or Interest Rate Agreements. The amount of Indebtedness at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, upon the occurrence of the contingency giving rise to the obligation, the maximum liability of any contingent obligations of the types specified in the preceding clauses (i) to (vii) at such date; provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortised portion of the original issue discount of such Indebtedness at such time as determined in conformity with UK GAAP.

"Indebtedness For Borrowed Money" means any indebtedness (whether being principal, premium, interest or other amounts) for (i) money borrowed, (ii) payment obligations under or in respect of any acceptance or acceptance credit, or (iii) any notes, bonds, debentures, debenture stock, loan stock or other debt securities offered, issued or distributed whether by way of public offer, private placing, acquisition consideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash.

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"Interest Cover" means, in respect of any Relevant Period, the ratio of EBIT for that Relevant Period to Net Finance Charges for that Relevant Period.

"Investment Grade Rating" means a credit rating assigned by a Rating Agency of BBB- (in the case of such ratings assigned by S&P) or Baa3 (in the case of such ratings assigned by Moody's) or the equivalents of such ratings for the time being, or better.

"Issue Date" means 5 May 2005.

"Issuer Event of Default" means any of the events set out in Condition 11 (Issuer Events of Default).

"Moody's" means Moody's Investors Service, Inc.

A "Negative Rating Event" shall be deemed to have occurred if (i) the Issuer does not, either prior to or no later than 14 days after the date of a Negative Certification (as defined in Condition 13 (Restructuring Event)) in respect of the relevant Restructuring Event, seek, and thereupon use all reasonable endeavours to obtain, from a Rating Agency, a rating of the Reference Rated Securities or these Bonds or any other unsecured and unsubordinated debt of the Issuer having an initial maturity of five years or more or (ii) if it does so seek and use such endeavours, it is unable, as a result of such Restructuring Event, to obtain such a rating which is an Investment Grade Rating.

"Net Finance Charges" means, for any Relevant Period, the aggregate amount of interest paid on Senior Total Net Debt (net of interest received and after taking account of payments made and amounts received under any derivatives related to such Senior Total Net Debt) in respect of that Relevant Period.

"OFGEM" means the Gas and Electricity Markets Authority and/or the Office of Gas and Electricity Markets, including their successor office or body, as appropriate.

"Permitted Financial Indebtedness" means each and all of the following:

(i)	Financial Indebtedness of the Issuer under the Bonds;

(ii)	Financial Indebtedness of the Issuer outstanding on the Issue Date and not otherwise referred to in this definition of "Permitted Financial Indebtedness";

(iii)

Financial Indebtedness which cannot and shall not be accelerated and/or repaid if any Issuer Event of Default has occurred and, in each case, is continuing;

(iv)	Financial Indebtedness owed by one member of the Group to another member of the Group; and

(v)	Financial Indebtedness of the Issuer from time to time which does not exceed an aggregate working capital amount of £75,000,000 (or the equivalent amount in one or more currencies).

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"Potential Issuer Event of Default" means an event or circumstance which would with the giving of notice and/or lapse of time and/or the issuing of a certificate become an Issuer Event of Default.

A "Put Event" occurs on the date of the last to occur of (i) a Restructuring Event, (ii) either a Rating Downgrade or, as the case may be, a Negative Rating Event, and (iii) the relevant Negative Certification.

"Rating Agency" means each of S&P and Moody's.

A "Rating Downgrade" shall be deemed to have occurred if the then current rating assigned to any Reference Rated Securities by both Rating Agencies (whether provided by a Rating Agency at the invitation of the Issuer or by its own volition) is withdrawn or reduced from an Investment Grade Rating to a non-Investment Grade Rating (BB+/Ba1, or their respective equivalents for the time being, or worse) or, if both Rating Agencies shall then have already assigned a non-Investment Grade Rating (as described above) to either of the Reference Rated Securities, both such ratings are lowered one full rating category.

"Reference Gilt" means, on any day, such sterling obligation of the United Kingdom Government listed on the Official List maintained by the Financial Services Authority in its capacity as the UK Listing Authority and traded on London Stock Exchange plc's market for listed securities whose duration most closely matches that of the Bonds on such day as the Trustee may from time to time determine to be appropriate on the advice of a gilt-edged market maker or other adviser selected by the Issuer and approved by the Trustee or in the event that the Issuer fails to select such person within a reasonable period of time, such person as the Trustee in its sole discretion may determine to be the most appropriate; and for which purpose duration shall mean Macauley Duration calculated on the basis of the formula set out on page 119 of The Handbook of Fixed Income Securities Second Edition 1987, published by Dow Jones-Irwin.

"Reference Rated Securities" means the £200,000,000 9.25 per cent. Guaranteed Bonds due 2020 of Yorkshire Electricity Distribution plc if at any time and for so long as they shall be outstanding and have a rating from a Rating Agency, and otherwise any other unsecured and unsubordinated debt of the Issuer having an initial maturity of five years or more which is rated by a Rating Agency.

"Regulated Asset Value" or "RAV" means the regulatory asset value of the Issuer, as set out in the most recent Final Proposals, adjusted for inflation, as of the 31 March nearest to the date on which the Issuer proposes to incur any further Financial Indebtedness other than Permitted Financial Indebtedness or to make any Distribution, provided that there shall be included in any determination of RAV the value of any assets which were included in RAV as at 31 March 2005 but which (i) subsequently are excluded from RAV by OFGEM, (ii) have become subject to a separate price control arrangement, and (iii) are still owned by the Issuer as of the date of determination of RAV, and provided further that if at any time OFGEM alters its methodology of determining RAV in a manner which results in a change in RAV, the Issuer and Ambac shall promptly in good faith negotiate appropriate adjustments to this definition (and to other terms defined or described herein solely for the purposes of this definition) so that the original intent of the undertakings set forth in Conditions 10(c), 10(d) and 10(e) is preserved and in the absence of agreement between the Issuer and Ambac within 60 days, such adjustments shall be determined by an independent accountant experienced in the regulated electricity distribution market selected by the Issuer.

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"Reimbursement and Indemnity Agreement" means the agreement so named between the Issuer and Ambac dated 5 May 2005.

"Relevant Indebtedness" means any indebtedness (whether being principal, premium, interest or other amounts) in the form of or represented by notes, bonds, debentures, debenture stock, loan stock or other securities, whether issued for cash or in whole or in part for a consideration other than cash, and which, with the agreement of the person issuing the same, are quoted, listed or ordinarily dealt in on any stock exchange or recognised over-the-counter or other securities market.

"Relevant Period" means each period of twelve months ending on a Calculation Date.

