International Comparison The...

International comparison of Supplier of Last Resort rules and regulation | Februari 2015

International Comparison

The Netherlands


1. Introduction

On behalf of TenneT, GTS, Ministry of Economic affairs and ACM (regulator), UMS is assessing the current rules & regulations related to “supplier of last

resorts” in the Power and Gas industry. For this assessment, we want to compare the situation in the Netherlands with the situation in Belgium, England and

Germany.

To guide this comparison, we have made the format as described in the following chapters. This format has been filled out for the Netherlands, Belgium,

England and Germany. It has also been discussed with representatives from the respective countries.

For good order; aim of this comparison is to get a feel of the principles and approaches used in other countries in order to mutually benefit from the

provided insights. We are not aiming for a complete legal description.


1.1 Key figures and characteristics

Topics The Netherlands

1. National consumption in (E and G) 1.1. maximum demand statistics (gas per day) 1.2. % protected / non Protected Customers

120 TWh/y (power)/ 400 TWh/y (gas)

Circa 1/3 of the volume is delivered to Protected Customers (“households”)

2. Production capacity (firm), 2.1. E-Production 2.2. gas storage 2.3. domestic production for gas

Power: Circa 25 GW firm capacity installed (some short term mothballed)

Gas (all max daily numbers): Production: 3 TWh, gas storage 3,8 TWh,

3. Import/Export

Saldo: E: 20 TWh/y imported; 5 TWh export to Belgium, 5 TWh export to UK, 30 TWh import from Germany and Norway

Gas: Netherlands is a net exporting country, circa 350 TWh/y

4. Import/Export capacity

E: 2500 MW Germany, 1400 MW Belgium, 1000 UK, 700 Norway (all bi-directional)

Gas (max daily numbers): import 2,4 TWh (50/50 Norway/Germany) Export: 2,8 TWh

5. Fuel mix policy “Energieakkoord”: For electricity, government wants to grow renewable portfolio (mix of wind, solar and biomass); decreasing market share for conventional generation, especially because demand is dropping. High share of Combined Heat & Power Generation in the conventional mix.

For gas, government focus on making the Netherlands a gas hub; no subsidies, but government supportive to commercial initiatives (storage, LNG terminal). Gas is imported and exported, including import via an LNG terminal. Green gas neglectable in volume. Expectation is that Holland remains net exporter of gas for coming decennium,

6. Security of supply risk Power: due to thermal overcapacity, not on the radar screen; government awaits developments in Germany (regarding capacity tariff) and follows developments in


Belgium.

Gas: Significant gas reserves. However, earth quakes may make this less winnable than expected, but no short term issues expected

7. Investment climate 7.1. Price levels 7.2. Investment climate for production 7.3. Competition on retail side (margin indication)

Power: Wholesale price level not attractive for fuel based production (esp. not for gas), high retail price pressure. Renewable support systems reasonable attractive.

Gas: TTF is benchmark for Europe; wholesale gas prices are relative stable and still seem attractive for upstream & midstream investments. Increasing retail price pressure, slowly decreasing demand (isolation)

8. Demand Suppliers 8.1. Concentration ratio, market share of top 4

companies (T4) 8.2. Type of ownership (private/public,

local/international group 8.3. Market share largest party 8.4. Churn / # customers

The 3 largest Power and Gas suppliers are Eneco, RWE/Essent, Vattenfall/NUON. The no4 position is, depending on who you ask, for GDF, Greenchoice or EON. In the industrial gas market, Gasterra is a major player (in addition to the parties mentioned above), focusing on wholesale/large industrial level.

The market share of the top4 will be around 80% (small and mid sized customers). Every year, circa 12% of protected customers switches supplier. Eneco is municipality owned, Gasterra 50% Dutch state, 50% private. Other large players are owned by companies abroad (RWE, Vattenfall, EON, GDF) or majority privately owned (Greenchoice)

9. Balance Responsible Party (BRP)

There is a split in BRP between trading BRP’s and full service BRP’s (involved in physical supply & demand, and also in trading).

