Supplier Implementation Event. Tuesday 27 January 2015

Transcription

1 Supplier Implementation Event Tuesday 27 January 2015

2 Health & Safety 2 Supplier Implementation Event - 27 January 2015

3 What we will cover? 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? EMRS Coffee Break Managing cash flow position LCCC and ESC What happens in the event of nonpayment? EMRS EMR Settlement Portal EMRS Updates and Summary LCCC, ESC and EMRS 3 Supplier Implementation Event - 27 January 2015

4 Introduction

5 The Role of the Low Carbon Contracts Company Implementation The Government s Electricity Market Reform programme is aimed at attracting up to 110bn investment needed to transform the sector Business As Usual 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 5 Supplier Implementation Event - 27 January 2015

6 LCCC s Obligations under CFDs Signing and managing the life-cycle of a CFD and investment contracts Forecasting CFD payments, and setting Supplier Obligation interim rate and reserve Managing settlement process including collecting payments from Suppliers passing on to Generators and viceversa when required. We have been established as an independent counterparty to increase investor confidence in CFDs 6 Supplier Implementation Event - 27 January 2015

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) 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 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 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 *EMR Settlement Ltd a wholly owned subsidiary of ELEXON Ltd. 7 Supplier Implementation Event - 27 January 2015

8 Settlement Services Provider CFD Counterparty Suppliers Ofgem Applicants Delivery Body DECC EMR Contracts for Difference GB Implementation Plan for 2014 Allocation Round Version 3.0 Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Eligibility Results Day Review Assessment 38 Sec Leg Regs on Ops Cost 15/16, Green Import Exemptions and EIIs Consultation Changes to CFD for Round 2 51 SoS confirms auction outcome or cancels the round Notify SoS of Budget Impacts 44 Auction Notice 45 Invite sealed bids Allocation and Audit report 46 Sealed bid window closes Notify applicants of CFD award Run allocation and audit process 60 1 st Post Build Report on Supply Chain Plans Preparation for Round 2 No Further Implementation Activities Key DECC Delivery Body Suppliers Applicants Ofgem CFD Counterparty Settlement Services Provider Appeals 37 Request 40 Window Raise eligibility dispute (Tier 1) 27 Submit sealed bid 10 days for contracts to be signed & returned to CFD Counterparty Assessment of Tier 2 disputes Suppliers Obligation Forecasting Transparency Tool Expert Groups Decide which Settlement System interface to use and review Working Practices & Guidance from Settlement Services Provider Test Settlement System 58 Reserve Fund 57 Payment 2015/16 Operational Cost Levy Invoice (2014/15) 56 On-going CFD Supplier Obligation & 2015/16 LCCC operational cost charges Publication of supplier obligation interim rate and total reserve amount 15/16 for first levy period 41 Data Transfer Catalogue Change 48 Proposal Implemented Implementation of Low Carbon Contracts systems Contracts produced & distributed 53 Publication of Levy Publication of Levy Ongoing industry engagement on business processes 8 39 Settlement System: Build phase Complete Exemptions Requirements Gathering Settlement 35 System testing phases 42 Notification of individual Suppliers Reserve Fund amount for Q1 2015/16 Exemptions Design Supplier Implementation Event - 27 January 2015 Settlement Systems ready 54 Exemptions Build 59 Earliest possible date for first CFD payments made to Generators Exemptions Testing 8 Settlement System ready to process Green Imports & Electricity Intensive Industries exemptions

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 forecasting@lowcarboncontracts.uk Need to raise a dispute regarding a CFD invoice/notice Low Carbon Contracts Company (LCCC) accounts@lowcarboncontracts.uk 9 Supplier Implementation Event - 27 January 2015

10 Suppliers: Who do I contact? (2) Capacity Market (CM) Query Who do I contact? Contact Details Need to raise a dispute regarding a CM invoice/notice Electricity Settlements Company (ESC) accounts@electricitysettlementscomp any.uk 10 Supplier Implementation Event - 27 January 2015

11 Suppliers: Who do I contact? (3) Query Who do I contact? Contact Details 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 contact@emrsettlement.co.uk 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 uk_emrsettlement@soprasteria.co. uk