"Restructuring Event" means the occurrence of any one or more of the following events:

(i)

(a) written notice being given to the Issuer of revocation of its Electricity Distribution Licence which is requisite to the conduct of the Issuer's business at the relevant time or (b) the Issuer agreeing in writing to any revocation or surrender of its Electricity Distribution Licence which is requisite to the conduct of the Issuer's business at the relevant time or (c) any legislation (whether primary or subordinate) being enacted terminating or revoking its Electricity Distribution Licence which is requisite to the conduct of the Issuer's business at the relevant time, except in any such case in circumstances where a licence or licences, is or are granted to the Issuer or a Subsidiary of the Issuer 100% of the ordinary share capital of which is owned directly or indirectly by the Issuer (the "Relevant Transferee") and provided that the terms of such licence or licences are substantially no less favourable than the Electricity Distribution Licence in which event all references in these Terms and Conditions to the Electricity Distribution Licence and the Issuer in its capacity as holder of the Electricity Distribution Licence shall hereafter be deemed to be references to the licence or licences on substantially no less favourable terms and the Relevant Transferee respectively; or

(ii)

any modification (other than a modification which is of a formal, minor or technical nature) being made to the terms and conditions of the Electricity Distribution Licence on or after the Issue Date unless two Directors of the Issuer have certified in good faith to the Trustee that the modified terms and conditions are not materially less favourable to the business of the Issuer. For the purposes of this paragraph (ii) a modification which (a) results in a licence or licences being granted to the Issuer or a Subsidiary of the Issuer 100% of the ordinary share capital of which is owned directly or indirectly by the Issuer (collectively, the "Applicable Transferees") and provided that the terms of such licence are substantially no less favourable than the terms of the Electricity Distribution Licence or (b) results in a licence or licences being granted to an Applicable Transferee provided that the terms of such licence are substantially no less favourable than the terms of the Electricity Distribution Licence, shall not be deemed to be a modification within this paragraph (ii). In the event of such a modification as is referred to in (a) or (b), all references in these Terms and Conditions to the Electricity Distribution Licence and the Issuer in its capacity as holder of the Electricity Distribution Licence shall thereafter be deemed to be references to the licence or licences granted to the Applicable Transferee and to the Applicable Transferee, respectively; or

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(iii)

any legislation (whether primary or subordinate) is enacted which removes, qualifies or amends (other than an amendment which is of a formal, minor or technical nature) the duties of the Secretary of State for Trade and Industry (or any successor) and/or OFGEM under of the Electricity Act as in force on the Issue Date, unless two Directors of the Issuer have certified in good faith to the Trustee that such removal, qualification or amendment does not have a materially adverse effect on the financial condition of the Issuer.

"Restructuring Period" means:

(i)	if at the time a Restructuring Event occurs there are Reference Rated Securities, the period of 90 days starting from and including the day on which the Restructuring Event occurs; or

(ii)

if at the time a Restructuring Event occurs there are not Reference Rated Securities, the period starting from and including the day on which the Restructuring Event occurs and ending on the day 90 days following the later of (a) the date on which the Issuer shall seek to obtain a rating pursuant to the definition of Negative Rating Event prior to the expiry of the 14 days referred to in the definition of Negative Rating Event and (b) the date on which a Negative Certification shall have been given to the Issuer in respect of the Restructuring Event.

"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.

"Scheduled Payment Date" means (i) with respect to interest on the Bonds, each Interest Payment Date (as defined in Condition 5 (Interest)) and (ii) with respect to principal of the Bonds, 4 May 2035.

"Security Interest" means a mortgage, charge, lien, pledge or other security interest.

"Senior Total Net Debt" means, at any time, the aggregate amount of all obligations of the Issuer for or in respect of Financial Indebtedness which ranks at least pari passu with the Bonds but:

(i)	deducting the aggregate amount of all obligations of the Issuer in respect of Financial Indebtedness to the extent that the repayment or redemption of such Financial Indebtedness is provided for by the purchase by CE Electric UK Funding Company or any of its Subsidiaries of a GIC; and

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(ii)	deducting the aggregate amount of freely available cash and Cash Equivalents held by the Issuer or any of its Subsidiaries at such time,

and so that no amount shall be excluded more than once.

"Subsidiary" means a subsidiary or subsidiary undertaking within the meaning of the Companies Act.

"UK GAAP" means generally accepted accounting principles in the United Kingdom.

"Utilities Act" means the Utilities Act 2000 as amended or re-enacted from time to time and all subordinate legislation made pursuant thereto.

4.	Negative Pledge

So long as any of the Bonds remain outstanding (as defined in the Trust Deed), the Issuer will ensure that none of its Relevant Indebtedness or the Relevant Indebtedness of any of its Subsidiaries nor any guarantee given by it or by any of its Subsidiaries of the Relevant Indebtedness of any other person will be secured by a Security Interest upon, or with respect to, any of the present or future business, undertaking, assets or revenues (including any uncalled capital) of the Issuer or any of its Subsidiaries unless the Issuer shall, before or at the same time as the creation of the Security Interest, take any and all action necessary to ensure that:

(a)

all amounts payable by the Issuer under the Bonds, the Coupons, the Trust Deed and the Reimbursement and Indemnity Agreement are secured to the satisfaction of the Controlling Party equally and rateably with the Relevant Indebtedness or guarantee of Relevant Indebtedness, as the case may be, by such Security Interest; or

(b)

such other Security Interest or guarantee or other arrangement (whether or not including the giving of a Security Interest) is provided in respect of all amounts payable by the Issuer under the Bonds, the Coupons, the Trust Deed and the Reimbursement and Indemnity Agreement either (i) as the Trustee shall in its absolute discretion deem not materially less beneficial to the interests of the Bondholders, or (ii) as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders, and (iii) (in either case) as Ambac shall in its absolute discretion deem not materially less beneficial to the interests of Ambac.

5.	Interest

The Bonds bear interest ("Scheduled Interest") from (and including) the Issue Date at the rate of 5.125 per cent. per annum payable annually in arrear on 4 May in each year (each, an "Interest Payment Date"). There will be a short first coupon in respect of the period from (and including) 5 May 2005 to (but excluding) 4 May 2006. Each Bond will cease to bear Scheduled Interest from the due date for redemption thereof, unless upon due presentation, payment of principal or premium (if any) is improperly withheld or refused. In such event, each Bond shall continue to bear interest ("Default Interest") at such rate (both before and after judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Bond up to that day are received by or on behalf of the relevant holder and (ii) the day falling seven days after the Trustee or the Principal Paying Agent has notified Bondholders in accordance with Condition 17 (Notices) of receipt of all sums then due in respect of all the Bonds up to that seventh day (except to the extent that there is failure in the subsequent payment to the relevant holder under these Terms and Conditions). If Scheduled Interest or Default Interest is required to be calculated for a period of less than one year, it will be calculated on the basis of a 360 day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed.

Default Interest does not accrue on Default Interest. The payment of Default Interest is not guaranteed under the Financial Guarantee.

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6.	Payments

Payments of principal, premium (if any) or interest in respect of the Bonds will be made against surrender of Bonds or, in the case of payments of interest due on an Interest Payment Date, against surrender of Coupons, at the specified office of any Paying Agent by a sterling cheque drawn on, or at the option of the holder, by transfer to a sterling account maintained by the payee with a branch of a bank in the City of London, subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 8 (Taxation).

Upon the due date for redemption of any Bond, all unmatured Coupons and Talons relating to such Bond (whether or not attached) shall become void and no payment shall be made in respect of them. Where any Bond is presented for redemption without all unmatured Coupons and/or Talons relating to it, redemption shall be made only against the provision of such indemnity as the Issuer and Ambac may require.

If the due date for redemption of any Bond is not 4 May in any year, interest accrued in respect of such Bond from (and including) the last preceding 4 May will be paid only against presentation and surrender of such Bond.

If the due date for payment of any amount in respect of any Bond or Coupon is not a business day, then the holder thereof shall not be entitled to payment of the amount due until the next following business day nor to any further interest or other payment in respect of such delay. The expression "business day" in this Condition means a day other than a Saturday or Sunday on which banks are open for business in the place where the Bond or Coupon is presented and, in the case of payment by transfer to a sterling account as referred to above, in the City of London.