A BRP does not have to be the same party as the supplier; supplier and BRP are separate roles.

The major ‘full service’ players are RWE/Essent, Gasterra (gas), Vattenfall/NUON, EON, ENECO, GDF Suez.

The required bank guarantee (posted to TSO) for E is circa 100 k (for a 50 MW participant) and 1 mln (for a 500 MW participant). In addition, there are some ‘direct bank access’ facilities (“inzake regeling”) for TenneT, limiting payments terms and


giving an early warning signal in case of financial constraints of the BRP.

The required bank guarantee for G is conditional. GTS determines credit rating of the company. If rating is lower than Baa2 (Moody’s) or BBB (S&P) bank guarantee is necessary. In other cases credit limit is calculated depending on investigation. Exposure to be hedged is (roughly) the sum of the value of transported gasvolume during 3 days and the value of 3 months of booked capacity. TTF trading: € 50.000,--There are also several trading houses and banks active (trading BRP). In general, both in power and gas, there is a relative liquid market.

10. Exchanges & Clearing APX (power spot), ICE-Endex (gas & power term, gas spot), EEX (gas & power term, gas spot).

Clearing via IceClear Europe, ECC and APX clearing.

Volume via cleared exchanges significant (~50% of trade volume). The ICE Endex and EEX are supervised by respectively BankofEngland and Bafin. APX is (to our knowledge) supervised by AFM.

11. Production 11.1. concentration ratio 11.2. type of ownership (private/public,

local/international group

Power: the 4 large production companies (all non-dutch companies, mostly privately owned) control circa 80% of the installed conventional capacity.

Gas: NAM is biggest production company (70%). Private (international) ownership (Shell, Exxon).

Production is not separately regulated.

12. Metering Companies

General: Metering companies have historically strong connections to DSO’s. Metering is regulated via the so called Measurement code.

Protected customers: supplier responsible for collecting measurement data; 3 yearly control by DSO.

Non-protected customers: They are themselves Measurement Responsible, various private parties provide this service.


Metering companies report via EDSN to DSO, DSO reports to TSO the allocation per PV (daily basis, 15 min granularity). Profiled customers are reconciled with measured data up to 21 months later (no impact on unbalance allocation)

13. Strategic Reserve 13.1. -energy only markets

Power: Market driven; TenneT will only act when there are severe disturbances and in case of physical issues in grid. TenneT contacts primary & secondary reserve and emergency power.

Gas: Market driven, however GTS is responsible for the additional supply in case temperature is below -9 - -17 degree.

Any other comments?


2. Parties

Topics THE NETHERLANDS

TSO

- Type of ownership

Tennet for E (110kV+), state owned

GTS for G, state owned

Major DSO’s 3 large DSO’s (Enexis, Liander, Stedin)

7 small/medium sized DSO’s

All DSO are publically owned

Major Retail Suppliers (“Leveranciers”)

Nuon (Vattenfall)

Essent (RWE)

Eneco

Nederlandse Energie Maatschappij

Greenchoice

Oxxio

With exception of Eneco are all retail suppliers privately owned


Metering Companies Major metering companies are linked to DSO’s.

Circa 7 new entrants, however relative small market share.

Major Balance Responsible Parties (fully licensed)

For E: RWE, Vattenfall, GDF-Suez, Eneco, EON, PVNed (Delta/Eneco)

For G: Gasterra, Vattenfall, RWE Supply & Trading GmBH, E.ON Global Commodities, Eneco Energy Trade, Electrabel, RWE Supply & Trading Netherlands, GDF SUEZ, Dong Naturgas, Delta Energy, samen goed voor 70% marktaandeel.

