Code Change Panelsettlements by Estimates

Code Change PanelSettlements by estimates

NEMMCO proposed a change to the Code that will allow settlements by estimates where, eg, there had been major failures of metering data processing, failures of communications or failure of the settlements processing systems. NEMMCO’s letter of 16July is attached. The arrangements are intended to ensure that participants’ cash flow requirements are maintained in the light of such contingencies. The immediate focus for the proposed change is Y2K contingency planning. It will, however, also be relevant to other major systems failures. NEMMCO also set out its proposed process for determining those estimates, although it did not propose that this process be included in the Code.

Under the proposal, NEMMCO will be able to provide statements using estimated data when actual meter data is not obtainable in the time required by the market timetable (iefivedays after the end of the billing period). If the data was still unavailable at the time settlement was due (ie eighteen days after the end of the billing period) then participants would be required to settle on the basis of those estimates. Estimates will be required to be reconciled as soon as possible using the settlement revision process already included in the Code. This includes provision for payment of interest. NEMMCO will be required to publish the detailed basis for its estimates and, if requested to do so, meet affected participants to discuss the basis for and detailed calculation of those estimates.

The Panel sees merit in the proposed change. In particular, it recognises the need to maintain participants’ cash flows in the rare event of system failure as a means of reducing prudential risk. The Panel notes that the proposed change, including the process for determining estimates, has been discussed with the industry-based Y2K working group and the Y2K contingency planning steering committee. The Panel agrees with NEMMCO that it is inappropriate to include the details of the estimating process in the Code. It believes that, however, in order to ensure that participants’ interests are properly protected, NEMMCO should be required to consult participants on any changes to the estimating process in accordance with the Code consultation procedures. The Panel has therefore included this requirement in the proposed Code change.

The Panel sought comments on the proposed Code change on 13 August by placing the change on the NECA website and notifying interested parties. By the closing date of 13September, no objections had been received. The Code change focus group, at its meeting on 27 August, supported the change provided there is appropriate control over the preparation of the process for developing the estimates. The Panel is satisfied that this point is met by its proposed requirement that changes to this process should only be made in accordance with the Code consultation procedures.

The panel recommends the adoption of the attached Code change.

Graeme LongbottomStephen KellyGary Maguire

MemberChairmanMember

September 1999

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16 July 1999

Mr Stephen Kelly

Managing Director

NECA

Level 5

41 Currie St

ADELAIDE SA 5000

Dear Stephen

Settlement by Estimate Code Change

NEMMCO has been working with an industry based Y2K working group and a national Y2K Contingency Planning Steering Committee concerning requirements for contingency plans in event of Y2K issues arising. The main requirement for settlements is to ensure that participant cash flow requirements are maintained. NEMMCO thus recommends the following Code changes to the NEM Code. This proposal is important for Y2K contingency planning or for other major failures in order to ensure that participants’ cash flows are not put at risk.

Code Changes

(a)Clause 3.15.12 Settlement amount.

This clause should be amended to permit NEMMCO to determine the settlement amount by estimation.

(b)Clauses 3.15.14 Preliminary Statements and 3.15.15 Final Statements.

These clauses should be amended to provide that where settlement is by estimation, the supporting data is not required, but the principles of estimation and relevant global data must be published by NEMMCO to allow each Participant to validate the estimate of the participant’s settlement amount.

1.Principles

The following principles are requested to be incorporated as NEM Code changes.

(a)If NEMMCO consider that it is not possible to perform the settlement processing in accordance with the times published in the “timetable” then a settlement by estimate process may be used.

The reasons for not being able to perform settlements may include:

• major failures of metering data processing;
• failures of communications;
• failure of the Settlements processing systems.

(b)Any estimates used are to be reconciled as soon as possible using the settlement revision process including the accounting of relevant interest payments.

(c)In the event that a substantial portion of the metering data is not able to be recovered the estimates will be deemed as final values.

