Basically, Waltham Forest are playing hardball, (as usual). The problem is that the circumstances that gave rise to the PCN means you are asking for mitigation to be taken into account, (a per your narrative here), but adjudicators cannot consider this, they can only consider the statutory grounds as per their letter of refusal. Of course, if you wait for the NtO, and submit formal reps, then the council can again consider your submission afresh, and can at this stage allow mitigation despite their first refusal. The only problem is that in theory, the discount option is lost, but many London councils re-offerr it at NtO stage to avoid having to prepare an evidence pack and also pay the London Tribunals fee.
So it is something of a risk. Others on here may know the WF attitude to NtOs and their responses to them. How close to the deadline for payment of the discount are you ?