Major Producers (gas:including importers) For E: GDF, RWE, Vattenfall, EON; For G: NAM, EON, RWE, Gazprom export,

Recent Relevant bankruptcy Trianel, 2013 aantal aansluitingen Gas: 3000 KV en 100 GV (als PV’er ca 10.000 aansluitingen) . Electra: 3000 KV en 350 GV. 80 GWh (power respectively gas) customers

3. Regulatory Framework – description of the roles

Topics THE NETHERLANDS

1. Customer segmentation from regulatory point of view

‘Kleinverbruik’ (< 3*80A, or < 40 m3/h) and ‘Grootverbruik’. ‘Kleinverbruikers’, (hereafter Protected Customers) are well protected under market regulations and will be assigned new suppliers/PR’s through regulation. ‘Grootverbruikers’ are deemed to be professional parties and have their own responsibility to contract new parties per role.

2. Regulator 2.1. - mandate

- ACM assigns licenses to suppliers of Protected Customers: (Leveringsvergunning),no bank guarantee, just plausibility check

- ACM regulates ‘Kleinverbruikers’ prices through a cap-regulation methodology - ACM assigns to TSO’s regulatory authority to regulate program responsibility (BRP) and metering

(Tennet for E and G) - No specific regulation for power exchanges - Clearing houses are regulated by national regulator in country of origin on basis of European Financial

regulation


3. TSO - E Tennet; responsible for national system stability, consistency check of trades and security of transport analysis. Tennet manages balancing primarily through price incentives towards the balance responsible parties. Direct control of steering of demand and supply is last resort. Tennet is responsible for the inbalance and reconciliation financial settlement, the data needed for this is provided by DSOs. TenneT is also responsible for licensing of BRP (E) and Measurement Responsible parties in E and G.

Market facilitation for allocation and reconciliation

Tennet knows unbalance for country and allocates after 10 working days to responsible BRP part. Invoicing once a week. Payment on average after 18,5 days (assumption payment term is 1 day)

Reconciliation after 21 months

Issue BRP and MV licenses (E and G)

BRP license requires credit support (circa 100 kEuro at start for a small party). In addition, certain direct access banking facilities need to be arranged.

4. TSO - G GTS; responsible for system stability and security of transport and security of supply between -9 C and -17 C.

GTS manages balancing primarily through price incentives. Steering of demand and supply is last resort

Market facilitation for allocation and reconciliation

‘near real time’ allocation to program responsible. Maandelijkse factuur, betalingstermijn 14 dagen.

GTS issues BRP licenses. BRP license requires credit support

When does Program Responsible pay, payment terms? Monthly, daily check creditworthiness. Only bank guarantee/deposit/parent company guarantee if creditworthiness is too low.


5. DSO Assuring Copper plate and congestion management

Responsible for meter installation, connection as a whole, connection register, allocation only limitedly responsible

Capacity tariff

Capacity tariff is invoiced to Supplier for Protected Customers. Direct invoicing to Unprotected Customers

Credit risk is socialized through regulation

6. Supplier ACM license system (plausibility check, no bank guarantees) for delivery to protected customers.

responsible for invoicing grid and taxes through ‘leveranciersmodel’ to Protected Customers (and also responsible for the correct metering values in the data collecton systems)

Pre-payment mechanism allowed. No regulation on open positions

Supply to non-protected customers is not regulated.

7. Balance Responsible License system, including obligatory bank guarantee based on past position (E) or booked capacity and daily check unbalance position (G)

No regulation on open forward positions. Primary responsibility for balancing of grid

Annual system testing and IT certification process is in place

Responsible for correct programs (trade and transportforecast etc) on behalf of customers (local as well as portfolio requirements; portfolio is financially speaking the most relevant )

8. Production No separate role in the regulation (apart from REMIT)

9. Metering Companies Tennet issues licenses, Annual IT and technical testing and certification process is in place


No bank guarantees are asked for this market role

Regulation on technical criteria of metering installations by technical codes.