The names of the initial Principal Paying Agent and the other initial Paying Agents and their initial specified offices are set out at the end of these Terms and Conditions. The Issuer reserves the right, subject to the prior written approval of the Trustee and the Controlling Party, at any time to vary or terminate the appointment of any Paying Agent and to appoint additional or other Paying Agents provided that the Issuer will at all times maintain (a) a principal paying agent, (b) a paying agent in London and (c), if European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000 is brought into force, a paying agent in a member state of the European Union that will not be obliged to withhold or deduct tax pursuant to such Directive or any law implementing or complying with, or introduced to conform to, such Directive. Notice of any such termination or appointment and of any changes in the specified offices of the Paying Agents will be given to the Bondholders in accordance with Condition 17 (Notices) as soon as practicable thereafter. Under no circumstances will interest be payable in the United States of America or any possession of the United States of America.

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On or after the maturity date of the final Coupon which is (or was at the time of issue) part of a coupon sheet relating to the Bonds (each, a "Coupon Sheet"), the Talon forming part of such Coupon Sheet may be exchanged at the specified office of the Principal Paying Agent for a further Coupon Sheet (including, if applicable, a further Talon but excluding any Coupons in respect of which claims have already become void pursuant to Condition 9 (Prescription)). Upon the due date for redemption of any Bond, any unexchanged Talon relating to such Bond shall become void and no Coupon will be delivered in respect of such Talon.

7.	Redemption and Purchase

(a)	Scheduled redemption: Unless previously redeemed, or purchased and cancelled, the Issuer will redeem the Bonds on 4 May 2035 at their outstanding principal amount (the "Scheduled Principal").

(b)

Redemption at the option of the Issuer: The Issuer may, having given not less than 30 nor more than 45 days' notice in accordance with Condition 17 (Notices) (which notice shall be irrevocable), redeem the whole or part (in principal amount of £5,000,000 or integral multiples thereof) of the Bonds at any time prior to 4 May 2035 at a price which shall be the higher of the following (the "Redemption Price"), together with Scheduled Interest accrued up to and including the date of redemption:

(i)

par; and

(ii)

that price, expressed as a percentage (rounded to three decimal places, 0.0005 being rounded upwards), at which the Gross Real Redemption Yield (calculated as described below) on the Bonds, if they were to be purchased at such price on the third dealing day prior to the due date for redemption, would be equal to the Gross Real Redemption Yield on such dealing day of the Reference Gilt, on the basis of the middle market price of the Reference Gilt prevailing at 11:00 a.m. on such dealing day, as determined by The Royal Bank of Scotland plc (or such other person as the Trustee may approve).

Any reference in these Terms and Conditions to principal shall be deemed to include any sum payable as the Redemption Price.

Notices of redemption will specify the date fixed for redemption, the applicable Redemption Price and, in the case of partial redemption, the aggregate principal amount of the Bonds to be redeemed, the serial numbers of the Bonds called for redemption, the serial numbers of the Bonds previously called for redemption and not presented for payment and the aggregate principal amount of the Bonds to remain outstanding after the redemption. No such notice of redemption may be given by the Issuer unless it shall have presented to the Trustee a certificate signed by two Directors of the Issuer (upon which the Trustee may rely absolutely) that it will have the funds, not subject to the interest of any other person, required to redeem the Bonds at the Redemption Price plus accrued interest on the date specified for redemption. Upon the expiry of any notice of redemption the Issuer shall be bound to redeem the Bonds called for redemption at the applicable Redemption Price. Any partial redemption of the Bonds shall be on the basis of selection by drawings (the method of such drawings to be approved by the Trustee in its absolute discretion).

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"Gross Real Redemption Yield" means a yield expressed as a percentage and calculated on a basis consistent with the basis indicated by the United Kingdom Debt Management Office publication "Formulae for calculating Gilt Prices from Yields" published on 8 June 1998 with effect from 1 November 1998, page 5.

(c)

Redemption for tax reasons: If, as a result of any change in, or amendment to, the laws or regulations of the United Kingdom or any political sub-division of, or any authority in, or of, the United Kingdom having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective after 29 April 2005, the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 8 (Taxation) (and such amendment or change has been evidenced by the delivery by the Issuer to the Trustee and Ambac (who shall, in the absence of manifest error, accept such certificate as sufficient evidence thereof) of a certificate signed by two Directors of the Issuer stating that such amendment or change has occurred (irrespective of whether such amendment or change is then effective), describing the facts leading thereto and stating that such obligation cannot be avoided by the Issuer taking reasonable measures available to it) the Issuer may at its option, having given not less than 30 nor more than 60 days notice to the Bondholders in accordance with Condition 17 (Notices) (which notice shall be irrevocable), redeem all the Bonds (other than Bonds in respect of which the Issuer shall have given a notice of redemption pursuant to Condition 7(b) (Redemption at the option of the Issuer) prior to any notice being given under this Condition 7(c)), but not some only, at their outstanding principal amount together with interest accrued to (but excluding) the date of redemption, provided that no notice of redemption shall be given earlier than 90 days before the earliest date on which the Issuer would be required to pay the additional amounts were a payment in respect of the Bonds then due and provided further that no notice of redemption may be given by the Issuer unless two Directors of the Issuer shall have certified to the Trustee that it will have the funds, not subject to the interest of any other person, required to redeem the Bonds at their principal amounts outstanding plus accrued interest on the date specified for redemption (the Trustee being able to rely on such certificate absolutely).

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Under the terms of the Financial Guarantee, Ambac does not guarantee any of the amounts payable by the Issuer following an early redemption of the Bonds pursuant to Condition 7(b) (Redemption at the option of the Issuer) or 7(c) (Redemption for tax reasons). Ambac will not be obliged under any circumstances to accelerate payment under the Financial Guarantee; if it does so, the amount payable will be the par value of the Bonds together with accrued interest as at the date of acceleration. Any amount of principal on the Bonds in excess of par will not be guaranteed by Ambac under the Financial Guarantee.

(d)

Purchase: The Issuer may at any time purchase or otherwise acquire Bonds (provided that all unmatured Coupons and Talons are attached thereto or are surrendered therewith) at any price in the open market or otherwise. If purchases are made by tender, tenders must be available to all Bondholders alike.

(e)

Cancellation: All Bonds which are redeemed pursuant to this Condition by the Issuer shall be cancelled (together with all relative unmatured Coupons attached thereto or surrendered therewith) and accordingly may not be reissued or resold. Bonds purchased by or on behalf of the Issuer may be held or reissued or resold or surrendered for cancellation.

