Supplier Implementation Event. Tuesday 27 January 2015

(1)

Supplier

Implementation Event

(2)

Health & Safety

Supplier Implementation Event - 27 January 2015 2

(3)

Supplier Implementation Event - 27 January 2015

What we will cover?

3

Agenda Time Lead

Introduction 9.30 LCCC, ESC and EMRS

What do I need to pay, when and

how? 9.45 EMRS

What will I receive? 10.30 EMRS

Coffee Break

Managing cash flow position 11.15 LCCC and ESC

What happens in the event of

non-payment? 11.55 EMRS

EMR Settlement Portal 12.25 EMRS

(4)

(5)

5

The Role of the Low Carbon Contracts Company

Working in partnership with DECC and industry to oversee the delivery of the end-to-end CFD scheme, facilitating: - Delivery Partner Cooperation and - Industry Readiness

Low Carbon Contracts Company is

the independent counterparty to the private law contracts known as

“CFDs”

The Government’s Electricity Market Reform programme is aimed at attracting up to £110bn investment needed to transform the sector

Implementation Business As Usual

(6)

6

LCCC’s Obligations under CFDs

We have been established as an

independent counterparty to increase investor confidence in CFDs Forecasting CFD payments, and setting Supplier Obligation interim

rate and reserve

Signing and managing the life-cycle of a CFD

and investment contracts Managing settlement process including collecting payments from Suppliers passing on to Generators and vice-versa when required.

(7)

7

CFD Delivery Partners

DECC

Sets policy and provides: Supply chain plan approvals Allocation Round Notice

Budget Notice

CFD budget information for participants Allocation Framework

Low Carbon Contracts Company (CFD Counterparty)

1 – manage Investment Contracts from FIDeR

2 – sign CfD contracts with projects allocated by Delivery Body and Government

3 – Manage contracts in line with terms

4 – Fix Supplier Obligation interim levy rate and reserves

5 – Ensure payments flow to/from generators and suppliers, collecting collateral (through its Settlement Services Provider)

EMRS*

(Settlement Services Provider)

1 – Run system to collect supplier obligation and make payments to/from generators/suppliers

2 – Collect & hold collateral

3 – Manage IT provider on settlement systems

Other outsourced

delivery

such as metering verification and monitoring services e.g. FMS National Grid (Delivery Body)

1 – modelling and analysis for DECC on strike price scenarios for Delivery Plan and Annual Update

2 – Implement the CfD Allocation Framework and instruct Low Carbon Contracts to offer a CfD to successful applicants

Ofgem

1 – Regulate the electricity market and oversee National Grid’s role in EMR

2 – Manage Dispute Resolution on CfD Eligibility

3 – Enforce Supplier Obligation

*EMR Settlement Ltd – a wholly owned subsidiary of ELEXON Ltd.

(8)

8

2014 2015

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

D E C C D e li v e ry B ody A ppl ic a nt s Of gem S uppl ie rs C FD C ounte rpa rt y S e tt le m e nt S e rv ic e s P rov ider

EMR Contracts for Difference GB Implementation Plan for 2014 Allocation Round Version 3.0 Invite sealed bids Settlement Systems ready 41

Publication of supplier obligation interim rate and total reserve amount 15/16 for first levy period

Operational Cost Levy Invoice (2014/15) 58 Reserve Fund Payment 2015/16 57 36

51 SoS confirms auction outcome or cancels the round

Implementation of Low Carbon Contracts systems

54

Ongoing industry engagement on business processes

60 1st Post Build

Report on Supply Chain Plans

Sealed bid window closes 47

Run allocation and audit process

Contracts produced & distributed

Notify applicants of CFD award 52

10 days for contracts to be signed & returned to CFD Counterparty 46

Eligibility Results Day

37

Raise eligibility dispute (Tier 1)

44 Notify SoS of Budget Impacts

27 Submit _sealed

bid Key DECC Delivery Body Suppliers Applicants Ofgem CFD Counterparty

Settlement Services Provider

59 Earliest possible date for first CFD payments made to Generators

56 On-going CFD Supplier Obligation & 2015/16 LCCC operational cost charges

35

Decide which Settlement System interface to use and review Working Practices & Guidance from Settlement Services Provider

Settlement System testing phases Data Transfer Catalogue Change Proposal Implemented 48 26 Suppliers Obligation Forecasting Transparency Tool Expert Groups

53

39 Settlement System: Build phase Complete

Notification of individual Suppliers Reserve Fund amount for Q1 2015/16

42 Test Settlement System 38 Review Assessment 55 Settlement System ready to process Green Imports & Electricity Intensive Industries exemptions 40 Appeals Request Window 43

Assessment of Tier 2 disputes

45

Auction Notice

Sec Leg Regs on Ops Cost 15/16, Green Import Exemptions and EIIs

Consultation – Changes to CFD for Round 2

Exemptions Requirements

Gathering Exemptions Design

Exemptions Build

Exemptions Testing

Preparation for Round 2 – No Further Implementation Activities

49 50

Allocation and Audit report

Publication of Levy

(9)

Suppliers: Who do I contact?