10. Market Facilitation DSO’s (Allocation and reconciliation) and connection register (outsourced to EDSN)

GTS (balancing, financial settlement, allocation and steering signal) and Tennet. (balancing, financial settlement, allocation)

In regulatory framework EDSN has no responsibility of its own, its is regulated through the DSO’s.

11. Exchanges No separate role in the regulation, APX is reference for settlement prices for E, ICE for G

These reference prices are used in almost all contracts between market roles and are being used as reference value in different market processes

4. Regulatory Framework – system stability

TOPICS THE NETHERLANDS

1. Supplier of last resort Principle: other suppliers take over, first on voluntary (market forces, triggered by administrator) basis, otherwise see below:

For Protected Customers ‘restverdeling’ (mandatory pro rato distribution) to the remaining suppliers. Pricing to Protected Customers is E: regulated (APX based) or G: no direct regulation

Non Protected Customers need to find new suppliers themselves, in the intermediate period the BRP will take over the role of supplier (and can ask for disconnection in case he does not want that role)

Non Protected Customers (> 50.000 m3 per hour) need to find new suppliers themselves, after maximal10 days the customer will be disconnected (in theory)


2. Balance Responsible Party of last resort

Principle: other BRP take over.

Protected Customer has no BRP responsible, supplier needs to contract new BRP

Non-protected customer can contract new BRP by himself, or via het supplier.

Tennet (respectively GTS) is entitled to revoke the BRP license in case of a bankruptcy (or in case of serious other non-conformities). Tennet (GTS) can provide an extension of the license for maximum of 10 days to administrator of BRP on its terms and conditions. In case license is revoked (cq no extension given), the following happens:

if supplier has contracted new BRP same day: switching within 1 day

if supplier has not contracted a new BRP at start of next day: o switching to other BR pro rato contracted transport for protected customers and customers <

10 MW (respectively < 50.000 m3/h) o disconnecting for customers > 10 MW (respectively >50.000 m3/hr)

No guarantee that supplier and BRP remain the same for customers in the ‘restverdeling’

3. Legal Framework Bankruptcy law prevails over E/G legislation. No special position for power and gas companies, but article XX in bankruptcy law gives some limitations for disconnecting customers. Trustee has to maximize value of the estate [this part still needs to be checked]

4. Experiences with bankruptcies Trustee sells parts of company (or customer base) with value under high time pressure, information on the processes for the trustee due to the specific nature are very limited.

Information across market roles is limitedly available (due to confidentiality etc.)

Some parties have no incentives for rapid action (switching away from BRP or supplier by customer)

Most involved parties catched by surprise, no standard procedures in place; unexpected risks emerged for certain parties (for example: certain cost are covered via burden sharing over the remaining participants)

In first instance, TSO is guaranteeing the unbalance costs in case a BRP fall away. Those costs are primary


recovered from the BRP bank guarantee; in case more funds are needed the coverage is not standardized and is expected to be agreed with the regulator on case by case basis.

5. Role regulator ACM gives its consent to the case specific solutions for balance responsible parties as applied by TSO and DSO.

In case of suppliers, ACM consults TSO ‘s and DSO’s for case specific solutions. ACM manages the process

6. Role TSO Manages the integrity of the technical and administrative system and the financial relationship with its network user. Technical and administrative system stability during these times have always had the primary focus, limited focus on limiting financial impact for other participants. Focus is to contain the issue and try to avoid destabilization due to cascading to other market parties and market roles.

7. Role DSO Facilitates the pro rato distribution (through EDSN), the distribution ratios itself are guided by the TSO

8. Role Market facilitator Executes the pro rata distribution on the basis of the instructions of TSO’s (and after consent ACM). Market facilitator informs market parties of changes in customer base. Market facilitator has based its operational processes on the assumed capacity of the market of ca1 mln contracts. Largest suppliers have up to 5 mln contracts

9. Measurement Company of Last resort

No special regulation for Measurement Company of last resort, however emergency profiles etc. are in place

10. Production There are no special rules for production in case of bankruptcy.

11. Exchanges ICE/Endex is regulated by BankofEngland. Apx is (to our knowledge) regulated by AFM. No special arrangements for ‘exchange of last resort’.