8.	Taxation

(a)

All payments in respect of the Bonds and Coupons by the Issuer shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature ("Taxes") imposed or levied by or on behalf of the United Kingdom, or any political subdivision of, or authority in, or of, the United Kingdom having power to tax, unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer will pay such additional amounts as may be necessary in order that the net amounts received by the Bondholders and Couponholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Bonds or, as the case may be, Coupons in the absence of the withholding or deduction; except that no additional amounts shall be payable in relation to any payment in respect of any Bond or Coupon:

(i)	to, or to a third party on behalf of, a holder who is liable to the Taxes in respect of the Bond or Coupon by reason of his having some connection with the United Kingdom other than the mere holding of the Bond or Coupon; or

(ii)	presented for payment in the United Kingdom; or

(iii)

to, or to a third party on behalf of, a holder who would not be liable or subject to the withholding or deduction by making a declaration of non-residence or other similar claim for exemption to the relevant tax authority; or

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(iv)

where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive ; or

(v)	presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Bond or Coupon to another Paying Agent in a member state of the European Union; or

(vi)	presented for payment more than 30 days after the Relevant Date except to the extent that the holder would have been entitled to additional amounts on presenting the same for payment on the last day of the period of 30 days.

(b)

In these Terms and Conditions, "Relevant Date" means the date on which the payment first becomes due, but if the full amount of the money payable has not been received in London by the Principal Paying Agent or the Trustee on or before the due date, it means the date on which, the full amount of the money having been so received, notice to that effect shall have been duly given to the Bondholders by the Issuer in accordance with Condition 17 (Notices).

(c)	Any reference in these Terms and Conditions to any amounts in respect of the Bonds shall be deemed also to refer to any additional amounts which may be payable under this Condition or under any undertakings given in addition to, or in substitution for, this Condition 8 pursuant to the Trust Deed.

Under the terms of the Financial Guarantee, Ambac does not guarantee any additional amounts payable by the Issuer under this Condition 8.

9.	Prescription

Bonds and Coupons will become void unless presented for payment within periods of ten years and five years, respectively, from the Relevant Date for payment in respect thereof, subject to the provisions of Condition 6 (Payments).

10.

Covenants by the Issuer to Ambac

The Issuer has undertaken with Ambac that so long as any of the Bonds remain outstanding and for so long as no Ambac Event of Default has occurred and is continuing (and provided that the covenants in this Condition 10 will continue where any Ambac Event of Default relating to paragraph (a)(i) of the definition of "Ambac Event of Default" is caused solely by an administrative or technical error which is cured within three Business Days of such Ambac Event of Default first arising), it will comply with certain covenants and restrictions set forth in the Trust Deed which include, inter alia, the following:

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(a)	General Covenants: It shall:

(i)	not modify or amend, or agree to any modification or amendment to the Electricity Distribution Licence without the consent of OFGEM;

(ii)

use all reasonable endeavours to procure that the underlying or shadow credit rating of the Bonds and any outstanding public long term unsecured, unguaranteed and unsubordinated debt of the Issuer are assigned Investment Grade Ratings by both Rating Agencies, and that such Investment Grade Ratings are maintained;

(iii)

not, without the prior written consent of Ambac, agree to any amendment to the provisions of the memorandum and articles of association for the time being of the Issuer that (x) restrict the activities in which any of the Issuer or any of its Subsidiaries may engage or participate in, (y) limit the disposal by any such company of any or all of its assets, revenues or properties of any nature whatsoever and (z) limit the Incurrence of Indebtedness by any such company, provided that this paragraph (iii) shall not apply to any such amendment required by OFGEM and if such amendment is required by OFGEM, the Issuer shall notify Ambac in writing as soon as practicable of such requirement;

(iv)	procure that no Security Interest is created or granted upon, or with respect to, any of the present or future ordinary shares of the Issuer or any of its Subsidiaries;

(v)	not, without the prior written consent of Ambac, modify or amend, or consent to any modification or amendment of any Existing Negative Pledge; and

(vi)	not have any subsidiary undertaking (as defined in the Companies Act), unless required to do so by OFGEM or consequent to any rule or regulation of OFGEM which is applicable to the Issuer.

(b)	Interest Cover Ratio: It will procure that:

(1)	Interest Cover for each Relevant Period ending on or prior to 31 December 2006 shall be not less than 2.00:1; and

(2)	Interest Cover for each Relevant Period ending after 31 December 2006 shall not be less than 2.50:1.

(c)	Limitation on Financial Indebtedness of the Issuer: It shall not incur any further Financial Indebtedness other than Permitted Financial Indebtedness unless the following conditions are satisfied:

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(i)	if such Financial Indebtedness is incurred:

(1)

in the period commencing on the Issue Date and ending on 30 December 2008, the ratio of Senior Total Net Debt (as at the end of the month immediately preceding the date on which the Financial Indebtedness is to be incurred and after giving effect to the gross proposed Financial Indebtedness on a pro forma basis but less cash raised to the extent that it is retained for (i) redemption of existing indebtedness or (ii) Capital Investment) to RAV does not exceed 0.68:1; or

(2)

on or after 31 December 2008, the ratio of Senior Total Net Debt (as at the end of the month immediately preceding the date on which the Financial Indebtedness is to be incurred and after giving effect to the gross proposed Financial Indebtedness on a pro forma basis but less cash raised to the extent that it is retained for (i) redemption of existing indebtedness or (ii) Capital Investment) to RAV does not exceed 0.65:1; and

(ii)	such Financial Indebtedness (save for any Financial Indebtedness which in aggregate does not exceed 5% of RAV) ranks no higher than pari passu with the Bonds.

(d)	Limitation on Distributions: It will not make any Distribution unless:

(i)

in the period commencing on the Issue Date and ending on 30 December 2006, the ratio of Senior Total Net Debt (as at the end of the month immediately preceding the date on which the Distribution is to be made and calculated on a pro forma basis as if the Distribution had been made) to RAV does not exceed 0.79:1; or

(ii)

in the period commencing on 31 December 2006 and ending on 30 December 2007, the ratio of Senior Total Net Debt (as at the end of the month immediately preceding the date on which the Distribution is to be made and calculated on a pro forma basis as if the Distribution had been made) to RAV does not exceed 0.77:1; or

(iii)

on or after 31 December 2007, the ratio of Senior Total Net Debt (as at the end of the month immediately preceding the date on which the Distribution is to be made and calculated on a pro forma basis as if the Distribution had been made) to RAV does not exceed 0.75:1.

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11.

Issuer Events of Default

If:

(a)	default is made in the payment of any principal or premium (if any) in respect of any Bond pursuant to Condition 7 (Redemption and Purchase), or for a period of three Business Days or more in the payment of any interest due in respect of the Bonds; or

(b)

the Issuer fails to perform or observe any of its other obligations, covenants, conditions or provisions under the Bonds, the Trust Deed or the Reimbursement and Indemnity Agreement and (except where the Controlling Party shall have certified to the Issuer in writing that it considers such failure to be incapable of remedy in which case no such notice or continuation as is hereinafter mentioned will he required) such failure continues for the period of 60 days (or such longer period as the Trustee may, with the approval of the Controlling Party, permit) next following the service by the Trustee on the Issuer of notice requiring the same to be remedied; or

(c)

(i) any other Indebtedness For Borrowed Money of the Issuer or any of its Subsidiaries becomes due and repayable prior to its stated maturity by reason of an event of default (however described) or (ii) any such Indebtedness For Borrowed Money is not paid when due or (iii) the Issuer or any of its Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of any Indebtedness For Borrowed Money of any person or (iv) any security given by the Issuer or any of its Subsidiaries for any Indebtedness For Borrowed Money of any person or any guarantee or indemnity of Indebtedness For Borrowed Money of any person becomes enforceable by reason of default in relation thereto and steps are taken to enforce such security save in any such case referred to in (i), (ii), (iii) or (iv) where there is a bona fide dispute as to whether the relevant Indebtedness For Borrowed Money or any such guarantee or indemnity as aforesaid shall be due and payable, and provided that the aggregate amount of the relevant Indebtedness For Borrowed Money in respect of which any one or more of the events mentioned above in this sub-paragraph (c) has or have occurred equals or exceeds 5% of RAV and such event shall continue unremedied or unwaived for more than 14 days (or such longer grace period as may have been originally provided in the applicable instrument) and the time for payment of such amount has not been expressly extended (until such time as any payment default is remedied, cured or waived); or