■ Contracts for Difference (CFD)

Query Who do I contact? Contact Details

 Transparency Tool

 Total Reserve Amount  Interim Levy Rate

Low Carbon Contracts

Company (LCCC) Andrew Miller 020 7211 8881

[email protected]

 Need to raise a

dispute regarding a CFD invoice/notice

Low Carbon Contracts

Company (LCCC) [email protected]

(10)

Suppliers: Who do I contact? (2)

■ Capacity Market (CM)

 Need to raise a

dispute regarding a CM invoice/notice

Electricity Settlements

Company (ESC) [email protected]

(11)

Suppliers: Who do I contact?

(3)

All queries relating to CFD and CM Settlement Examples:

 Implementation

 EMR Settlement System

 Reserve Payment Notice  EMRS Website*

 EMRS Publications *

 New Supplier Entry*

EMR Settlement (EMRS) Prior to the 1 April 2015

020 7380 4333

[email protected]

Queries relating to CFD and CM Settlement

Examples:

 Query how my charges have

been calculated?

 Query on the Notice or Invoice received?

 EMRS Portal

 Changes to Standing Data

EMR Settlement Service Desk (IT Service

Provider)

From the 1 April 2015

0845 600 0742

[email protected]. uk

(12)

What do I need to

(13)

Payment Types

CFD Payments

Operational Costs Levy

Supplier Obligation Interim Levy Rate Reserve Payment and Reconciliation

CM Payments

Settlement Costs Levy

Capacity Market Supplier Charge Penalty Residual Supplier Amount

(14)

When do payments start?

April 15 May 15 June 15 July 15

Operational Costs Levy

Supplier Obligation Interim Rate Levy Reserve Payment & Reconciliation CFD Payments

Settlement Costs Levy CM Payments

(15)

When do payments start? (1)

■ These are out of scope for the session today as they commence from

October 2016

2015 2016 2017 2018

Capacity Market Supplier Charge

CM Payments

Penalty Residual Supplier Amount

(16)

Payment Types

CFD Payments

Operational Costs Levy

Supplier Obligation Interim Levy Rate

Reserve Payment and Reconciliation

CM Payments Settlement Costs Levy

(17)

CFD: Operational Costs Levy

CFD Payment Type Obligation _Period Date of First Invoice or Credit note

Number of

WD Due Date Payment Frequency Payment Method

Operational Costs Levy

Interim

14/15 1 Jan 15 – _{31 Mar 15}

28 Apr 15

5 WDs 6 May 15 One off

Electronic Banks Transfer BACS Direct Debit Enduring

15/16 1 Apr 15 – 31 Mar 16 29 Apr 15 5 WDs 7 May 15 Daily

Electronic Banks Transfer

BACS Direct Debit

(18)

CFD: Operational Costs Levy - Calculation

■ The Operational Costs Levy is £0.079 MWh for 1 January 2015 –

31 March 2015

Supplier’s Operational

Costs Levy Payment

Supplier’s Gross Demand

Operational Levy Rate £0.079 MWh

(19)

CFD: Operational Costs Levy - Calculation

■ The Operational Costs Levy is £0.0397/MWh for 1 April 2015–31

March 2016

■ Subject to parliamentary process, the intention is that the amended

Regulations will come into effect from 1 April 2015

Supplier’s Operational

Costs Levy Payment

Supplier’s Gross Demand

Operational Levy Rate £0.0397/MWh

(20)

Payment Types

CFD Payments

Supplier Obligation Interim Levy Rate

Reserve Payment

(21)

CFD: Supplier Obligation Interim Rate Levy

CFD Payment

Obligation Period

Date of First Invoice or Credit note

Number of

WD Due Date Frequency Payment Payment Method

Supplier Obligation Interim Rate Levy Enduring 15/16

Apr – Jun 15 Jul – Sep 15 Oct – Dec 15 Jan – Mar 16

14 Apr 15 5 WDs 21 Apr 15 Daily

(22)

CFD: Supplier Obligation Interim Levy Rate

■ Interim Levy Rate – £0.035/MWh

■ The LCCC forecasts the expected CFD Generator payments and

demand over the levy period in the form of a unit cost fixed rate

■ Adjusted Interim Levy Rate – LCCC has the discretion to perform

an in-period adjustment to the interim levy rate

Daily

supplier

payment

Supplier

Gross

Demand

Interim

Levy Rate

£0.035/MWh

(23)

Payment Types

CFD Payments

Reserve Payment

(24)

CFD: Reserve Payment

CFD Payment Type Obligation _Period

Date of First Invoice or Credit note

Number of

WDs Due Date Frequency Payment Payment Method

Reserve Payment

First Obligation

Period

Apr 15 – Jun

15 Before 1 Jan 15 7 WDs 13 Apr 15 Quarterly

Electronic Banks Transfer BACS Direct Debit Reserve Payment Second Obligation

Period Jul 15 – Sep ₁₅ Apr 2015 Before 1 7 WDs 9 Jul 15 Quarterly

(25)

CFD: Reserve Payment - Calculation

■ On 16 December 2014 the LCCC determined the Total Reserve

Amount for first quarterly obligation period 1 April 2015 to 30 June 2015 as £1,061,400

■ We’ve issued a notice and invoice to supplier’s confirming their

reserve payment and the interim levy rate last month

Supplier’s Reserve Payment

Total Reserve Amount £1,061,400

Supplier’s Gross Demand

Total Demand

(26)