12. Process and timelines for interventions

Total max 10 days; Curator: max 5 days; Decision making 1 day; Possible extension by TSO/ACM: 2 days, Supplier(or PV) of last resort- allocation 2 days. Detailed process maps available, however no formal approval process and/or formal embedding in codes.

13. Experience Regulation is based on Protected Customer protection, the customer situation is the starting point for this regulation.

Cases have a unique character that requires tailoring of the regulation to the specific case to minimize the impact of the bankruptcy on society as a whole. Each specific solution to each case had a constructive process between the regulator and the other parties involved.The ‘threat’ of disconnecting (in relation to bankruptcy


of supplier/BRP) is seen by the consumers as a theoretical threat. So far, all bankruptcies have been relative small players with no significant impact on production or non-involved players.

14. Financials (who picks up the bill for prepaid energy, guarantees)

TSO’s are the guarantors of last resort in specific cases, coordination with ACM required and coverage needs to be agreed on case-by-case basis. Exact financial flows are not defined.



Germany


UMS Ref. No: NP 8088


1. Introduction



Germany.

To guide this comparison, we have made the format as described in the following chapters.



1.2. Key figures and characteristics

Topics Germany1

1. National consumption in (E and G)

1.1. maximum demand statistics (gas per day)| 1.2. % protected / non Protected Customers

577 TWh/a (power; own generation incl.)/ 815 TWh/a (gas) Max Power demand: ~100 GW (E)

Max daily Gas demand: ~ 4 TWh/day (G)

Circa 1/4 [E]/1/2 [G] of the volume is delivered to Protected Customers (“households”)

The German gas grid is less extensive than in Holland; heating is partly done with gas,

1 Sources for this report: Bundesnetzagentur (Monitoring Report 2013; List of Power plants; website; other reports); bdew - Bundesverband der Energie-

und Wasserwirtschaft e.V. (website; reports); various websites from market participants


partly with district heating, oil and biomass.

Germany is the home of the so called Energiewende; phasing out nuclear power and stimulating the production of wind and solar. The graphic below represents production of electricity; currently circa 25% is coming from renewable sources.


2. Production capacity (firm),

2.1. E-Production 2.2. gas storage 2.3. domestic production for gas

Power: Circa 183 GW installed capacity installed (44% renewables)

Gas: storage total volume 230 TWh, 0,1 TWh/h (app. 2 TWh/d) injection capacity; 0,2 TWh/h (app. 4 TWh/d) withdrawal capacity Domestic production Gas: 100 TWh/a

3. Import/Export

Saldo: E: 29 TWh/a imported; 51 TWh (see figure below for countries) Gas: Import circa 1,535 TWh/y (Russia; Norway; Netherlands) Export: 667 TWh/a (main recipients: Czech Republic, the Netherlands and Switzerland, France)



Electricity: total Cross-border capacities ~ 22 GW (import & export); esp. Switzerland (4 GW import; 1 GW export); France (2 GW import; 2,5 GW export); Netherlands (2,2 GW import/export)

Gas: find attached a list with all German cross – border and market area connection points; this contains flow capacities, reverse-flow capacities and several restrictions [Country-specific info_Germany_technische Jahreskapazitäten.pdf]


5. Fuel mix policy

According to a study prepared for the ministry of economy and energy, the total primary energy consumption will drop in the coming years. Renewables and Gas will have increasing shares; oil, coal and nuclear will have decreasing shares (nuclear totally expelled by 2022).