12 What do I need to pay, when and how?

13 What do I need to pay? Payment Types Operational Costs Levy CFD Payments Supplier Obligation Interim Levy Rate Reserve Payment and Reconciliation Settlement Costs Levy CM Payments Capacity Market Supplier Charge Penalty Residual Supplier Amount

14 When do payments start? April 15 May 15 June 15 July 15 Operational Costs Levy CFD Payments Supplier Obligation Interim Rate Levy Reserve Payment & Reconciliation CM Payments Settlement Costs Levy

15 When do payments start? (1) CM Payments Capacity Market Supplier Charge Penalty Residual Supplier Amount These are out of scope for the session today as they commence from October Supplier Implementation Event - 27 January 2015

16 CFD: Operational Costs Levy Payment Types Operational Costs Levy CFD Payments 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 Payment Due Date Frequency Payment Method Interim 14/15 1 Jan Mar Apr 15 5 WDs 6 May 15 One off Electronic Banks Transfer BACS Direct Debit Operational Costs Levy Enduring 15/16 1 Apr Mar Apr 15 5 WDs 7 May 15 Daily Electronic Banks Transfer BACS Direct Debit

18 CFD: Operational Costs Levy - Calculation Supplier s Operational Costs Levy Payment Supplier s Gross Demand Operational Levy Rate MWh The Operational Costs Levy is MWh for 1 January March Supplier Implementation Event - 27 January 2015

19 CFD: Operational Costs Levy - Calculation Supplier s Operational Costs Levy Payment Supplier s Gross Demand Operational Levy Rate /MWh The Operational Costs Levy is /MWh for 1 April March 2016 Subject to parliamentary process, the intention is that the amended Regulations will come into effect from 1 April Supplier Implementation Event - 27 January 2015

20 CFD: Supplier Obligation Interim Levy Rate Payment Types Operational Costs Levy CFD Payments Supplier Obligation Interim Levy Rate Reserve Payment CM Payments Settlement Costs Levy

21 CFD: Supplier Obligation Interim Rate Levy CFD Payment Obligation Period Date of First Invoice or Credit note Number of WD Payment Due Date Frequency Payment Method Supplier Obligation Interim Rate Levy Enduring 15/16 Apr Jun 15 Jul Sep 15 Oct Dec 15 Jan Mar Apr 15 5 WDs 21 Apr 15 Daily Electronic Banks Transfer BACS Direct Debit

22 CFD: Supplier Obligation Interim Levy Rate Daily supplier payment Supplier Gross Demand Interim Levy Rate 0.035/MWh 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 22 Supplier Implementation Event - 27 January 2015

23 CFD: Reserve Payment Payment Types Operational Costs Levy CFD Payments Supplier Obligation Interim Levy Rate Reserve Payment CM Payments Settlement Costs Levy

24 CFD: Reserve Payment CFD Payment Type Obligation Period Date of First Invoice or Credit note Number of WDs Payment Due Date Frequency 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 Before 1 Apr WDs 9 Jul 15 Quarterly Electronic Banks Transfer BACS Direct Debit

25 CFD: Reserve Payment - Calculation Supplier s Reserve Payment Total Reserve Amount 1,061,400 Supplier s Gross Demand Total Demand 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 25 Supplier Implementation Event - 27 January 2015

26 CM: Settlement Costs Levy Payment Types Operational Costs Levy CFD Payments Supplier Obligation Interim Levy Rate 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 Payment Due Date Frequency Payment Method First levy period 14/15 1 Aug Mar Apr 15 3 WDs 1 May 15 One off Banks Transfer BACS Direct Debit Settlement Costs Levy Enduring 15/16 1 Apr Mar 16 1 Apr 15 3 WDs 8 Apr 15 Monthly Banks Transfer BACS Direct Debit Banks Transfer Refund 1 Apr Mar 16 After 31 Mar 16 3 WDs After Credit Note Annually BACS Direct Debit

28 CM: Settlement Costs Levy 14/15 Calculation Total Costs Suppliers net demand Net demand of all Suppliers Settlement Cost levy for Supplier 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 March Supplier Implementation Event - 27 January 2015