Payment Types

CFD Payments

Reserve Payment

CM Payments Settlement Costs Levy

(27)

CM: Settlement Costs Levy

CM Payments Obligation _Period

Date of First Invoice/Cr

edit note

Number

of WDs Due Date Frequency Payment Payment Method

Settlement Costs Levy

First levy period 14/15

1 Aug 14 –

31 Mar 15 28 Apr 15 3 WDs 1 May 15 One off

Banks Transfer

Enduring

15/16 1 Apr 15– 31 Mar 16 1 Apr 15 3 WDs 8 Apr 15 Monthly

Refund 1 Apr 15– 31 _{Mar 16} After 31 _{Mar 16} 3 WDs After Credit _Note Annually

(28)

■ The operational cost budget for 2014/15 is £1.374m and this period

covers 1 August 2014 to 31 March 2015

■ Billing Period is calculated using for all half hours in the relevant

period 1 August 2014 – 31 March 2015

CM: Settlement Costs Levy – 14/15 – Calculation

Total Costs

Suppliers net demand

Net

demand of all

Suppliers

Settlement Cost levy

for Supplier

(29)

CM: Settlement Costs Levy – 15/16

■ Net demand for periods of high demand in the previous financial year ■ Period of high demand

– 4 to 7pm during workings days

– 1 November to last day of February

■ The total operating costs to be recovered through the levy for 2015/16

is £3,891,000 Total Costs

£3.891m

A Supplier net demand

Net demand of

all suppliers

1/12

Monthly Settlement

Cost Levy for Supplier

(30)

(31)

Transfer cash to a specified LCCC bank account

Submit a letter of credit (LoC) to SSP and made out to LCCC

Applies at all times after an electricity supplier makes an electricity supply in a quarterly obligation period when an

interim rate payment is required 19(1)

CFD: What can I lodge as collateral and how?

What types of collateral can be used?

How do I lodge collateral?

1

2

(32)

CFD: How do we calculate the minimum collateral?

■ 21 days of metered volume will contain mixture of II and SF data

Every WD calculate minimum credit required Find most recent

Settlement Day for which we have metered

volumes Sum the most recent Gross Demand for each

day in the 21 day period and multiply by the interim levy rate

7WD 21 calendar days

1

2

3

Interim Levy Rate

21 days of metered volume Minimum Credit

Required (MCR)

Daily Credit Report

(33)

CFD: When is my first daily credit notice issued?

■ First Daily Credit Notice issued on 1 April 2015 and is the required

amount of collateral to be lodged for that day.

■ Daily Credit Notice issued each WD from 1 April 2015

■ Ideally, collateral lodged on or before 31 March 2015

Jan 15

First Daily Credit Notice sent

[1 Apr] Requirement

to lodge collateral

subsists

Data period used for First Daily Credit Notice

[3 Mar - 23 Mar]

Feb 15 Mar 15 _{Apr 15}

(34)

CFD: What is collateral used for?

■ Lodged collateral will be called to cover late payments of:

–Supplier Operational Levy

–Supplier Obligation Levy

–Reserve payment

–Mutualisation

–Accrued interest

(35)

CFD: Supplier Credit Cover

■ The LCCC have published a Letter of Credit template

■ Letters of Credit (LoC) must meet certain terms and conditions to be

considered appropriate or valid, including:

–Issued by a person with required short term debt rating – see 20(4)

–Provided on terms which the LCCC considers are appropriate

■ Next month we’ll be issuing the following:

–CFD Supplier Credit Cover Working Practice

–CFD Supplier Credit Cover Guidance,

–Provide suppliers will an indication what Credit Cover they’d require

(this is an estimation)

(36)

(37)

CFD: Invoices and Notices

■ Invoices and notices will be issued as PDF files (attached to emails):

–Invoices for interim rate and operational cost payments will be issued

each Working Day (from 14 April 2015). They are also notices under Regulations 8(4), 9(4) and 23(3).

–Invoices for reconciliation payments will be issued once per quarter

(from 9 July 2015). They are also notices under Regulation 15(3).

–Other payments (e.g. mutualisation payments, reserve payments) will

be included on one of the above if the payment dates match; or otherwise invoiced separately.

–Other notices will be issued manually by the Business Process

Operations (BPO) team as required e.g. credit default, payment default, notification of interim rate

(38)

Sample invoice

■ This is an example

interim rate invoice (from SIT testing)

■ I’d expect a live invoice

to have operational cost payments as well

(39)

CM: Invoices and Notices

■ Invoices and notices will be issued as PDF files (attached to emails):

–Schedule of monthly Settlement Cost payments (by 25 March 2015) –Settlement Cost invoices (1 April 2015 and each subsequent month;

then single revision invoice using Winter 2015 data)

–Other notices issued manually by the BPO team as required

(40)

Backing Data – Email, Portal and DTN

■ Most invoices will have associated backing data that details the input

data to the calculation (much like a D0296 or SAA-I014 report)

■ Suppliers (and others) have a choice of three mechanisms for receiving

backing data:

–Data Transfer Network

–Downloading CSV files from the Portal

–The BPO team can email backing data in an Excel-readable XML format

■ The CFD Supplier Credit Cover Report is neither an invoice nor a

notice, but will be distributed each Working Day through the same mechanisms

(41)