Political objectives for gas:

- reduce dependency from imports (increase biogas share (app. 60 TWh/a from biogas plants by 2020 planned, being 8% total gas supplies; actual value 5 TWh/a),

- diversification of import portfolio a lot in mind but with low activity rate (no progress on LNG terminal, shale gas discussion stalled, latest added pipeline was another connection to Russia). Germany remains major European gas wheel with important hub facilities;


internally focus is on reducing North-South transport constraints. - Major challenge in next 15 years is to replace L-gas by H-gas due to rapidly

declining L-gas production in Germany and NL. With replacement diversification of H-gas imports is on the agenda. Diversification could be supported by enhancement of West-East connection and more access LNG infrastructure.

6. Security of supply risk Power: due to potential shortages in South Germany in winter time, risk reducing measures were taken to align power transmission, gas transportation and power generation activities. Local power generation facilities are set on stand-by by a commercial contract with TSO-E (gaining additional [local] balancing energy). When shortages are expected 1) interruptible consumption, 2) industrial / commercial consumption, 3) private consumption are reduced or out taken [would be different hierarchy than in Netherlands, where they first would cut off rural areas and only then industry];

Gas: So far, import reductions during winter time could be coped with easily due to abundant storage capacity. Currently, a stress scenario is investigated where imports from major resources are interrupted for several months. According to this: If the major interconnection point Greifswald is closed the other interconnection points will still be able to cover 190% of German gas demand. Although there seems to be no real threat political discussion is very active: Hold (strategic) storage stock volume of 10 bn m³; make storages regulated asset under TSO-control (in constraint situations); closing of storage facilities (Reitbrok and Kalle) due to uneconomic business cases (Storage customers are only willing to pay tariffs based on summer-/winter-spread but not based on net reserve or net flexibility).

Opinion from expert evaluation of draft report: Security of (gas) supply cannot be treated as a national issue but due to multilateral dependency from gas imports an European approach has to be agreed.

According to German Energy Act in an emergency (supply is insecure) TSO-E and TSO-G are eligible to take various kinds of measures to secure supplies; in G main market based instrument Balancing Energy is predominantly sourced on DA and WD basis


(strict Regulatory requirement). Non market based SoS instruments (binding storage gas orders, downstream curtailments) are in hands of TSO-G and ultimately as in hands of government. all measures are contracted in advance. TSO are not liable for additional costs socialized.

If delivery constraints get life threatening (incl. international duties) government is obliged to command security measures (Energy Security Act). Government is liable for these measures TSO have far range responsibilities to deal with most situations on their own.

7. Investment climate

7.1. Price levels 7.2. Investment climate for production 7.3. Competition on retail side (margin indication)

Power: Wholesale price level are even lower than in NL and are not attractive for fuel based production (esp. not for gas),

high retail price pressure (e.g. Munich – 4 person household [5,000 kWh/a] – price level SWM – Stadtwerke München [1,370 €/a (commodity, grid fee, taxes and dues)]; cheapest competitor [1,071 €/a for the first year; based on 150 € change bonus plus 15% new customer bonus]; Difference equals 58 €/MWh price difference on commodity level (135% Phelix Peak Future Cal-15; 10/06/2014) Suppliers “buy” customers!

Renewable support systems were very attractive and decoupled from market forces. Currently system is becoming slightly more sober and market elements are being introduced. Due to subsidies (renewables) carbon market / intention does not work (it is cheaper to buy certificates than to invest in new sustainable technologies one reason why lignite power production actually is more attractive than gas).

Gas: In Germany NCG-hub, Gaspool hub and TTF are used for price references on wholesale base prices are quite similar is benchmark for Europe;

Gas demand is estimated to be stable over the coming years due to the fact that energy savings are compensated by oil-to-gas conversion

Increasing retail price pressure, (e.g. Munich – 4 person household [20,000 kWh/a] – price level SWM – Stadtwerke München [1,200 €/a (commodity, grid fee, taxes and


dues)]; cheapest competitor [874 €/a for the first year; based on 120 € change bonus plus 15% new customer bonus]; Difference equals 16,30 €/MWh price difference on commodity level (67% NCG-Natural-Gas-Year-Futures; Cal-15; 10/06/2014).