29 CM: Settlement Costs Levy 15/16 Total Costs 3.891m A Supplier net demand Net demand of all suppliers 1/12 Monthly Settlement Cost Levy for Supplier 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, Supplier Implementation Event - 27 January 2015

30 CFD Supplier: Credit Cover

31 CFD: What can I lodge as collateral and how? 1 What types of collateral can be used? 2 How do I lodge collateral? Transfer cash to a specified LCCC bank account Submit a letter of credit (LoC) to SSP and made out to LCCC 3 When is this requirement required? 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)

32 CFD: How do we calculate the minimum collateral? Minimum Credit Required (MCR) 21 days of metered volume Interim Levy Rate 21 days of metered volume will contain mixture of II and SF data 21 calendar days 7WD Daily Credit Report 3 Sum the most recent Gross Demand for each day in the 21 day period and multiply by the interim levy rate 2 Find most recent Settlement Day for which we have metered volumes 1 Every WD calculate minimum credit required

33 CFD: When is my first daily credit notice issued? Requirement to lodge collateral subsists Jan 15 Feb 15 Mar 15 Apr 15 Data period used for First Daily Credit Notice [3 Mar - 23 Mar] First Daily Credit Notice sent [1 Apr] 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 Supplier Implementation Event - 27 January 2015

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 34 Supplier Implementation Event - 27 January 2015

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) 35 Supplier Implementation Event - 27 January 2015

36 What will I receive?

37 CFD: Invoices and Notices Invoices and notices will be issued as PDF files (attached to s): 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 37 Supplier Implementation Event - 27 January 2015

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 38 Supplier Implementation Event - 27 January 2015

39 CM: Invoices and Notices Invoices and notices will be issued as PDF files (attached to s): 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 39 Supplier Implementation Event - 27 January 2015

40 Backing Data , 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 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 40 Supplier Implementation Event - 27 January 2015

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 Reserve payments Reconciliation payments Mutualisation payment CFD Supplier Credit Cover Report D0362 file (groups 55I, 56I, 57I) D0362 file (groups 55I, 58I, 59I) D0362 file (groups 55I, 60I-64I) D0362 file (groups 55I, 65I) D0363 file T001 file T002 file (or T003 for additional payments) T004 file T005 file T018 file 41 Supplier Implementation Event - 27 January 2015

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) : 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 /BIC/N1_J1950 /BIC/N1_J1973 /BIC/N1_J0073 /BIC/N1_J0146 /BIC/N1_J1904 /BIC/N1_J2023 /BIC/N1_J1905 /BIC/N1_J SF SF SF SF SF CSV is a versatile file format (eg read in Excel, load into database ) 42 Supplier Implementation Event - 27 January 2015

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) Settlement Cost Levy (Revision Invoice) D0364 file (groups 71I-74I) D0364 file (groups 71I-74I) T045 file T044 file Settlement Cost Levy (2014/15 invoice) D0364 file (groups 71I-74I) T078 file Other backing data to be delivered in subsequent system release (ahead of CM Delivery in October Supplier Implementation Event - 27 January 2015

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 44 Supplier Implementation Event - 27 January 2015

45 Coffee Break

46 Managing cash flow position Helen Turner, Low Carbon Contracts Company, 27 January 2015

47 What is variable? Payment Types Total or Rate Metered volumes Supplier Operational Levy Operational Levy will vary on an annual basis Supplier s metered volumes will vary daily in the calculation CFD 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 period in the calculation 47

48 CFD: Cash Flow Implications SO Levy Data based on LP1 run of SOFM Supplier Obligation Levy 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 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, ,903 Invoiced payments by suppliers ( ) 31, ,311 29,420 29,972 30,393 81,858 29,313 29,743 29,700 29,740 80,923 29,428 28, ,612 Cash Payments by suppliers ( ) WD7 31, ,311 29,420 29,972 30,393 81,858 29,313 29, ,489 Cash Receipts by Generators ( ) + 5 WD 39,594 39,868 79,462 Relative Market Share (cash payments) 28 calendar days - 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%) 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 48

