Disclosure statements and certificates
Disclosure statements and certificates
Q. What is the difference between disclosure statements and certificates?
A. Disclosure statements are provided quarterly to the independent registrar. The purpose of disclosure statements is to describe the results the stress testing scenarios would have on disclosing participants. Certificates are also provided annually to the independent registrar. The purpose of certificates is to confirm that the Boards of the disclosing participants have considered the results of the disclosure statements and that their consumers with spot price exposure have been prompted to consider the impacts of the stress tests on their businesses.
Q. What is the difference, if any, between the duties required of disclosing participant directors when signing quarterly spot price risk disclosure statements as compared to annual certificates?
A. Disclosure statements must be signed by a director or the chief executive officer (CEO) or the chief financial officer (CFO), or a person holding a position equivalent to one of those positions. This can be done as an operational matter, without the involvement of the Board, under delegated authority from the Board.
The certificate must be signed by a director and one of:
- another director (or equivalent)
- the CEO (or equivalent)
- the CFO (or equivalent).
Among other things, these two signing parties must certify that the Board has considered every statement submitted in the period covered by the certificate.
The practical effect of these provisions is that:
- Board signoff is not required for each disclosure statement, but it is required for certificates
- the Board must consider each disclosure statement at some point, but the timing may precede or follow the submission of the signed statement.
These provisions were designed to ensure that Boards consider each statement, but provide flexibility about the timing of that consideration. For example, it allows Boards to delegate authority for submitting a statement to the CEO or CFO, with consideration occurring subsequently at a regular meeting rather than requiring a special meeting or circular resolution.
Disclosure statements
Q. Who is required to provide disclosure statements?
A. Each disclosing participant is required to provide quarterly spot price risk disclosure statements to the registrar.
Disclosing participants are participants who:
- consume electricity that is conveyed to them directly from the national grid
- buy electricity from the clearing manager.
Q. If I am not required to provide a disclosure statement can I still undertake a stress test?
A. Any party can undertake a stress test. In fact, undertaking some form of stress test analysis would be prudent for any party that is exposed, or is considering being exposed, to spot prices.
We’ve prepared a simplified set of stress tests for small consumers who are not subject to the stress testing regime under the Code. These stress tests are a guide only and are not sufficient to meet the spot price risk disclosure requirements set out in the Code.
Q. How often must disclosure statements be provided?
A. Participants who are required to provide spot price risk disclosure statements must do so each quarter, no later than five working days before the start of the quarter.
Participants must also certify to us each year that they have provided information about stress tests to customers and that their Board has considered the contents of the disclosure statements.
Q. Does each disclosure statement need to be considered by my Board prior to being sent to the registrar?
A. No. The statements can be considered by the Board at any time before the certificate is given - even if that is after the statements have already been sent to the Registrar. The purpose of the certification process is to ensure that the Board has considered the spot price risk exposure. It is not intended to be a check of the accuracy of the statement (although the Board may be interested in that also).
Certificates
Q. Why do we need certificates?
A. The purpose of the stress testing regime is to ensure buyers and sellers on the spot market are aware of the level of risk they are exposed to. Certifying that a participant’s Board has considered the tests and the potential impact of extreme price conditions on financial position means that there can be no claim that the impact was not understood if extreme prices are subsequently experienced.
Q. Do I have to wait a year before sending the first certificate?
A. No. Your Board can consider the statements at any time during the year that suits the Board timetable, and produce a certificate for up to five disclosure statements at any one time.
Q. Do subsequent certificates have to cover a full year?
A. No. The board can consider the statements at any time during the year after the last certificate was given, and produce a certificate for up to five statements.
Q .Why does the certificate timing allow for five quarters?
A. The fifth quarter is to allow some flexibility around board meeting dates and the date when the last disclosure statement was provided.
Each certificate covers all the disclosure statements that have been given before the certificate is issued. If the Board approves a certificate early in the quarter, before a statement is given for that quarter, the certificate will cover only four quarters. But if the Board meets late in the quarter, and a statement has been given earlier in the quarter, that certificate will cover five quarters.