CFD Backing Data

■ Backing data will contain the same data items, regardless of which route

is used:

Invoice Item DTC File CSV/XML File

Interim rate payments

Operational cost payments D0362 file (groups 55I, 56I, 57I) T001 file

Reserve payments D0362 file (groups

55I, 58I, 59I) T002 file (or T003 for additional payments)

Reconciliation payments D0362 file (groups

55I, 60I-64I) T004 file

Mutualisation payment D0362 file (groups

55I, 65I) T005 file

CFD Supplier Credit Cover

(42)

Physical File Formats

■ Files received over DTN will be in DTN format:

–Recipient can choose Variable format (ZHV header), Fixed format (ZHF

header) or Pool Transfer File Format (ZHD header)

■ CSV files downloaded from Portal will be in CSV format. For example, this

is a T003 CSV file (as it might look if loaded into Excel) :

/BIC/N1_J1950 /BIC/N1_J1973 /BIC/N1_J0073 /BIC/N1_J0146 … /BIC/N1_J1904 /BIC/N1_J2023 /BIC/N1_J1905 /BIC/N1_J2026

38121592 201507 20150702 SF … 41944.3 622010.199 0 0 38121592 201507 20150701 SF … 57569.812 764813.006 0 0 38121592 201507 20150630 SF … 20440.69 682467.514 0 0 38121592 201507 20150629 SF … 573.52 763206.846 0 0 38121592 201507 20150628 SF … 43956.276 601208.923 0 0

… … … …

Column headers identify fields from the DTC definition e.g. J1973 is the

Obligation Period

Fields from different DTC groups combined into a tabular structure

CSV is a versatile file format (eg read in Excel, load into database …)

(43)

CM: Backing Data

■ As for CFD, backing data will contain the same data items, regardless of

which route is used:

Invoice Item DTC File CSV/XML File

Settlement Cost Levy

(Monthly Invoice) D0364 file (groups 71I-74I) T045 file

(Revision Invoice) D0364 file (groups 71I-74I) T044 file

(2014/15 invoice) D0364 file (groups 71I-74I) T078 file

■ Other backing data to be delivered in subsequent system release (ahead

(44)

Invoice lines without backing data

■ Current system design does not produce backing data for certain less

common payment types:

–2014/15 CFD Operational Costs

–Refund of CM Settlement Cost Levy –Repayment of mutualised amounts

■ We will manage with workarounds and/or work with Suppliers to propose

DTC changes

(45)

(46)

Managing cash flow position

(47)

What is variable?

47

Payment Types Total or Rate Metered volumes

CFD

Supplier Operational Levy

Operational Levy will vary on an annual basis

Supplier’s metered volumes will vary daily in the

calculation Supplier Obligation

Interim Levy Rate

Interim Levy Rate will vary on a quarterly basis

Supplier’s metered volumes will vary daily in the

calculation

Reserve Payment Total Reserve Amount will vary on a quarterly basis

Supplier’s metered volumes will vary within the reference

period in the calculation

CM Settlement Costs

Levy

Settlement Costs will vary on an annual basis

Supplier’s metered volumes will vary within the reference

(48)

01-Apr 02-Apr 03-Apr 04-Apr 05-Apr 06-Apr 07-Apr 08-Apr 09-Apr 10-Apr 11-Apr 12-Apr 13-Apr 14-Apr 15-Apr 16-Apr 17-Apr 18-Apr 19-Apr 20-Apr 21-Apr 22-Apr 23-Apr 24-Apr 25-Apr 26-Apr 27-Apr 28-Apr 29-Apr 30-Apr

Supplier Obligation Levy

Generation

Date WD1 WD2 WD3 WD4 WD5 WD6

Settlement (Billing) Date - Invoice issued to suppliers 7WD after

generation WD8 WD9 WD10 WD11 Cash Payment made by suppliers on WD12 to

LCCC (5 WD's after settlement

date) WD13 WD14 WD15 WD16 WD17 Generator

receives payment for CFD generation

on 29 April WD19 Total Accrued payments by suppliers (£) 31,479 31,607 28,330 27,198 26,848 27,328 29,420 29,972 30,393 29,522 26,562 25,774 29,313 29,743 29,700 29,740 29,755 25,244 25,924 29,428 28,332 28,825 29,156 28,479 25,782 25,331 29,158 29,094 28,878 28,588 854,903 Invoiced payments by suppliers (£) 31,479 141,311 29,420 29,972 30,393 81,858 29,313 29,743 29,700 29,740 80,923 29,428 28,332 601,612 Cash Payments by suppliers (£) 31,479 141,311 29,420 29,972 30,393 81,858 29,313 29,743 403,489 Cash Receipts by Generators (£) 39,594 39,868 79,462 Relative Market Share (cash payments)

- Large supplier (15%) 4,722 21,197 4,413 4,496 4,559 12,279 4,397 4,461 60,523 - Small supplier (0.05%) 16 71 15 15 15 41 15 15 202

CFD: Cash Flow Implications – SO Levy

Data based on LP1 run of SOFM

48

• Demand supplied (MWh) volumes data for the day will first be available on WD5 from EMRSL (time required to extract the data) and then 2 further working days required to calculate the market share and generate the invoices by supplier

• Day ahead forecasting of the total daily charge is certain as the demand volume data is available for the day. Suppliers will have a good view on their own individual levels of electricity supplied and so should be able to forecast payments to a reasonable level of accuracy

• As demand data is more widely known on WD5 after the generation date then this will allow forecasts 11 calendar days (or 7 WD) ahead for accurate supplier cash payments to be known

WD7

+ 5 WD

(49)

CFD: Cash Flow Implications – SO Levy

Suppliers: How to calculate your cash payment?