49 CFD: Cash Flow Implications SO Levy Suppliers: How to calculate your cash payment? Generation day Cash payment date Gross Demand (MWh) Levy rate ( /MWh) Total CFD Payments ( ) Market Share CFD Payments ( ) 01/04/ /04/ , ,479 15% 4,722 01/04/ /04/ , , % 16 Transparency tool will provide the assumptions used for gross demand across each levy period 49

50 CFD: Reserve Amount Payment for Levy Period 1 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 - Small supplier (0.05%) 531 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

51 CFD: Operational Cost Levy 2014/15 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 ( ) Cash Payments by suppliers ( ) 6,485,000 Relative Market Share (cash payments) - Large supplier (15%) 972,750 - Small supplier (0.05%) 3,243 6 May 2015 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) 51

52 CFD: Operational Cost Levy 2015/16 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 Settlement (Billing) Date - invoice issued to 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, ,753 Invoiced payments by suppliers ( ) 35,819 35,917 71,737 Cash Payments by suppliers ( ) 0 Relative Market Share (cash payments) - Large supplier (15%) Payment on 7 May 5,373-5,373 - Small supplier (0.05%) Payment on 7 May May 2015 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 ( /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) 52

53 CM: Operational Cost Levy 2014/15 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 Settlement (Billing) Date - invoice issued to suppliers WD18 WD19 Invoiced payments by suppliers ( ) Cash Payments by suppliers ( ) 1,374,000 Relative Market Share (cash payments) - Large supplier (15%) 206,100 - Small supplier (0.05%) May 2015 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) 53

54 CM: Operational Cost Levy 2015/16 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 Relative Market Share (cash payments) - Large supplier (15%) 48,638 - Small supplier (0.05%) 162 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) Payment is due on 8 April 2015 (WD3) 54

55 Accounting treatment of CfDs & Financial Regulation Dan Harry, Low Carbon Contracts Company, 27 January 2015

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) 56

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: Supplier Implementation Event - 27 January

58 Financial Regulation of CFDs [2] 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. Supplier Implementation Event - 27 January

59 Monitoring LCCC Cash-flow and In-Period Adjustments Andrew Miller, Low Carbon Contracts Company, 27 January 2015

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 To ensure prompt generator payment while not imposing undue burden on suppliers. 60

61 Contents The aim of Low Carbon Contracts Company is to be as transparent as possible in discharging its regulatory obligations and fulfilling policy objectives Policy Objective: to ensure prompt generator payment Regulatory framework: We can make in period adjustments Main drivers of risk: Commissioning dates, unplanned outage, variability in wind and power prices Transparency: We will be as open and transparent as reasonably possible Process: We will update the industry on significant risk of possible rate increase where possible Criteria for change: We are likely to make adjustments up/down where these are material Suppliers: What does this mean for you? 61

62 Tools to deliver the policy objective Payments by suppliers on account 19 in 20 probability of being able to pay on time Reserve not set for extreme events would burden suppliers unduly Unexpected events outside 19 in 20 window With 30 days notice to give suppliers time to pay 62

63 In-period adjustment Regulations give LCCC the ability to make in period changes The Contracts for Differences (Electricity Supplier Obligations) Regulations 2014 provides: 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 63

64 Drivers of uncertainty We have identified and can manage the main 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) 64

65 Drivers of risk examples from period 1 We can quantify these risks and allow for them in our reserve amount We calculated the P5/P95 sensitivities of: wind; solar generation, and reference price change 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% Solar gen 4.9GWh -18% 18% Reference price 49/MWh 43/MWh 61/MWh

66 Transparency Aiming to be as open and transparent as reasonably possible 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 66

67 Internal Alerts We will move to enhanced monitoring when 60 day zero outlook exceeds 50% Invoices for generation Latest generator availability info Latest market prices CFMT Probability of exhausting expected income and reserve amount within 60 day period 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. 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) 67

68 What does this mean for you? We aim to minimise unexpected surprises for your cash-flow 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 68

69 What happens in the event of non-payment?

70 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 70 Supplier Implementation Event - 27 January 2015

71 When does payment default occur? Fails to make all or part of a payment by the payment due date Payment due date Payment Paid Payment Period Interest Applied After the payment due date the supplier must pay: interest on any unpaid amount at the rate specified in regulations until payment is paid 71 Supplier Implementation Event - 27 January 2015

