Credit Cover Arrangements provided by ELEXON

1
Credit Cover Arrangements provided by ELEXON
October 2004

• APEx Conference Leipzig

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
• Imbalance Volume 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