49

• Transparency tool will provide the assumptions used for gross demand across each levy period

Generation day

Cash payment

date

Gross Demand

(MWh)

Levy rate (£/MWh)

Total CFD

Payments (£) Market Share

CFD Payments (£)

01/04/2015 21/04/2015 902,252 0.035 31,479 15% 4,722

(50)

CFD: Reserve Amount

Payment for Levy Period 1

50

• The reserve amount is a lump sum payment each levy period

• The invoiced amount is the total reserve amount apportioned by supplier based on volume of supplied electricity over the preceding 30 calendar days from the determination date (this was 18 December for LP1)

• For the first two levy periods the reserve amount is invoiced before the start of the preceding quarter ….. So the reserve amount relating to LP1 (1 April to 30 June 2015) is invoiced before 1 January 2015

• For the first two levy periods – the payment data is by WD7 of the relevant levy period so for levy period 1 this is on 13 April 2015.

22-Dec 01-Apr 02-Apr 03-Apr 04-Apr 05-Apr 06-Apr 07-Apr 08-Apr 09-Apr 10-Apr 11-Apr 12-Apr 13-Apr 14-Apr 15-Apr

Reserve Amount

Invoice

Date WD1 WD2 WD3 WD4 WD5 WD6

Payment Date (WD7)

Invoiced payments by suppliers (£) 1,061,400

Cash Payments by suppliers (£) 1,061,400

Relative Market Share (cash payments)

- Large supplier (15%) 159,210

(51)

01-Apr 02-Apr 03-Apr 04-Apr 05-Apr 06-Apr 07-Apr 08-Apr 09-Apr 10-Apr 11-Apr 12-Apr 13-Apr 14-Apr 15-Apr 16-Apr 17-Apr 18-Apr 19-Apr 20-Apr 21-Apr 22-Apr 23-Apr 24-Apr 25-Apr 26-Apr 27-Apr 28-Apr 29-Apr 30-Apr

Operational Cost Levy CfD (2014/15)

WD0 WD1 WD2 WD3 WD4 WD5 WD6 WD7 WD8 WD9 WD10 WD11 WD12 WD13 WD14 WD15 WD16

Settlement (Billing)

Date - invoice issued to

suppliers WD18 WD19 Invoiced payments by suppliers (£)

- Large supplier (15%) 972,750

- Small supplier (0.05%) 3,243

CFD: Operational Cost Levy – 2014/15

51

• The 2014/15 operational cost levy is a one off lump sum payment

• The invoiced amount is the operational cost levy rate (£0.079/MWh) multiplied by the electricity supplied over the period 1 January 2015 to 31 March 2015

• Invoice date is 28 April 2015 (18WD after the last working day of March 2015) for payment on the 6 May 2015 (5WDs)

6 May 2015

(52)

01-Apr 02-Apr 03-Apr 04-Apr 05-Apr 06-Apr 07-Apr 08-Apr 09-Apr 10-Apr 11-Apr 12-Apr 13-Apr 14-Apr 15-Apr 16-Apr 17-Apr 18-Apr 19-Apr 20-Apr 21-Apr 22-Apr 23-Apr 24-Apr 25-Apr 26-Apr 27-Apr 28-Apr 29-Apr 30-Apr

Operational Cost Levy CfD (2015/16)

WD0 WD1 WD2 WD3 WD4 WD5 WD6 WD7 WD8 WD9 WD10 WD11 WD12 WD13 WD14 WD15 WD16 WD17

suppliers WD19 Total Accrued payments by suppliers (£) 35,819 35,917 32,329 30,951 30,509 31,133 33,380 34,113 34,516 33,609 30,209 29,356 33,287 33,861 33,790 33,825 33,908 28,738 29,527 33,550 32,182 32,774 33,196 32,427 29,339 28,860 33,121 33,109 32,874 32,545 972,753

Invoiced payments by suppliers (£) 35,819 35,917 71,737

Cash Payments by suppliers (£) 0

- Large supplier (15%) Payment on 7 May 5,373 - 5,373 - Small supplier (0.05%) Payment on 7 May 18 - 18

CFD: Operational Cost Levy – 2015/16

52

• The 2015/16 operational cost levy is a daily invoiced amount collected on the same basis as the SO interim levy

• The total invoiced amount for the year is the operational cost levy rate (£0.0397/MWh) multiplied by the electricity supplied over the levy year 1 April 2015 to 31 March 2016

• Invoices apportioned to suppliers based on the volume of electricity supplied on the day

• Invoices commence on WD18 (initial volume allocation SF run is 16WDs) following the start of the financial year (1 April 2015)

• Invoice date is 29 April 2015 for payment on the 7 May 2015 (5WDs)

7 May 2015

(53)