72 CFD: What late payment will incur interest? Interest applied to late payment amounts for: Operational Costs Levy Payments Interim Levy Payments Reconciled Interim Levy Payments Reserve Payments Additional Reserve Payments Quarterly Reconciled Payments Mutualisation Payments 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 Payment Due Date Payment Paid Payment Period Interest Applied

73 CFD: What consequences follow a payment default? 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 Note: That under the CFD Regulations any requirement of a supplier is enforceable by the Authority 73 Supplier Implementation Event - 27 January 2015

74 CFD: What can happen if a payment default occurs? Payment Date 2 WDs later No payment received Calling of Credit Cover LCCC may issue a notice to the supplier Payment received A copy of notice must be issued to the Authority Interest 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 74 Supplier Implementation Event - 27 January 2015

75 CFD: What can happen if a payment default occurs? Payment Date 2 WDs later No payment received Calling of Credit Cover LCCC may issue a notice to the supplier Mutualisation A copy of notice must be issued to the Authority Payment received Interest 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 75 Supplier Implementation Event - 27 January 2015

76 CFD: When would a collateral default occur? 2 WD Cure Period Daily Credit Notice More collateral required Insufficient Collateral Notice Last day to lodge Collateral Credit Default Notice Authority notified Collateral must be lodged in cash Interest no longer applied Daily Credit Notices do not supersede previous ones i.e. a deficit amount remains outstanding until paid No interest on default collateral amounts Supplier Implementation Event - 27 January 2015

77 CFD: What late payments can be mutualised? SO Interim Levy Payments SO Reconciled Interim Levy Payments Reserve Payments Adjusted Reserve Amounts Reconciliation Payments Mutualisation Payments 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 77 Supplier Implementation Event - 27 January 2015

78 CFD: When will mutualisation occur? Where defaulting supplier has insufficient credit to cover its payments mutualisation may be triggered (determined by LCCC): Credit Sufficiency = Lodged Credit - (Invoiced amounts + overdue amounts) Positive amount : Sufficient credit lodged Negative amount: Insufficient credit lodged X WD 15 Apr 15 6 WD 22 Apr 15 7 WD 1 May 15 Invoiced and due Invoiced but not yet due Not yet invoiced 78 Supplier Implementation Event - 27 January 2015

79 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 14 Apr 15: Invoice Received 21 Apr 15: Payment Due 24 Apr 15: Mutualisation triggered 1 May 15: Payment Due 5 WD Invoice Payment Period 2 Working Days Mutualisation Calling of Credit Cover Interest ~5 WD Mutualisation Payment Period Mutualisation notice issued Non-defaulting Suppliers Defaulting Supplier Interest accrues for any late mutualisation payments 79 Supplier Implementation Event - 27 January 2015

80 Capacity Market - Settlement Costs Levy

81 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 81 Supplier Implementation Event - 27 January 2015

82 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 Payment Due Payment Paid Payment Period Interest Applied 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 82 Supplier Implementation Event - 27 January 2015

83 EMR Settlement Portal

84 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 84 Supplier Implementation Event - 27 January 2015

85 EMR Settlement Portal Homepage 85 Supplier Implementation Event - 27 January 2015

86 LCCC and EMRS Updates

87 CFD Supplier Obligation Exemptions Next Steps 87 Supplier Implementation Event - 27 January 2015

88 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 Stakeholder views on the draft guidance would be welcome. 88 Supplier Implementation Event - 27 January 2015

89 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: 89 Supplier Implementation Event - 27 January 2015

90 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

91 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 Publish further Working Practices and Guidance

92 EMR Settlement Website EMR Settlement Website Keep updated via the following methods, News, EMR Circular, Calendar and the ELEXON Newscast All queries Supplier Implementation Event - 27 January 2015

93 Online support for CFDs Generators Suppliers Tailored information for suppliers Q&A and recordings of previous events 93

94 Information for Suppliers 94

95 LCCC contact information Questions on implementation programme or feedback on our website: Any other queries or concerns: 95 Supplier Implementation Event - 27 January 2015

96