(d)

any order shall be made by any competent court or any resolution shall be passed for the winding up or dissolution of the Issuer, save for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other similar arrangement on terms previously approved in writing by the Controlling Party or (where the Controlling Party is the Trustee) by an Extraordinary Resolution of the Bondholders; or

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(e)

the Issuer or any of its Subsidiaries shall cease to carry on the whole or substantially the whole of its business, save in each case for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other arrangement (i) not involving or arising out of the insolvency of the Issuer or any Subsidiary and under which all or substantially all of its assets are transferred to a Subsidiary of the Issuer or to a transferee which is, or immediately upon such transfer becomes a Subsidiary or (ii) under which all or substantially all of its assets are transferred to a third party or parties (whether a Subsidiary or Subsidiaries of the Issuer or not) for full consideration by the Issuer or a Subsidiary on an arm's length basis or (iii) the terms of which have previously been approved in writing by the Controlling Party or (where the Controlling Party is the Trustee) by an Extraordinary Resolution of the Bondholders provided that if the Issuer shall cease to hold or shall transfer the Electricity Distribution Licence (other than where the Electricity Distribution Licence is revoked, terminated or surrendered in the circumstances envisaged by paragraph (i)(a), (b) or (c) of the definition of Restructuring Event in Condition 3 (Definitions) and such revocation, termination or surrender does not constitute a Restructuring Event pursuant to paragraph (i) of such definition) the Issuer shall be deemed to have ceased to carry on the whole or substantially the whole of its business (and neither of exceptions (i) and (ii) above shall apply) unless (A) the transferee of the Electricity Distribution Licence is the Issuer or a Subsidiary of the Issuer, at least 51% of the ordinary share capital of which is owned directly or indirectly by the Issuer (the "YE Transferee") and (B) if Ambac is then the Controlling Party, the YE Transferee guarantees the Bonds pursuant to a guarantee in form and substance reasonably satisfactory to Ambac and covenants in favour of Ambac in substantially the same terms as the covenants set forth in Condition 10 (Covenants by the Issuer to Ambac) and in either such event all references in these Terms and Conditions to the Issuer in its capacity as holder of the Electricity Distribution Licence shall hereafter be deemed to be references to the YE Transferee; or

(f)

the Issuer or any Subsidiary shall suspend or shall threaten to suspend payment of its debts generally or shall be declared or adjudicated by a competent court to be unable, or shall admit in writing its inability, to pay its debts (within the meaning of Section 123(1) or (2) of the Insolvency Act 1986) as they fall due, or shall be adjudicated or found insolvent by a competent court or shall enter into any composition or other similar arrangement with its creditors under Part I of the Insolvency Act 1986; or

(g)

a receiver, administrative receiver, Energy Administrator, administrator or other similar official shall be appointed in relation to the Issuer or any Subsidiary or in relation to the whole or a substantial part of the undertaking or assets of any of them or a distress, execution or other process shall be levied or enforced upon or sued out against, or any encumbrancer shall take possession of, the whole or a substantial part of the assets of any of them and in any of the foregoing cases it or he shall not be paid out or discharged within 120 days (or such longer period as the Trustee may in its absolute discretion permit);

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and, in the case of sub-paragraphs (b) and (c) and (e) to (g) (inclusive) the Controlling Party shall have certified in writing that the relevant event is in its opinion materially adverse to (1) where the Controlling Party is Ambac, the interests of Ambac or (2) where the Controlling Party is the Trustee, the interests of the Bondholders, the Controlling Party may at its discretion (and if the Controlling Party is the Trustee it shall on the request in writing of the holders of at least one quarter in principal amount of the Bonds then outstanding or upon being so directed by an Extraordinary Resolution of the Bondholders), by notice in writing to the Issuer declare that the Bonds are, and they shall accordingly thereby forthwith become, immediately due and repayable at their principal amount together with accrued interest (as provided in the Trust Deed), provided always that the giving of any notice in relation to any Issuer Event of Default shall not operate as a waiver of any of the Controlling Party's rights (including the right to give a further notice) or prevent the Controlling Party from giving a further notice in the manner referred to above in relation to that Issuer Event of Default at any time thereafter.

So long as any of the Bonds remain outstanding the Issuer will, forthwith upon becoming aware of any Issuer Event of Default or Potential Issuer Event of Default, give notice in writing thereof to the Trustee and to Ambac.

For the purpose of sub-paragraph (g) above, Section 123(1)(a) of the Insolvency Act 1986 shall have effect as if for "£750" there was substituted "£250,000" or such higher figure as OFGEM may from time to time determine by notice in writing to the Secretary of State (as referred to in the Electricity Distribution Licence) and the Issuer.

Neither the Issuer nor any Subsidiary shall be deemed to be unable to pay its debts for the purposes of sub-paragraph (g) above if any such demand as is mentioned in Section 123(1)(a) of the Insolvency Act I986 is being contested in good faith by the Issuer or the relevant Subsidiary with recourse to all appropriate measures and procedures.

While Ambac is the Controlling Party, neither the Bondholders nor the Trustee will have any right to call for repayment of the Bonds following the occurrence of an Issuer Event of Default.

12.

Ambac Events of Default

(a)	Each of the following events is an Ambac Event of Default:

(i)	any amount guaranteed by Ambac under the Financial Guarantee falls due for payment in accordance with the terms of the Financial Guarantee and is not paid by Ambac on the date stipulated in the Financial Guarantee; or

(ii)	Ambac disclaims, disaffirms, repudiates or challenges the validity of any of its obligations under the Financial Guarantee or seeks to do so; or

(iii)

a court of competent jurisdiction enters a final and non-appealable order, judgment or decree for the winding-up, or the appointment of an administrator or receiver (including an administrative receiver or manager) of Ambac (or, as the case may be, of a material part of its property or assets); or

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(iv)

Ambac:

(1)	presents any petition or takes any formal steps or proceedings for the winding-up or the appointment of an administrator or receiver (including an administrative receiver or manager) of Ambac (or, as the case may be, of a material part of its property or assets); or

(2)	makes or enters into any general assignment, composition, arrangement (including, without limitation, a voluntary arrangement under Part I of the Insolvency Act 1986) or compromise with or for the benefit of any of its creditors; or

(3)	becomes unable to pay its debts within the meaning of section 123(2) or section 123(1)(e) of such Insolvency Act or admits in writing its inability, or fails generally, to pay its debts as they become due; or

(4)	at any time it is or becomes unlawful for Ambac to perform or comply with any part or all of its obligations under the Financial Guarantee or any of its obligations thereunder are not or cease to be legal, valid or binding;

(b)	So long as any of the Bonds remain outstanding, Ambac will, forthwith upon becoming aware of any Ambac Event of Default, give notice in writing thereof to the Trustee and the Issuer.

