Consultations

The Authority is seeking feedback on a proposal to make a number of amendments to the Electricity Industry Participation (Settlement and Prudential Security) Code Amendment 2013. The proposed amendments would make a number of corrections, clarifications and improvements to the Code amendment that was made in December 2013 and will take effect in March 2015. Most of the further amendments have been identified by the clearing manager as it prepares to implement the Code amendment next year.

The Authority is also seeking feedback on how the costs associated with the new Part 14A of the Code should be recovered from levy payers.

The Authority is seeking feedback on a proposal to amend the Electricity Industry Participation Code 2010 to make improvements to the wholesale market settlement and prudential security system.  The proposed Code amendments are a response to the requests from market participants for improvements in the wholesale market settlement and prudential security management system.  The Wholesale Advisory Group (WAG) has previously published a discussion paper on this topic, and the Authority has now progressed the recommendations provided from the WAG and other individual participants to provide this Code amendment consultation paper.  Major changes proposed include a redesign of the prudential security required to be provided to the clearing manager, a suggestion of moving from monthly to weekly settlement, a change from gross settlement to partial net settlement.

NOTE: On 22 May 2012 the Authority published explanatory paper to provide a high-level introduction to the discussion paper to assist readers who are new to the topic. However, those intending to provide submissions should base it on the full discussion paper.

The Authority's Wholesale Advisory Group (WAG) has published a discussion paper “Settlement and prudential security review” and seeks feedback from interested parties. This discussion paper:

• considers possible market failure and inefficiencies within the current wholesale settlement and prudential security system;
• explores the current arrangements;
• describes problems with the current arrangements;
• considers the appropriate level of security; and
• provides a range of suggested solutions.

NOTE: On 28 October 2011 the Authority has republished the consultation paper to reflect the correct closing date of 9.00am Friday 18 November 2011.

Prudential security is an important safeguard to the wholesale electricity market as it minimises the risk of the Clearing Manager being unable to pay generators and other payees in the event of a participant default.

The Electricity Authority (Authority) is currently in the process of reviewing settlement and prudential security arrangements in the wholesale electricity market. This review includes two separate assessments:

• a quick wins review which focuses on changes to process that either do not require code changes or require minor code changes, and
• a first principles review.

As part its review the Authority requested NZX, in its role as the clearing manager, to suggest near term improvements to the way prudential security is assessed. The Clearing Manager has, in response reviewed the administrative method of assessing prudential security requirements in the market.

This document is presented in two parts. The first proposes a revised prudential security calculation methodology. The changes are designed to:

• reduce the volatility of assessments,
• more closely represent actual payer exposure, and
• adapt the methodology to changes in bid availability due to the implementation of Demand Side Bidding and Forecasting (DSBF).

The second part of the paper discusses some suggestions which have been made by industry stakeholders. The Authority has requested the clearing manager to present aspects of these suggestions and gather responses which the Authority will pass on to the Wholesale Advisory Group to inform the first principles review.

Prudential security is an important safeguard to the wholesale electricity market as it minimises the risk of the clearing manager being unable to pay generators and other payees in the event of a participant default.

The changes described in Part I of this document will not result in deviations from the code or existing clearing manager functional specifications. As such, the clearing manager is not required to consult prior to altering the methodology. However, the clearing manager considers consultation advisable due to the long-standing nature of the existing process and the material impact changes in the prudential calculation methodology will have on participants.