(d)Where preliminary statements have been published these should form the basis of the final statements.

(e) NEMMCO is to publish a detailed report on the basis of the estimates and be prepared to meet with those impacted by estimates to reconcile records.

(f) Participants are obliged to pay estimated values as if full Code settlements applied.

2. Expected Estimation Process

An attachment is included to provide by way of example the proposed process for estimation. This process should not be included in the code changes.

Should you have any queries regarding the above please do not hesitate to contact me on (02) 9240 9103.

Yours faithfully

Brian Spalding

General Manager, Market Development

Attachment 1

SETTLEMENT ESTIMATION PROCESS

a)On the sustained failure of the MMS, final statements are to be created by using the previously published preliminary statement for the particular billing period. The preliminary statements are already stored separately to the MMS system. This process can operate for at least two weeks. If the failure continues past the period of published preliminary statements the process in (c) below should be used.

b)On the sustained failure of communications and/or MDAs, final statements are to be produced from the MMS system using preliminary data already loaded. This process can operate for at least two weeks. If the failure continues past the period of availability of preliminary data the process in (c) below should be used.

c)

i)An estimation process is required to create preliminary statements for each week commencing with the week in which the ‘major failure’ occurred. The preliminary statements should be based on the last week for which results are deemed to be reasonably accurate (typically the last complete week prior to the failure).

ii)The results of that base week, including any settlement surpluses, must remain balanced in dollar terms when scaled for the adjusted week, so that NEMMCO has no financial risk or residue. The simplest proposal would be to use the results of the base week as the estimate.

iii)The next achievable step for improvement in accuracy would be for scaling to be applied in recognition of variations to: -

(dispatch) prices, and

(dispatched) energy share for scheduled generators.

Other variations considered to be beyond the scope of the estimate process are variations to: -

• energy share per participant for customer load because a significant amount of MDA data may be unavailable;
• ancillary services because of the complexity of the calculations outside the MMS; and participant fees and smelter reduction amount because they are relatively insignificant in magnitude.

iv)To provide the data for the base week, a copy of the relevant participant data is to be maintained on an independent system. The base data needed includes:-

• half-hourly trading interval prices per region (PBr);
• half-hourly generation dispatch targets, aggregated to a single value per participant (GDBp);
• half-hourly customer trading amount for each participant (CABp);
• half-hourly generator trading amount for each Market Generator (GABp);
• settlement residue for each auction participant and network service provider (RABp);
• billing period total amount for ancillary services, participant fees, smelter reduction other miscellaneous transfers (MTBp); and
• reference region for each Market Generator (r).

v)For the week of the estimate, the half-hourly generation dispatch targets (GDEp) and half-hourly trading interval prices (PEr) from MMS (if available) or the BackUp Dispatch System are required as input.

vi)The scaling factor (SF) which gives the energy weighted ratio between total energy payments for each trading interval in the estimate week compared to the corresponding trading interval from the base week is defined as:-

SF = CABp x sump(GDEp x PEr) / sump(GDBp x PBr)

The estimated customer amounts for each participant for each half-hour are:

CAEp = CABp x SF

The estimated global generator energy amount (GAE) is:-

GAE = sump(GABp) x SF

The estimated participant generator energy amounts are:-

GAEp = GAE x (GDBp x PEr) / sump(GDBp x PEr)

All of the above are half-hourly trading interval calculations. The billing period totals are calculated by summing the results across all trading interval in the billing period.

vii)The balance between energy payments, receipts and residues can be maintained if the residue amounts are also scaled appropriately.

The estimated global residue amounts ( RAE) are:-

RAE = sump(RABp) x SF

The estimated participant residue amounts are:-

RAEp = RABp x SF.

viii)The estimated miscellaneous transfers per participant (MTEp) are assumed to be independent of reference price and generation loading patterns, and may be estimated directly:-

MTEp = MTBp

G:bs\y2k\ltr to neca re settlement by estimate code changes

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SETTLEMENT ESTIMATES CODE CHANGE

3.15SETTLEMENTS

3.15.1Settlements management by NEMMCO

(a)NEMMCO must facilitate the billing and settlement of transactions under this Chapter 3, including:

(1)spotmarkettransactions; and

(2)reallocationtransactions.