An Ambac Event of Default will not result in an Issuer Event of Default or in the Bonds becoming repayable early. Following an Ambac Event of Default, Ambac shall cease to be the Controlling Party.

13.

Restructuring Event

(a)

(i)

If, at any time following the occurrence of an Ambac Event of Default, while any of the Bonds remains outstanding, a Restructuring Event occurs and prior to the commencement of or during the Restructuring Period an Independent Financial Adviser (as defined below) shall have certified in writing to the Trustee that such Restructuring Event will not be or is not, in its opinion, materially prejudicial to the interests of the Bondholders, the following provisions of this Condition shall cease to have any further effect in relation to such Restructuring Event.

(ii)	If, at any time following the occurrence of an Ambac Event of Default while any of the Bonds remains outstanding, a Restructuring Event occurs and (subject to paragraph (a)(i) above):

(1)	within the Restructuring Period, either:

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(A)

if at the time such Restructuring Event occurs there are Reference Rated Securities, a Rating Downgrade in respect of such Restructuring Event also occurs; or

(B)

if at such time there are not Reference Rated Securities, a Negative Rating Event also occurs; and

(2)	an Independent Financial Adviser shall have certified in writing to the Trustee that such Restructuring Event is, in its opinion, materially prejudicial to the interests of the Bondholders (a "Negative Certification"),

then, unless at any time the Issuer shall have given a notice under Condition 7(b) (Redemption at the option of the Issuer) or Condition 7(c) (Redemption for tax reasons), in each case expiring prior to the Put Date (as defined below), the holder of each Bond will, upon the giving of a Put Event Notice (as defined below), have the option (the "Put Option") to require the Issuer to redeem or, at the option of the Issuer, purchase (or procure the purchase of) that Bond on the Put Date at its principal amount together with (or, where purchased, together with an amount equal to) interest (if any) accrued to (but excluding) the Put Date.

Notwithstanding the occurrence of a Rating Downgrade or a Negative Rating Event, no Bondholder shall be entitled to exercise the Put Option and to serve a Put Notice if the rating assigned to the Reference Rated Securities or these Bonds by any Rating Agency is subsequently increased to, or, as the case may be, there is assigned to the Reference Rated Securities or these Bonds by any Rating Agency an Investment Grade Rating or, in the event that the rating assigned to the Reference Rated Securities immediately prior to the occurrence of the Rating Downgrade or Negative Rating Event was not an Investment Grade Rating, if such rating is restored, in either case prior to any Negative Certification being issued.

Any certificate by an Independent Financial Adviser as aforesaid as to whether or not, in its opinion, any Restructuring Event is materially prejudicial to the interest of the Bondholders shall, in the absence of manifest error, be conclusive and binding on Ambac, the Trustee, the Issuer and the Bondholders. For the purposes of this Condition, an "Independent Financial Adviser" means a financial adviser appointed by the Issuer and approved by the Trustee (such approval not to be unreasonably withheld or delayed) or, if the Issuer shall not have appointed such an adviser within 21 days after becoming aware of the occurrence of such Restructuring Event and the Trustee is indemnified to its satisfaction against the costs of such adviser, appointed by the Trustee following consultation with the Issuer.

A Rating Downgrade or a Negative Rating Event or a non-Investment Grade Rating shall be deemed not to have occurred as a result of or in respect of a Restructuring Event if the Rating Agency making the relevant reduction in rating or, where applicable, declining to assign an Investment Grade Rating as provided in this Condition does not announce or publicly confirm or inform the Trustee in writing at its request that the reduction or, where applicable, declining to assign a rating of at least investment grade was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event.

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The Trust Deed provides that the Trustee is under no obligation to ascertain whether a Restructuring Event, a Negative Rating Event, a Rating Downgrade or any event which could lead to the occurrence of or could constitute a Restructuring Event, a Negative Rating Event or a Rating Downgrade has occurred and until it shall have actual knowledge or express notice pursuant to the Trust Deed to the contrary the Trustee may assume that no Restructuring Event, Negative Rating Event, Rating Downgrade or other such event has occurred.

(b)

Promptly upon the Issuer becoming aware that a Put Event (as defined in Condition 3 (Definitions)) has occurred, and in any event not later than 14 days after the occurrence of a Put Event, the Issuer shall, and at any time upon the Trustee becoming similarly so aware the Trustee may, and if so requested by the holders of at least one-quarter in principal amount of the Bonds then outstanding shall, give notice (a "Put Event Notice") to the Bondholders in accordance with Condition 17 (Notices) specifying the nature of the Put Event and the procedure for exercising the Put Option.

(c)

To exercise the Put Option, the holder of a Bond must deliver such Bond to the specified office of any Paying Agent, on a day which is a business day (as defined in Condition 6 (Payments)) in London and in the place of such specified office falling within the period (the "Put Period") of 45 days after that on which a Put Event Notice is given, accompanied by a duly completed and signed notice of exercise in the form (for the time being current) obtainable from any specified office of any Paying Agent (a "Put Notice") and in which the holder may specify a bank account complying with the requirements of Condition 6 (Payments) to which payment is to be made under this Condition. Each Bond should be delivered together with all Coupons and Talons appertaining thereto maturing after the day (the "Put Date") being the fifteenth day after the date of expiry of the Put Period, failing which any such missing Coupon or Talon will become void and no payment shall be made in respect of it. The Paying Agent to which such Bond and Put Notices are delivered shall issue to the Bondholder concerned a non-transferable receipt in respect of the Bond so delivered. Payment in respect of any Bond so delivered shall be made, if the holder duly specifies a bank account in the Put Notice to which payment is to be made on the Put Date, by transfer to that bank account and, in every other case, on or after the Put Date, in each case against presentation and surrender or (as the case may be) endorsement of such receipt at any specified office of any Paying Agent, subject in any such case as provided in Condition 6 (Payments). A Put Notice, once given, shall be irrevocable. For the purposes of Conditions 9 (Prescription), 11 (Issuer Events of Default), 14 (Enforcement), 16 (Replacement of Bonds and Coupons) and 18 (Meetings of Bondholders, Modification and Waiver) receipts issued pursuant to this Condition shall be treated as if they were Bonds. The Issuer shall redeem or, at the option of the Issuer, purchase (or procure the purchase of) the relevant Bond on the applicable Put Date unless previously redeemed or purchased.

The Financial Guarantee does not guarantee the payment of any sums due to Bondholders upon exercise of the Put Option pursuant to this Condition 13.

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14.

Enforcement

(a)

Limitation on Bondholders: Save as provided below, only the Trustee may pursue the remedies available under general law or under the Trust Deed to enforce the rights of the Bondholders and Couponholders and no such holder will be entitled to proceed against the Issuer or Ambac unless the Trustee, having become bound to act in accordance with the terms of the Trust Deed, fails to do so and such failure is continuing. If, in connection with any insolvency, bankruptcy, administration, dissolution, liquidation or analogous procedure relating to the Issuer, a payment on the Bonds by the Issuer is claimed to be or is avoided as a preferential transfer, Ambac may (provided that Ambac is then the Controlling Party) direct all matters relating to such claim or avoidance on behalf of the Trustee, the Bondholders and the Couponholders.

