Settlement Process for Suppliers and BSC registered Generators Most relevant sections of the draft instruments that relate to this section

Regulations 10, 12 and 13 in The Contracts for Difference (Supplier Obligation) Regulations

259. The settlement process for the supplier obligation and for BSC connected generators will use metered data calculated according to the BSC and provided from BSC data systems. The Settlement agent will use the data provided by the BSC, which will be a mixture of profiled data based on estimated consumption and half hourly metered consumption data soon after the billing period. Supplier consumption data will be defined as all electricity imported from the total electricity system for which a Licensed Supplier is responsible under the BSC, loss adjusted for transmission and, if appropriate, distribution losses, net of any electricity exempted through the Energy Intensive Industries exemption. For the calculation of CfD payments for generators, generation calculated will be net of all ‘input electricity’ as well as loss adjusted for transmission and, if appropriate, distribution losses.

260. Figure 3.8 Overview of settlement process for suppliers and generators:

261. Billing period – One Day: To align with BSC settlement processes in order to keep administrative costs low and to keep the settlement process short in order to reduce the burden of collateral, we will settle the supplier obligation and CfD Payments to generators daily with payments being made each business day making a one day billing period, coinciding with the BSC’s Settlement Day⁸⁰. Smaller generators who are not already a Party to the BSC will need to ensure that their systems are able to cope with daily settlement, but the additional administrative costs of settling daily will be more than offset by the reduced collateral cost. Generators will also see the cash flow benefit of daily settlement.

80 Under the BSC, payments for Trading Charges are made for a Settlement Day (made up of 48 half hour Settlement Periods except on days where the clocks change).

262. Invoicing Period – Seven Working Days: Under the BSC, the initial settlement invoice is issued based on Initial Settlement (SF) Run metered data which are available sixteen working days after the Settlement Day.

However, the BSC provides earlier metered data than the SF Run. The Interim Information (II) Run is available five working days after the Settlement Day. In order to further shorten the period for which collateral needs to be provided, we will base the initial supplier obligation and CfD payment invoice on the earlier II data. Analysis of data from ELEXON Ltd shows that on average the difference between the II and SF runs is minimal with approximately 50% of electricity data of either run being based on meter readings, rather than profiled data. Furthermore, the use of the II run is only for the issuing for the initial invoice and so the initial payment. Payments will continue to be reconciled following the BSC calendar as more accurate data comes forward. Use of the II run will reduce collateral requirements by two weeks compared to use of the SF run. The Settlement agent will require a further two working days to perform the calculations and issue invoices, creating a seven business day invoicing period.

263. Payment Period – Five Working Days: The BSC requires that Parties are given no less than three working days to pay Trading Charges. Given the larger size of supplier obligation payments compared to Trading Charges, we will give suppliers (or generators where they are due to make payments to the Counterparty) five working days to make this payment, ensuring that suppliers and generators are able to audit invoices and make payments using the account. Suppliers will be notified of the amount held in this account at least quarterly and will receive payments, or be required to make payments, to reconcile this account annually.

265. For generators, updated generation data will be provided by the BSC systems in the same way as for suppliers over a 14 month period. The Settlement agent will use this reconciled data from each of the SF and reconciliation runs and will recalculate whether the appropriate CfD payment for that billing period had been made. Generators will be informed of these reconciliation calculations in the next available invoice and any amended payments will be added or netted from the total cost of that invoice. It is anticipated that this reconciliation process will survive termination of the CfD.

266. As tax revenue, supplier obligation payments must be held securely in the Government Banking Service. The counterparty will not earn interest on

non-collateral sums held and so interest will not be charged to suppliers or paid to suppliers when data reconciliations for the supplier obligation take place.

Settlement

Question CFD21 Do you have any comments on the reduced settlement timescale?

Question CFD22 Do you have any comments on the use of the BSC’s Interim Information Run for the first supplier obligation invoice?

Question CFD23 Do you have any comments on how the Minimum Required Collateral should be calculated?

Question CFD24 Do you have any comment on how many working days will be sufficient to make payments to the counterparty, given the fact that longer payment periods would

increase collateral requirements?

Question CFD25 Do you have a view on whether the settlement process (including lengths of billing period, invoicing period and payment period) should be the same for suppliers and generators, as currently proposed?