01-Apr 02-Apr 03-Apr 04-Apr 05-Apr 06-Apr 07-Apr 08-Apr 09-Apr 10-Apr 11-Apr 12-Apr 13-Apr 14-Apr 15-Apr 16-Apr 17-Apr 18-Apr 19-Apr 20-Apr 21-Apr 22-Apr 23-Apr 24-Apr 25-Apr 26-Apr 27-Apr 28-Apr 29-Apr 30-Apr

Operational Cost Levy CM (2014/15)

WD0 WD1 WD2 WD3 WD4 WD5 WD6 WD7 WD8 WD9 WD10 WD11 WD12 WD13 WD14 WD15 WD16

suppliers WD18 WD19 Invoiced payments by suppliers (£)

- Large supplier (15%) 206,100

- Small supplier (0.05%) 687

CM: Operational Cost Levy – 2014/15

53

• The 2014/15 operational cost levy is a one off lump sum payment

• The invoiced amount is the operational cost levy of £1,374,000 apportioned to suppliers based on the net demand in period from appointment to 31 March 2015 ie 1 August 2014 to 31 March 2015

• Invoice date is 28 April 2015 for payment on the 1 May 2015 (3WDs)

1 May 2015

(54)

01-Apr 02-Apr 03-Apr 04-Apr 05-Apr 06-Apr 07-Apr 08-Apr 09-Apr 10-Apr 11-Apr 12-Apr

Operational Cost Levy CM (2015/16)

Date of first invoice to

suppliers WD1 WD2

Cash payment made by suppliers

WD3 WD4 WD5 Invoiced payments by suppliers (£) 324,250

Cash Payments by suppliers (£) 324,250

- Large supplier (15%) 48,638

- Small supplier (0.05%) 162

CM: Operational Cost Levy – 2015/16

54

• The 2015/16 operational cost levy is a monthly invoiced amount

• The invoiced amount is the operational cost levy per consultation of £3,891,000 divided by 12 months and apportioned over the peak demand period 1 November 2014 to 27 February 2015

• Invoices commence on the start of the financial year (1 April 2015)

(55)

Accounting treatment of CfDs &

Financial Regulation

(56)

Accounting for CfDs

• LCCC to provide valuation of CfDs on an annual basis for DECC’s

consolidated accounts

• LCCC’s accounting treatment of CfD liability in March 2015 annual

report and accounts still to be agreed with the National Audit Office

• Expectation that generators will not put an asset for CfDs on their

balance sheets

• LCCC will provide regular estimates of the annual cost of CfDs to

DECC, which has responsibility for managing the Levy Control

Framework (LCF)

(57)

Financial Regulation of CfDs [1]

Treatment of CfDs

LCCC has received legal advice that Electricity Market

Reform CfDs are financial instruments as defined by MiFiD

and therefore subject to reporting requirements under

EMIR.

We would advise organisations to obtain legal advice on

their regulatory obligations with respect to EMR CfDs and

consult the FCA’s EMIR information

pages:

http://www.fca.org.uk/firms/markets/international-markets/emir

(58)

Status of LCCC

LCCC has received legal advice that it does not constitute

an "undertaking" for EU law purposes and could not

therefore be a Non-Financial Counterparty for the purposes

of EMIR.

Although the Low Carbon Contracts Company will not be

subjected to EMIR reporting requirements, industry

counterparties to CFDs are likely to have to comply with

various reporting and threshold obligations under EMIR.

Financial Regulation of CFDs [2]

(59)

Monitoring LCCC Cash-flow and

In-Period Adjustments

(60)

Approach to setting the interim rate

• Our Framework Document

sets our roles and

responsibilities, how we are

governed, and in particular

our

guiding principle

:

“maintain investor confidence

in the CFD regime and

minimise costs to consumers”

60

To ensure prompt generator payment while not imposing undue burden on suppliers.

(61)

Tools to deliver the policy objective

62

Payments by suppliers “on account”

19 in 20 probability of being able to pay on time

Unexpected events outside 19 in 20 window

Reserve not set for extreme events – would burden suppliers unduly

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In-period adjustment

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Regulations give LCCC the ability to make in period changes

• We are allowed, (not obliged)

,

to make in period adjustments

• We can also put the interim rate (but not reserve amount) down

• Notice is 30 days

The Contracts for Differences (Electricity Supplier

Obligations) Regulations 2014 provides:

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Drivers of uncertainty

1. Plant commissioning – early/late

 Potentially sudden change in expectations

 We work closely with generators to minimise these risks

2. Plant outage (higher or lower than expected)

3. Market price change (= Reference price change)

 IMRP more risky than BMRP

 BMRP risk much lower for Jul/Sept and Jan/March

4. Intermittent generation (wind/solar)

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Drivers of risk – examples from period 1

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Variable Base case (ie average of input)

P5

(Low Case)

P95

(High Case)

Low Case Cost Change p/MWh

High Case Cost Change p/MWh

Wind gen 37GWh -22% 24% -0.6 1.3

Solar gen 4.9GWh -18% 18% -0.1 0.2

Reference price £49/MWh £43/MWh £61/MWh 0.4 -1.2 We calculated the P5/P95 sensitivities of:

 wind;

 solar generation, and  reference price change

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Transparency

1. Our assumption set is transparent (date of calculation, plant commissioning, load factor assumptions)

2. We publish the date of calculation for market prices (eg first levy quarter used closing prices 12 December 2014)

3. If the risk of requiring more money in the near term increases significantly, we will move to enhance monitoring

4. Currently minded that criteria for enhanced monitoring will be related to the probability of running out of cash within 60 days (to give us enough time to react, give notice and collect cash)