(b)NEMMCO must determine the Participant fees and the Market Participants must pay them to NEMMCO in accordance with the provisions of clause 2.11.

*****

3.15.6Spot market transactions

In each trading interval, in relation to each connection point for which a Market Participant is financially responsible, a spot market transaction occurs, which results in a trading amount for that Market Participant determined in accordance with the formula:

TA= AGE  TLF  RRP

where

TAis the trading amount to be determined (which will be a positive or negative dollar amount for each trading interval)

AGEis the adjusted gross energy for that connection point for that trading interval, expressed in MWh

TLFfor a transmission network connection point, is the intra-regional loss factor at that connection point; and for any other connection point, is the intra-regional loss factor at the transmission network connection point to which it is assigned in accordance with clause 3.6.3(a).

RRPis the regional reference price for the regional reference node to which the connection point is assigned, expressed in dollars per MWh.

*****

3.15.12Settlement amount

(a)Subject to clause 3.15.12(b), for each billing period NEMMCO must calculate a net "settlement amount" for each Market Participant by aggregating the trading amounts resulting for each Market Participant from each transaction in respect of each trading interval occurring in that billing period together with Participant fees determined in accordance with clause 2.11 and any other amounts payable or receivable by the Market Participants in that billing period under this Chapter 3 of the Code. The settlement amount will be a positive or negative dollar amount for each Market Participant.

(b)NEMMCO may calculate an estimate of the net settlement amount for each Market Participant (the "estimated settlement amount") if, within the time provided for the giving of preliminary statements in accordance with clause 3.15.14, NEMMCO is prevented from calculating the net settlement amount in accordance with clause 3.15.12(a) by factors which are beyond the control of NEMMCO and which deprive NEMMCO of the relevant data required to calculate the net settlement amount (the "relevant data"), including:

(1)a failure of:

(i)metering data processing;

(ii)communications; or

(iii)the settlements processing system; and

(2)any other events or circumstances which prevent the calculation of the actual net settlement amount by NEMMCO.

(c)NEMMCO must develop the principles and the process to be applied in calculating the estimated settlement amount, and make any necessary modifications to those principles and that process, in accordance with the Code consultation process.

3.15.13Payment of settlement amount

Where the settlement amount for a Market Participant is negative the absolute value of the settlement amount is an amount payable by the Market Participant to NEMMCO pursuant to clause 3.15.15. Where the settlement amount for a Market Participant is positive the settlement amount is an amount receivable by the Market Participant from NEMMCO pursuant to clause 3.15.15, subject to the provisions of clause 3.15.22.

3.15.14Preliminary statements

(a)Subject to clause 3.15.14(b), within 5 business days after the end of each billing period, NEMMCO must give each Market Participant a draft of the statement to be given to the Market Participant under clause 3.15.15 together with supporting data relating to the transactions in that billing period and the prices at which electricity was bought and sold by the Market Participant.

(b)If NEMMCO calculates an estimated settlement amount in accordance with clause 3.15.12(b), NEMMCO must:

(1)when giving a preliminary statement in accordance with this clause 3.15.14, provide a detailed report to affected Market Participants setting out the basis and calculations used for its estimation; and

(2)if requested to do so by affected Market Participants, consult with those Market Participants to ascertain whether or not any adjustments are required to the estimated settlement amount prior to the giving of a final statement.

3.15.15Final statements

(a)No later than 18 business days after the end of each billing period, NEMMCO must give to each Market Participant a final statement stating the amounts payable by the Market Participant to NEMMCO or receivable by the Market Participant from NEMMCO (subject to clause 3.15.22) in respect of the relevant billing period.

