invoicing and collateral fredrik Åström, fingrid oyj
TRANSCRIPT
Invoicing and collateralNBS Keskustelutilaisuus 20.4.2015
Fredrik Åström / Fingrid Oyj
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Topics
1. Invoicing and payments
2. Collateral model
3. Required setup
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Issuing of invoices
• eSett invoices imbalances, activated reserves and fees on a weekly basis
– Positive invoice amount (BRP pays to eSett) “Debit Notice”
– Negative invoice amount (eSett pays to BRP) “Credit Notice”
• Each Monday, eSett invoices the settlement result and fees from the delivery week that started three weeks ago
• BRP receives one invoice per country where it operates
• BRPs can select to be invoiced either in default currency (EUR) or in local currency (NOK or SEK)
• Invoice sent as e-invoice, which consists of two components:
– Invoice message in XML, which allows for automatic import of the invoice into the BRP’s accounting system
– A PDF file with an image of the invoice, which facilitates manual review of the invoice
• BRPs that do not want to receive e-invoices will get invoice by email in PDF format
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Payment of invoices
• eSett direct debits incoming payments from the BRP to eSett
– Invoice not to be paid by BRP
– Invoice amount debited from BRP’s settlement account
• Invoices are settled by eSett during the same week:
– Amount of Debit Notice debited by eSett on Wednesday
– Amount of Credit Notice paid out by eSett on Thursday
• A holiday in the interval Monday - Thursday in any of the NBS countries shifts the activities on and after the holiday one business day forward
• Payments executed as same-day value payment
– Payment amount available to recipient’s bank on the same day as the payment is initiated
– Payment amount is typically also credited to recipient’s account on the same day, but this depends on agreement between account holder and bank
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The imbalance settlement results are invoiced and settled ~3 weeks after the delivery day
Calendardays
Week 1 Week 2 Week 3 Week 4
Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed ThuDelivery days 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Mon 1
Tue 2
Wed 3
Thu 4
Fri 5
Sat 6
Sun 7
Delivery day D0 Reporting of data D2 – D13
Settlement of week 1 final
Invoicing of week 1
Direct debiting of debit invoices
Payment of credit invoices
Schedule of imbalance settlement and invoicing
Delivery dayData reportedSettlement finalSettlement invoicedIncoming payments to eSett debitedOutgoing payments to BRP credited
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Topics
1. Invoicing and payments
2. Collateral model
3. Required setup
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Two alternative forms of collateral
A. Cash collateral
• Cash on an account in an approved Settlement Bank
• Account pledged to eSett by signing Pledged Cash Account Agreement defined by eSett
• Currency of account can be EUR, NOK or SEK
• Same account used for settlement of incoming and outgoing invoice payments
B. On-demand guarantee
• Issued by approved Settlement Bank
• Shall be unconditional, irrevocable and payable on first demand
• Issued according to On-Demand Guarantee template defined by eSett
• Currency of guarantee can be EUR, NOK or SEK
Any combination of these two forms of collateral is also possible.
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Collateral schedule
• Dynamic collateral model: collateral requirements recalculated each week to reflect changes in counterparty exposure
• Standard schedule:
– Collateral requirements calculated and published in Online Service by 13 CET on Monday
– BRPs shall provide sufficient collateral to meet requirement by End of Business on Monday:
• Amount of cash collateral must be credited to settlement account during Monday (i.e. included in Monday’s closing account balance)
• On-demand guarantee must be provided to eSett by 15 CET on Monday
– By End of Business on Monday, the BRP shall also post sufficient additional funds to settle the next invoice if it is a Debit Notice
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Exceptions to collateral schedule
• If Monday is a holiday (in any of the countries), eSett will publish the collateral requirement on the next business day
• If the risk exposure changes significantly during the week, eSett will publish an updated collateral requirement
• Collateral updates are published by 13 CET and the BRP shall provide sufficient collateral to meet the updated requirement by End of Business on the day when the updated requirement was published
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Collateral monitoring
• Daily collateral monitoring is performed by eSett
• For this purpose eSett will retrieve daily account balances from each collateral account
• eSett verifies that each BRP has met collateral requirement by the End of Business deadline on Monday based on Monday’s end-of-day account statement on Tuesday morning
• A failure to post sufficient collateral by the deadline constitutes a material breach of the imbalance settlement agreement
• Currency treatment:
– Calculation of collateral requirement and monitoring of collateral is carried out in EUR
– Any collateral deposits in SEK and NOK are converted to EUR with daily ECB rate
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Release of Excess Funds on a Pledged Cash Account
• If a Pledged Cash Account holds more funds than what is necessary for meeting the Collateral Requirement and settling the next debit invoice, the BRP may request from eSett that the excess balance be released from the Pledged Cash Account
– This request can be submitted through Online Service on any day in the week
• If the request is valid, eSett will instruct the Settlement Bank to transfer the Excess Balance to another designated account of the BRP
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The size of the counterparty risk components varies from day to day
Week 1 Week 2 Week 3 Week 4 M T W T F S S M T W T F S S M T W T F S S M T W T F S S
On Monday:
On Tuesday:
On Wednesday:
On Thursday:
On Friday:
On Saturday:
On Sunday:
1. Invoiced
1b Overdue invoice*
2. Settlement ready, not invoiced
3. Settlement data being reported
Continuously about three weeks of settlement outstanding
* Overdue invoices should not be possible due to collateral model