5. Are creating a Cashflow Forecast Monitoring Tool (CFMT) to assist us

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Internal Alerts

67

If we move to enhanced monitoring, we

 will re-forecast our cash position more frequently

 may choose to highlight the increased risk of an in period adjustment

through our transparency tool (see next slide)

CFMT

Invoices for generation

Latest market prices Latest generator availability info

Probability of exhausting expected income and reserve amount within 60 day period

We will move to enhanced monitoring when 60 day zero outlook exceeds 50%

The Contracts for Differences (Electricity Supplier Obligations) Regulations 2014

The CFD counterparty must take such steps as it

considers necessary to ensure that electricity suppliers are kept informed of the likelihood that it will be unable to make all payments it is required to make to CFD parties during a quarterly obligation period.

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What does this mean for you?

1. Our reserve amount should prove sufficient in 19 out of 20 cases, so requests for in period adjustments ought to be rare

2. Suppliers get a minimum of 30 days’ notice of changes if we need ask for more 3. We are working on proposals for enhanced transparency which may include early

warning alerts when we moved to enhanced internal monitoring, in line with regulation.

4. We would welcome your feedback on what information suppliers would find useful and how you would use it, given that both wind generation and the power markets are inherently volatile

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What happens in the

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What are the types of default?

Payment Default

• A supplier fails to pay an

EMR payment within the

required timeframe, at

which point it becomes a

defaulting supplier. The

timeframe depends on the

type of payment.

Credit Default

• A supplier will enter credit

default if the supplier:

• 1. Has not posted enough

credit

• 2. The existing credit

cover has (LoC) become

inappropriate or invalid

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When does payment default occur?

■ Fails to make all or part of a payment by the payment due date

■ After the payment due date the supplier must pay:

–interest on any unpaid amount at the rate specified in regulations until

payment is paid

Payment Period Interest Applied

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■ Interest applied to late payment amounts for:

■ Charged at 5% per annum over the Bank of England (BoE) base rate (2

rates per year)

■ Interest due by the first WD after the day the interest accrued

CFD: What late payment will incur interest?

Operational Costs Levy Payments Interim Levy Payments Reconciled Interim Levy Payments Reserve Payments Additional Reserve Payments Quarterly Reconciled Payments Mutualisation Payments

Payment Period Interest Applied

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CFD: What consequences follow a payment default?

■ Note: That under the CFD Regulations any requirement of a supplier is

enforceable by the Authority

Calling of Credit Cover

• The LCCC may issue a notice if a supplier has failed to make a

relevant payment, and:

• 1. Two working days have passed from when payment should have been received; or

• 2. No prospect that payment will be made within two working days after the payment due date

Mutualisation

• Mutualisation is triggered by the LCCC

• A notice may only be issued where the LCCC is of the opinion that the defaulting supplier will not hold any credit cover

• Overdue amounts from the

defaulting supplier are paid by the non-defaulting suppliers in

proportion to their market share

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CFD: What can happen if a payment default occurs?

■ Credit can be called anytime after the payment due date where payment

will not be received during the two working days

■ Any called credit will be treated as payment

■ A copy of notice must be issued to the Authority

Payment Date

2 WDs later No payment

received

Calling of Credit

Cover Payment received LCCC may issue

a notice to the supplier

A copy of notice must be issued to the Authority

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CFD: What can happen if a payment default occurs?

■ Credit can be called anytime after the payment due date where payment

will not be received in cure period

■ Any called credit will be treated as payment

■ A copy of notice must be issued to the Authority ■ LCCC determines mutualisation

–Payment/s distributed amongst non-defaulting suppliers per market

share

Payment Date

2 WDs later No payment

received

Calling of Credit

Cover Mutualisation Payment received LCCC may issue

a notice to the supplier

A copy of notice must be issued to the Authority

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CFD: When would a collateral default occur?

■ Daily Credit Notices do not supersede previous ones

–i.e. a deficit amount remains outstanding until paid

■ No interest on default collateral amounts

2 WD Cure Period

Last day to lodge Collateral

Collateral must be lodged in cash Credit Default Notice Authority notified Daily Credit Notice More collateral required

1

2

3

4

5

Insufficient Collateral Notice

6

Interest no longer applied

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CFD: What late payments can be mutualised?

■ Mutualisation amounts are split according to market share during a

reference period:

–Interim Payments: the day the mutualisation amount relates

–Other payments: Most recent 30 consecutive days (from SF)

- Will contain SF data only

SO Interim Levy Payments

SO Reconciled Interim Levy

Payments

Reserve Payments

Adjusted Reserve Amounts

Reconciliation

Payments Mutualisation Payments

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■ Where defaulting supplier has insufficient credit to cover its payments

mutualisation may be triggered (determined by LCCC):

–Positive amount : Sufficient credit lodged –Negative amount: Insufficient credit lodged

CFD: When will mutualisation occur?