(b)Unless NEMMCO has used an estimated settlement amount in accordance with clause 3.15.12, the statements issued under this clause 3.15.15 must include supporting data for all amounts payable or receivable.

3.15.15AUse of estimated settlement amounts by NEMMCO

(a)Subject to clause 3.15.15A(b), if NEMMCO calculates an estimated settlement amount in accordance with clause 3.15.12(b), then clauses 3.15.13, 3.15.14 and 3.15.15 will have effect mutatis mutandis by applying the estimated settlement amount in place of a settlement amount for a Market Participant for the purposes of those clauses.

(b)If NEMMCO receives relevant data:

(1)after it has given the preliminary statement in accordance with clause 3.15.14 but before giving a final statement, then it must adjust the estimated settlement amount accordingly for the purposes of preparing the final statement; or

(2)within 60 days after it has given a final statement to which the relevant data relates, then NEMMCO must adjust the relevant estimated settlement amount accordingly and issue a revised statement in accordance with clause 3.15.19(a).

3.15.16Payment by market participants

On the 20th business day after the end of a billing period, or 2business days after receiving a statement under clause 3.15.15, whichever is the later, and in accordance with the timetable each Market Participant must pay to NEMMCO in cleared funds the net amount stated to be payable by that Market Participant in that statement whether or not the Market Participant continues to dispute the net amount payable.

3.15.17Payment to market participants

Subject to clause 3.15.22 on the day on which NEMMCO is to be paid under clause 3.15.16, NEMMCO must pay to each Market Participant in cleared funds the net amount stated to be payable to that Market Participant in the relevant statement given to it under clause 3.15.15.

3.15.18Disputes

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SYD5/686/653413.2

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(a)In the event of a dispute between a Market Participant and NEMMCO concerning either the net amount (including any estimated settlement amount) stated in a preliminary statement provided under clause 3.15.14 to be payable by or to it or the supporting data, they must each use reasonable endeavours to resolve the dispute within 15 business days of the end of the relevant billing period.

(b)Disputes in respect of final statements or the supporting data provided with them in accordance with clause 3.15.15 must be raised within 6 months of the relevant billing period.

(c)Disputes raised under this clause 3.15.18 must be resolved by agreement or pursuant to the dispute resolution procedures set out in clause 8.2.

3.15.19Settlement dispute adjustments

(a)Where an amount stated in a final statement issued under clause 3.15.15 has been the subject of a dispute and the dispute has been resolved by agreement between NEMMCO and the Market Participant, or where NEMMCO has adjusted an estimated settlement amount in accordance with clause 3.15.15A(b)(2):

(1)NEMMCO will issue a revised statement for the relevantbilling periodsubject to the dispute to each Market Participant affected by the resolution of the dispute at such times as agreed by the affected Market Participants and NEMMCO setting out the amount payable by the Market Participant to NEMMCO or the amount receivable by the Market Participant from NEMMCO (subject to clause 3.15.22); and

(2)NEMMCO will include in the revised statement the agreed adjustment plus interest computed at the average bank bill rate for the period from the paymentdate under clause 3.15.16 of the statement to which the agreed adjustment relates to the paymentdate of the revisedstatement issued under this clause 3.15.19.

(b)Where an amount stated in a statement issued under clause 3.15.15 has been the subject of a dispute and the dispute has been resolved by a determination under clause 8.2:

(1)NEMMCO will issue a revisedstatement for the period subject to the dispute to each Market Participant affected by the resolution of the dispute at such time specified by the determination or where none is specified, at such times as agreed by the affected Market Participants and NEMMCO; and

(2)NEMMCO will include in the revisedstatement issued under clause 3.15.19(b)(1) the adjustment as determined under clause 8.2 setting out the amount payable by the Market Participant to NEMMCO or the amount receivable by the Market Participant from NEMMCO (subject to clause 3.15.22).