Risk of irregular behavior from calculation moment onwards
1-3 days
Moment of calculation
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Standard formula for calculation of collateral requirement
𝐶𝑜𝑙𝑙𝑎𝑡𝑒𝑟𝑎𝑙 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡=3∗(𝑆¿¿1+𝑆2)+𝑚∗ (𝑉1+𝑉 2 )∗𝑃 ¿
WhereS1 = Average of sums of invoiced production fees, consumption fees and consumption imbalance fees per
week for the last 3 invoiced weeksS2 = Average of absolute amounts of sums of invoiced production and consumption imbalances per week
for last 3 invoiced weeksV1 = Consumption volume from last 7 settled daysV2 = Bilateral and spot sales volumes from last 7 daysm = Multiplier:
• 3/7 for the share of (V1+V2) that does not exceed 80,000 MWh• 1/7 for the share of (V1+V2) that exceeds 80,000 MWh but does not exceed 400,000 MWh• 0 for the share of (V1+V2) that exceeds 400,000 MWh
P = Average of the consumption imbalance prices in the different MBAs during the last 7 days, where the price of each MBA is weighted according to the share of the BRP's total turnover that took place in respective MBA
m × (V1 + V2) can be at most 80 000 MWhMinimum amount of the collateral requirement is 40 000 €
~ Imbalances that have occurred but not
been paid for yet
~Exceptional imbalances that may occur from this point onwards until they are recognized
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Exceptions to the Standard Formula
• The collateral requirement will be calculated according to an adjusted formula in situations where the standard formula does not appropriately reflect the prevailing counterparty risk
• An adjusted formula is used in e.g. the following situations:– The week contains holidays that prolong the settlement period
– There are risks of delays in the payment process e.g. due to labor disputes in banks
– When there have been exceptional movements in market prices
– When the results of the day-ahead market cannot be calculated in normal order
• An adjusted formula is also used for the following BRPs:– New BRP
– BRP whose balance obligation has changed substantially
– BRP participating in shadow auction for NordNed link
– BRP with erroneous volume data
– BRP in financial distress
• The objective is always to reflect the prevailing counterparty exposure as closely as possible based on the data available
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Topics
1. Invoicing and payments
2. Collateral model
3. Required setup
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BRP's settlement bank
Account balances
Invoice
Information and money flows between the parties
eSett's invoice operator
(Basware)BRP's invoice
operator
Request to release excess collateral
Collateral requirement
Request for Transfer
Payment instruction
Instruction to increase collateral
Request for Transfer
eSett's bank
(Nordea)
Other account
Collateralincrease
Collateral release
Credit
Debit BRP's settlement
account
eSett's settlement
account
BRPeSett
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Required setup for invoicing
• Agreement with e-invoice operator for receiving e-invoices
• Inform eSett of the e-invoicing operator and e-invoicing address to be used
• BRP can agree with its e-invoice operator about the format in which it wants to receive the e-invoice
– eSett will issue invoices in Finvoice 1.3 format
– Invoice operators will handle the necessary translation if the BRP chooses to use another format
• If the BRP does not want to receive e-invoices it shall inform eSett of an email address to which the invoice will instead be sent in PDF format
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Required banking setup• Bank account (”Settlement Account”) in approved Settlement Bank
– Account has to be held in Norway, Sweden or Finland
– Currency can be EUR, NOK or SEK
– Different settlement account per country possible if operating in multiple countries
• Signing of Pledged Cash Account Agreement
– Pledge of account to eSett to enable use as collateral
– Right of disposal to eSett to enable direct debiting of account
– Right for eSett to receive information about balances and transactions on account
• Signing of other required agreements with Settlement Bank
– E.g. agreement to enable same-day value payments
– Settlement Bank to advise what agreements are required
• List of approved Settlement Banks published on www.eSett.fi (forthcoming)
– BRP to notify eSett if it would like to use a bank that is not yet on the list
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Requirements on Settlement Banks
• Domicile in Norway, Sweden or Finland
• Member of SWIFT or operating through another SWIFT member
• Ability to execute Request for Transfer instructions / MT101 with Same Day Value according to eSett’s schedule
• Ability to include remittance information from incoming MT101 in outgoing payment
• Ability to report balances in MT940 format according to eSett’s schedule
• Credit rating on at least the following level:
– Standard & Poor's: long term rating “A”
– Moody's: long term rating “A2”
– Fitch: long term rating “A”
• Valid Settlement Bank Agreement with eSett
• Valid bilateral agreement with eSett’s bank (Nordea) for execution of Request for Transfer transactions
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Service fees
• The BRP is responsible for all applicable service fees for the settlement bank services
• eSett is not responsible for any fees or costs incurred by the Settlement Bank
• The Settlement Bank can apply any pricing model to the settlement bank services
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Schedule for preparations2015 2016
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
Settlement Bank Agreement published
Signing of Settlement Bank Agreements
BRPs to obtain Settlement Bank services
eSett operating imbalance settlement for Finland
eSett operating imbalance settlement for Norway and Sweden
31 May
1 Feb
18 Apr
• Settlement Account opened and Pledged Cash Account Agreement signed at the latest 1 month before go-live
• Initial collateral posted at the latest 1 week before go-live
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Contacts
Minnakaisa Ahonen
CEO, eSett Oy
+358 50 5425427
Paula Berg
Finance Manager, eSett Oy
+358 40 4773551
Fredrik Åström
Finance responsible in NBS project
+358 40 7720548
eSett Oy
Läkkisepäntie 21
P.O.Box 530
FI-00101 Helsinki, Finland
www.esett.fi