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Credit Cover Arrangements provided by ELEXON

Credit Cover Arrangements provided by ELEXON. APEx Conference: Leipzig. October 2004. Agenda. What is covered and how? How it works Our experience and lessons. What charges?. Imbalance Settlement Gross ~€600m /year Charges for being short Payments for being long

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Credit Cover Arrangements provided by ELEXON

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  1. Credit Cover Arrangements provided by ELEXON APEx Conference: Leipzig October 2004

  2. Agenda • What is covered and how? • How it works • Our experience and lessons

  3. What charges? • Imbalance Settlement Gross ~€600m /year • Charges for being short • Payments for being long • Surplus or shortfall reallocation (payments and charges) • Administration charges ~€100m/y • ELEXON costs • BETTA costs • NETA implementation costs

  4. Mutuality or Credit Cover? • Imbalance Charges : Explicit credit cover rules • The Pool - Cash / Letters of Credit / Credit Rating /Parent Company Guarantee – relaxed implementation. One failure and a shortfall. • NETA/BETTA – Cash or LOC only – more rigorous *Required for Consumption AND Generation* • Administration Charges : Mutualised risk • Shortfall shared.

  5. How much needs to be covered? • 29 days arrears • Actual charges not known for all 29 days • Pre-set price and volume used where actual data not available • Reminder – ImbalanceVolume = Contract notification-Meter reading Also payments and charges for balancing action

  6. How does it work? • The Party provides cash or LOC to their chosen level • This is converted to energy credit cover at the pre-set price • The system calculates credit cover percentage each half hour at gate closure • The party can provide zero credit cover

  7. Default level 1 • 80% - Level 1 • 24 hour Query Period • 1 business day Default Cure Period • Not corrected then in default if ELEXON says so • Party notified and posted on website • Out of default when below 75%

  8. Default Level 2 • 90% - Level 2 • Straight into default if ELEXON says so • Notified and posted on Website • Contract notifications which do not improve the position are rejected • Out of default below 90%

  9. Experience • 2-4 /month in query period • 1 – 2 /month into default(level 1 or level 2) • Only trivial cases of shortfalls.

  10. Lessons • Cash is best • LOC due on demand BUT • Case 1 - took a week • Case 2 – agreed to pay on the steps of the Court • Most defaults are errors • Most queries are for rapid shifts in customer base

  11. Lessons • We hold an excess of cover (€300m) • Credit seems to be duplicated for the same energy in the life cycle • LOCs appear to be cheap for most parties • Shorter settlement would release some cash • The arrangements have worked –supported a graceful exit for ENRON • Proved flexible to rapid changes

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