(b)

Enforcement Proceedings: At any time after amounts in respect of principal of and interest on the Bonds or amounts payable by Ambac under the Financial Guarantee shall have become due and payable but are unpaid, the Trustee may, at its discretion, and without further notice but subject as mentioned below, take such proceedings against, respectively:

(i)	the Issuer as it may think fit to enforce the provisions of the Trust Deed in accordance with the terms thereof; and/or

(ii)	Ambac as it may think fit to enforce the provisions of the Financial Guarantee.

If the Trustee is not the Controlling Party it shall not be permitted to take any such proceedings as are referred to in Condition 14(b)(i) above against the Issuer unless it has been directed by the Controlling Party to do so and shall only be bound to take proceedings against the Issuer at the direction of the Controlling Party if it has been indemnified to its satisfaction by the Controlling Party. If the Trustee is the Controlling Party, it shall only be bound to take proceedings pursuant to Condition 14(b) (i) or (ii) if it has been indemnified to its satisfaction by the Bondholders and if it has been so requested in writing by the holders of not less than 25 per cent. of the principal amount outstanding (as defined in the Trust Deed) of the Bonds or has been so directed by an Extraordinary Resolution (as defined in the Trust Deed)).

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15.

Controlling Party

Subject to (i) the terms of the Trust Deed, (ii) Ambac being at that time the Controlling Party and (iii) Ambac giving notice to the Trustee that it intends to exercise the Trust Rights, Ambac shall have exclusive control to exercise the Trust Rights or to direct the exercise of the Trust Rights (as applicable) without regard to the interests of any other person, and will not be a fiduciary or owe any fiduciary duties to any person under the Trust Deed and will be exclusively authorised to direct and refrain from directing, the Trustee under the Trust Deed in the exercise of the Trust Rights without regard to the interests of any other person.

For these purposes "Trust Rights" means (i) the right to direct the Trustee to consent to any amendment, waiver, modification and/or extension of any of the provisions of the Trust Deed or any document entered into pursuant to the Trust Deed and (ii) the right to direct the Trustee with respect to each and every right, power and discretion of, or exercisable by, the Trustee under any provisions of the Trust Deed or any document entered into pursuant to the Trust Deed.

16.

Replacement of Bonds and Coupons

Should any Bond or Coupon be lost, stolen, mutilated, defaced or destroyed it may, subject to all applicable laws and stock exchange requirements, be replaced at the specified office of the Principal Paying Agent (or such other Paying Agent as may be approved by the Trustee for such purpose) upon payment by the claimant of the expenses, taxes and duties incurred in connection therewith and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Bonds or Coupons must be surrendered before replacements will be issued.

17.

Notices

All notices to Bondholders shall be valid if published in a leading English language national daily newspaper (which is expected to be the Financial Times) or, if this is not practicable, in such leading English language daily newspaper with a circulation in Europe as the Trustee may approve. Such notices shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the date of the first such publication. If publication is not practicable, notice shall be given in such other manner, and shall be deemed to have been given on such date, as the Trustee may approve.

Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Bondholders in accordance with this Condition.

18.

Meetings of Bondholders, Modification and Waiver

The Trust Deed contains provisions for convening meetings of the Bondholders to consider any matter affecting their interests, including modification by Extraordinary Resolution of these Terms and Conditions or the provisions of the Trust Deed. The quorum at any such meeting for passing an Extraordinary Resolution shall be one or more persons holding or representing a clear majority in principal amount of the Bonds for the time being outstanding, or at any adjourned such meeting one or more persons being or representing Bondholders whatever the principal amount of the Bonds so held or represented, except that, at any meeting the business of which includes the modification of certain of these Terms and Conditions and certain of the provisions of the Trust Deed (including altering the currency of payment of the Bonds or Coupons), the necessary quorum for passing an Extraordinary Resolution will be one or more persons holding or representing not less than two-thirds, or at any adjourned such meeting not less than one-third, in principal amount of the Bonds for the time being outstanding. An Extraordinary Resolution passed at any meeting of Bondholders shall be binding on all Bondholders, whether or not they are present or represented at the meeting, and on all Couponholders.

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Subject as provided in the Trust Deed, Ambac is entitled to receive notice of and to attend meetings of Bondholders but is not entitled to vote.

Without prejudice to Condition 15 (Controlling Party), subject to the prior written consent of Ambac (if Ambac is then the Controlling Party), the Trustee may, without the consent of the Bondholders or Couponholders, agree (i) other than in respect of the matters detailed in the proviso to paragraph 19 of Schedule 5 to the Trust Deed, to any modification to these Terms and Conditions or to any of the provisions of the Trust Deed or the Financial Guarantee or to any waiver or authorisation of any breach or proposed breach by the Issuer of these Terms and Conditions or of any of the provisions of the Trust Deed or determine that any event, condition or act which would otherwise be an Issuer Event of Default shall not be so treated provided that, in the opinion of the Trustee, so to do would not be materially prejudicial to the interests of the Bondholders, or (ii) to any modification to these Terms and Conditions or to any of the provisions of the Trust Deed or the Financial Guarantee which is made to correct a manifest error or which is of a formal, minor or technical nature, provided that the Issuer and Ambac may, without the consent of the Trustee or the Bondholders or Couponholders, agree to any modification to Condition 10 (Covenants by the Issuer to Ambac).

In connection with the exercise of its trusts, powers, authorities or discretions (including, but not limited to, any modification, waiver, authorisation or substitution) the Trustee shall have regard to the interests of Bondholders as a class and, in particular, but without limitation, shall not have regard to the consequences of the exercise of its trusts, powers or discretions for individual Bondholders and Couponholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory and the Trustee shall not be entitled to require, nor shall the Bondholder or Couponholder be entitled to claim, from the Issuer, Ambac or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Bondholders or Couponholders, except to the extent already provided for in Condition 8 (Taxation) and/or any undertaking given to, or in substitution for, Condition 8 (Taxation) pursuant to the Trust Deed.

Any modification to these Terms and Conditions or to any of the provisions of the Trust Deed or the Financial Guarantee or any waiver or authorisation of any breach or proposed breach by the Issuer of these Terms and Conditions or any of the provisions of the Trust Deed shall be binding on the Bondholders and the Couponholders and, unless the Trustee agrees otherwise, any modification shall be notified by the Issuer to the Bondholders as soon as practicable thereafter in accordance with Condition 17 (Notices).

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19.

Substitution

The Trustee may, without the consent of the Bondholders or Couponholders, agree with the Issuer, with the consent of Ambac (such consent not to be unreasonably withheld or delayed) to the substitution of any wholly-owned Subsidiary of the Issuer in place of the Issuer (or of any previous substitute under this Condition) as the principal debtor under the Bonds, the Coupons and the Trust Deed, subject to the Trustee being of the opinion that the interests of the Bondholders will not be materially prejudiced thereby and certain other conditions set out in the Trust Deed being complied with.

20.

Further Bonds

(a)	Subject as mentioned below, power will be reserved to the Issuer to create and issue Further Bonds forming (or so as to form after the first payment of interest thereon) a single series with the Bonds provided that:

(i)	Ambac has consented (in its absolute discretion) to amend or substitute the Financial Guarantee so that the Financial Guarantee also covers such Further Bonds on the same terms as the Bonds;

(ii)	the Trustee is satisfied that the rating granted in respect of the Bonds by S&P and Moody's will not thereby be adversely affected; and

(iii)

such issue shall be constituted by a deed supplemental to the Trust Deed (in such form as the Trustee may approve).

