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– Surplus or shortfall reallocation (payments and

charges)

• Administration charges ~€100m/y– ELEXON costs– BETTA costs– NETA implementation costs

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.

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

readingAlso payments and charges for balancing action

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

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%

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%

Experience

• 2-4 /month in query period

• 1 – 2 /month into default(level 1 or level 2)

• Only trivial cases of shortfalls.

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

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