1 May 15

Invoiced but not yet due

Invoiced and due Not yet invoiced

7 WD 6 WD

X WD

22 Apr 15 15 Apr 15

‘Credit Sufficiency’ = Lodged Credit - (Invoiced amounts + overdue amounts)

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CFD: Mutualisation Payment Timeline

■ Interim Payments: Due no earlier than 5WDs after mutualisation notice ■ All other relevant payments: Due no earlier than 30 days after

mutualisation notice

5 WD Invoice Payment

Period

14 Apr 15:

Invoice Received _{Payment Due}21 Apr 15:

24 Apr 15: Mutualisation

triggered

•

Mutualisation

•

Calling of Credit Cover

•

Interest 2 Working Days

•

Mutualisation notice issued

•

Non-defaulting Suppliers

•

Defaulting Supplier ~5 WD Mutualisation Payment Period

1 May 15: Payment Due

Interest accrues for any late

mutualisation payments

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Capacity Market -

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CM: When does payment default occur?

■ These commence in 2016 and out of scope for today’s session:

–Capacity Market Supplier Charge –Penalty Residual Supplier Amount –Capacity Market Credit Cover

■ Note: The CM Regulations impose obligations on suppliers to make

payments to the Electricity Settlements Company (Settlement Body)

■ Settlement Costs Levy

■ A supplier has not paid an invoice by the payment due date

–Added to the non-payment register of those who have not paid an

invoice by the payment due date

–Interest applied to late payments Supplier Implementation Event - 27 January 2015

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CM: When is interest applied and how much?

■ Payment Default of Settlement Costs Levy

–Interest is applied to late payments from 5.00pm of the payment due

date

■ How much interest is applied?

–Charged at 5% per annum over the Bank of England (BoE) base rate (2

rates per year)

■ Settlement Costs Levy Refund

–Interest accrued on the Settlement Cost Levy in the year will be

refunded to suppliers

Payment Period Interest Applied

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What will you use the EMR Settlement Portal for?

■ Authorised to view information on the following:

–CFD and CM backing data –Daily credit reports

–Reconciliation

■ Authorised contacts can request standing data changes, including:

–Company registration details –Bank account details

–Contact details

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EMR Settlement Portal – Homepage

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CFD Supplier Obligation Exemptions

–

Next Steps

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Green electricity imports

• Suppliers may seek a determination from the LCCC for an

exemption from the SO levy for “green excluded electricity” –

renewable electricity generated by plant commissioned after 31

March 2015 in other EU Member States and supplied to

consumers in Great Britain.

• LCCC plans on publishing draft guidance in mid-Feb on the

exemptions process ahead of publishing final guidance ahead

of 1 April 2015.

• Stakeholder views on the draft guidance would be welcome.

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Electricity Intensive Industries

• An EII’s supplier can claim an exemption from the Supplier Obligation and

Operational Costs levies if, at the time of supply, a valid “EII certificate” is in force and ‘relevant arrangements’ are in place to enable the LCCC to identify the

volume of electricity supplied to the EII. The earliest that an EII certificate may be issued is 1 October, subject to State Aid approval and the Parliamentary process.

• LCCC is working with EMRS, BIS and DECC in developing further the

exemptions process, including the ‘relevant arrangements’. BIS and LCCC will issue guidance in advance of the scheme’s commencement.

• For further information please see the Government’s response to the consultation on EIIs exemption from CfD costs:

https://www.gov.uk/government/consultations/supplier-obligation-consequential-amendments-to-the-balancing-and-settlement-code

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What’s coming up?

January 2015

• DECC published responses on EII consultation

• Invitation to EMR Stakeholder to participate in User Testing

• Issue details to enable vendor setup within suppliers systems

February 2015

• Request for further details required from Suppliers

• CFD and CM Settlement System – User Testing

• Implementation - Further BSC Changes for EMR

• Implementation - MRA Change Proposals

• CFD Supplier Credit Cover Working Practice

• CFD Supplier Credit Cover Guidance

• Issue indication of Credit Cover requirements to Suppliers

• Draft guidance on Green Electricity Imports Exemption

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What’s coming up? (2)

March 2015

• CFD and CM Settlement System – User Testing • Publish details on the EMR Portal and Helpdesk • Publish EMR Settlement Calendar

• Issue Reserve Payment Notice and Interim Levy Rate for July-September 15

• Suppliers notified of monthly amounts for the Capacity Market Settlement Costs Levy

• Final guidance on Green Electricity Imports Exemption • Publish further Working Practices and Guidance

• Further Implementation Event - TBC

April 2015

• CFD payments commence - Operational Costs Levy 14/15 and

15/16, Interim Levy Rate and Reserve Payment

• CM payment commence – Settlement Costs Levy 14/15 and 15/16

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EMR Settlement Website

■ EMR Settlement Website

– http://emrsettlement.co.uk/

– Keep updated via the following

methods, News, EMR Circular, Calendar and the ELEXON

Newscast

■ All queries

– [email protected]

– 020 7380 4333

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Online support for CFDs

•

Tailored information for suppliers

• Q&A and recordings of previous events

Generators www.lowcarboncontracts.uk Suppliers

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Information for Suppliers

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LCCC contact information

Questions on implementation programme or feedback on our

website:

[email protected]

Any other queries or concerns:

[email protected]

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