(b)	The Issuer shall not be entitled to exercise the power reserved in this Condition 20 (Further Bonds) while any default exists in relation to any payment by the Issuer of any amounts due under the Trust Deed or the Reimbursement and Indemnity Agreement.

21.

Trustee

The Trust Deed contains provisions governing the responsibility of the Trustee and providing for its indemnification in certain circumstances, including provisions relieving it from taking proceedings against the Issuer and/or Ambac unless indemnified to its satisfaction. The Trustee may not resign its appointment unless a successor, willing to act in such capacity, has been appointed by the Issuer with the prior consent of Ambac (if then the Controlling Party) and the Bondholders by Extraordinary Resolution, provided that the Trustee shall not be prevented from resigning its appointment if, having given notice in writing to the Issuer and Ambac (if then the Controlling Party) of its intention to so resign its appointment, a successor is not appointed within the period of three months from the date of such notice.

22.

Redenomination, Renominalisation and Reconventioning

(a)

Notice of redenomination: If the United Kingdom becomes or, announces its intention to become, a Participating Member State, the Issuer may, without the consent of Ambac, the Bondholders and Couponholders, on giving at least 30 days' prior notice to Ambac, the Trustee, the Bondholders and the Paying Agents, designate a date (the "Redenomination Date"), being an Interest Payment Date under the Bonds falling on or after the date on which the United Kingdom becomes a Participating Member State.

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(b)	Redenomination: Notwithstanding the other provisions of these Conditions, with effect from the Redenomination Date:

(i)

the Bonds shall be deemed to be redenominated into Euro in the denomination of Euro 0.01 (or such other denomination as the Issuer shall determine) with a principal amount for each Bond equal to the principal amount of that Bond in Sterling, converted into Euro at the rate for conversion of such currency into Euro established by the Council of the European Union pursuant to the Treaty (including compliance with rules relating to rounding in accordance with European Community regulations); provided, however, that, if the Issuer determines, with the agreement of the Principal Paying Agent, that market practice in respect of the redenomination into Euro 0.01 (or such other denomination as the Issuer shall determine) of internationally offered securities is different from that specified above, such provisions shall be deemed to be amended so as to comply with such market practice and the Issuer shall promptly notify Ambac, the Bondholders and Couponholders, each listing authority, stock exchange and/or quotation system (if any) by which the Bonds have then been admitted to listing, trading and/or quotation and the Paying Agents of such deemed amendments;

(ii)	if Bonds have been issued in definitive form:

(1)

all unmatured Coupons denominated in Sterling (whether or not attached to the Bonds) will become void with effect from the date (the "Euro Exchange Date") on which the Issuer gives notice (the "Euro Exchange Notice") to the Bondholders that replacement Bonds and Coupons denominated in Euro are available for exchange (provided that such Bonds and Coupons are available) and no payments will be made in respect thereof;

(2)	the payment obligations contained in all Bonds denominated in Sterling will become void on the Euro Exchange Date but all other obligations of the Issuer thereunder (including the obligation to exchange such Bonds in accordance with this Condition 22) shall remain in full force and effect;

(iii)

new Bonds and Coupons denominated in Euro will be issued in exchange for Bonds and Coupons denominated in Sterling in such manner as the Principal Paying Agent may specify and as shall be notified to the Bondholders in the Euro Exchange Notice; and

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(iv)

all payments in respect of the Bonds (other than, unless the Redenomination Date is on or after such date as Sterling ceases to be a sub-division of the Euro, payments of interest in respect of periods commencing before the Redenomination Date) will be made solely in Euro by Euro cheque drawn on, or by credit or transfer to a Euro account (or other account to which Euro may be credited or transferred) maintained by the payee with, a bank in a country in a city in which banks have access to the TARGET System.

(c)

Interest: Following redenomination of the Bonds pursuant to this Condition 22, where Bonds have been issued in definitive form, the amount of interest due in respect of the Bonds will be calculated by reference to the aggregate principal amount of the Bonds presented (or, as the case may be, in respect of which Coupons are presented) for payment by the relevant holder.

(d)	Interpretation: In this Condition:

"Participating Member State" means a member state of the European Union which adopts the Euro as its lawful currency in accordance with the Treaty; and

"Treaty" means the Treaty establishing the European Community, as amended.

23.

Governing Law

The Trust Deed, the Bonds, the Coupons and the Financial Guarantee are governed by, and shall be construed in accordance with, English law.

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C L I F F O R D		LIMITED LIABILITY PARTNERSHIP
C H A N C E
		EXECUTION COPY

Date of payment, delivery or cancellation	Amount of interest then paid	Principal amount of Permanent Global Bond then delivered or by which Permanent Global Bond then increased	Aggregate principal amount of Bonds then cancelled	Remaining principal amount of this Temporary Global Bond	Authorised Signature

Date of payment, exchange, delivery or cancellation	Amount of interest then paid	Principal amount of Temporary Global Bond then exchanged	Aggregate principal amount of Definitive Notes then delivered	Aggregate principal amount of Notes then cancelled	New principal amount of this Global Bond	Authorised signature

EXECUTED as a DEED and delivered by	)
YORKSHIRE ELECTRICITY DISTRIBUTION PLC	)
acting by a Director and the Secretary	)

/s/ Ken Linge
Ken Linge
Director

/s/ John Elliott
John Elliott
Secretary

EXECUTED and DELIVERED as a DEED	)	Seal
under the Common Seal of	)
AMBAC ASSURANCE UK LIMITED	)
in the presence of	)

/s/ Thomas Jacquot
Thomas Jacquot
Authorised Signatory

CONTENTS

Clause		Page

1.	Interpretation	1
2.	Amount of the Bonds and covenant to pay	6
3.	Form and issue of the Bonds	9
4.	Stamp duties and taxes	11
5.	The Trust Deed, the Bonds and the Financial Guarantee	11
6.	Application of moneys received by the Trustee	12
7.	Ambac and the Financial Guarantee	13
8.	Covenants by the Issuer	14
9.	Covenants by Ambac	18
10.	Covenants by the Issuer in favour of Ambac	20
11.	Remuneration and Indemnification of the Trustee	22
12.	Provisions supplemental to the Trustee Act 1925	24
13.	Trustee liable for negligence	28
14.	Waiver	28
15.	Trustee not precluded from entering into contracts	29
16.	Modification and substitution	29
17.	Appointment retirement and removal of the Trustee	31
18.	Coupons	32
19.	Controlling Party	33
20.	Currency indemnity	33
21.	Communications	34
22.	Governing Law	35
23.	Counterparts	35
SCHEDULE 1	FORM OF TEMPORARY GLOBAL BOND	36
SCHEDULE 2	FORM OF PERMANENT GLOBAL BOND	45
SCHEDULE 3	FORM OF DEFINITIVE BOND	52
SCHEDULE 4	TERMS AND CONDITIONS OF THE BONDS	57
SCHEDULE 5	PROVISIONS FOR MEETINGS OF BONDHOLDERS	87
SCHEDULE 6	EXCLUDED RIGHTS OF THE TRUSTEE	94

EXECUTED and DELIVERED as a DEED	)
By HSBC TRUSTEE (C.I.) LIMITED	)
in the presence of:	)

/s/ Paul Cattermole
Paul Cattermole
Authorised Signatory

/s/ Ian Graham
Ian Graham
Authorised Signatory