Recovery of Costs due to Invalid ExAnte Contracted

Recovery of Costs due to Invalid Ex-Ante Contracted Quantities in Imbalance Settlement 25 th January 2018

Background • Specific extremely low probability risks, related to Contracted Quantities not be accepted by the Balancing Market, which require measures to be put in place for recovery of costs. • Workable solution needed for I-SEM go-live. Not getting agreement on a workable solution could create a risk for go-live. • Potential changes to the TSC, SEMOpx Market Rules, ECC Clearing Conditions to assist with the mitigation measures • The modification proposal was updated for this meeting (V 2), but there is further developments as outlined in this presentation. 2

Recent Developments • We took on board the questions and arguments raised at last Mods meeting or subsequently. e. g. • • SEMOpx cover risk and imbalances Incentive for SEMOpx to be careful Balancing Market Participants not being backstop Use of Ex-Ante and Balancing collaterals • We discussed further within SEMOpx, and with ECC, about how we could handle remaining risk of the invalid contracted quantity scenarios identified. • And have come up with a revised proposal that helps to address the concerns while still providing a workable solution for I-SEM go-live. 3

Recent Developments • Based on this a further revised solution has been proposed • V 1 – original modification proposal 12 th Dec 2017 • V 2 – revised modification proposal issued 12 th Jan 2018 • V 3 – revised proposal provided today 4

Key Principles - Revised Solution (V 3) • Measures under the TSC must form part of the solution to recover costs from the Relevant Participant. – e. g. withholding payments in balancing market from the relevant Participant. • ECC as Central Counter Party and Balance Responsible Party will adhere to the imbalance settlement payment deadlines • No short pay or backstop of costs by Balancing Participants • This solution applies for Day 1 only 5

Changes in Revised Solution V 3 • Provide time for SEM NEMO’s to recover costs in order to pay imbalance • Notify MO and Participants of the Invalid Contracted Quantities • SEM NEMO’s remain balance responsible in case of Invalid Contracted Quantities • SEM NEMO to take actions to recover costs • MO to withhold payments to relevant Participant under TSC for Invalid Contracted Quantities to minimise imbalance costs • Use Balancing Market Posted Credit Cover from the relevant Participant to • • minimise imbalance costs Sharing of information between MO and SEM NEMO on the relevant participant payments and collateral in order to co-ordinate the recovery of the costs. Hold the SEM NEMO harmless for credit cover requirements related to invalid Contracted Quantities Utilise the short pay function to until costs are recovered by the SEM NEMO Uses Balancing Market Participants as the ultimate backstop for unrecovered costs Green – additions from V 1 proposal Black – unchanged from V 1 proposal Red – removals from V 1 proposal

Revised Solution (V 3) – Day 2 • SEMOpx would request the commitment of the mods committee to work toward a solution for Day 2 that takes account of the trading halt due to insufficient balancing market collateral, mitigates the risks, and minimises the overall costs of participating in the I-SEM markets. • These measures may include further amendments to the TSC or Market/Clearing Rules and, if seen as necessary, other measures such as delivery margins. • These would need to be discussed and agreed prior to the Day 2 implementation. • We would like this commitment noted as part of the approval of the modification. 7

Summary of Revised Legal Drafting ü Ensure Invalid Contracted Quantities are covered as payment obligations of the Relevant Participant ü Definition of Invalid Contracted Quantities ü Notification of Invalid Contracted Quantities event by SEM NEMO to allow MO to take actions which include: ü MO withholding payments to the Relevant Participant ü MO use balancing collateral of the Relevant Participant ü Sharing of information to co-ordinate recovery of costs ü Assigning of costs to Relevant Participant for credit cover ü SEM NEMO to take actions to recover costs as well ü New definitions of terms 8