8. Demand Suppliers

8.1. Concentration ratio, market share of top 4 companies (T4) 8.2. Type of ownership (private/public, local/international group 8.3. Market share largest party 8.4. Churn / # customers

The 4 largest Power and Gas suppliers are E.ON, RWE, EnBW and Vattenfall ([E]: 46% market share; [G] app. 33%). Business is operated by their various local and regional subsidiaries.

Ownership/customers:

E.ON: 72% international institutional investors; 28% private investors; 35 m customers globally (no separate figures for Germany available); strong orientation on shareholder value; suppliers belong to E.ON Energie Deutschland RWE: 86% international institutional investors; 14% private investors (25 municipalities included); 23 m customers in Europe; (8 m electricity/gas private & commercial customers in Germany in various municipalities under RWE Deutschland AG Management ) EnBW: 92% owned by the state Baden-Wurttemberg and nine municipalities; rest energy related or private investors; 5.5 m customers Vattenfall: 100% Vattenfall Sweden (is owned by the state of Sweden); 3 m customers in Berlin and Hamburg (8% market share)


Circa 1,200 demand suppliers in Germany; main suppliers are the 800-900 mainly municipality owned Stadtwerke supplying app. 80% of local demand in the municipality. Biggest Stadtwerke is Stadtwerke München with 17.5 TWh/a electricity (3% German market share); 99.1 TWh/a Gas (12% German market share)

75% of German energy demand is supplied by 7.5% of the suppliers; Reason for strong fracturing: “Want-my-own-utility-company” behavior of municipalities; utility is normally a municipality’s cash-cow and municipalities themselves are responsible for giving grid operation concessions (most of the local grid operators are not ownership and management unbundled from local supplier).

Illustration: Stadtwerke Blankenburg (combined supplier and grid company) has 34 employees to supply 2954 local customers via 160 km LV grid and 60 km MV grid.

Many of the suppliers are way too small to build up own wholesales purchase strategies / resources and make use of an upstream supplier (either one of the big Four or another of the wholesale participants or a purchase communities like Trianel or Thüga).


Fictive example: E.ON supplies Stadtwerke Solingen (local supplier for the city of Solingen) with gas; SW Solingen is assigned to one E.ON sub-balancing group in the balancing group contract of E.ON. All allocations for SW Solingen are assigned to this sub-balancing group (exit quantities) These are balanced with E.ON nominations (entry quantities). In this fictive but often operated example SW Solingen is supplied by means of a full-service contract with no direct access to the wholesale market and no risks of imbalances.


In Germany there are only full service BRP’s (so no separate BRP for trading) – it is the BRPs decision which kinds of business he realizes in the balance group; BRP’s can build up complex structures of sub- –balance groups; mapping the separate roles of BRP and supplier (compare example under 8. Demand suppliers; accounting – BRP are following the same objectives by joining full service BRP).

[E]: Although having one contract, BG are partly used contentwise by BRP (Supplier, Trader, Generator, Renewable, Direct, …); Two BG can be jointly balanced – one for entry, the other for consumption.

The major players are E.ON, RWE, EnBW, Vattenfall for electricity and additionally Wingas for gas. There are also several trading houses and banks active. In general, both in power and gas, there is a relative liquid market.

Deposit (i.e. Bank guarantee) (posted to TSO) is optional and can be demanded by TSO


[E] or Market Area Manager [G] on expectation of non-payment. These expectations can be based on non-payments in the past (even if it was with another TSO or party; [E] two non-payments within the last twelve months), application for bankruptcy, minor ratings with listed rating agencies. [G] Ratings from i.e. S&P and Fitch BBB- or lower; Moody’s Baa3 or lower. In those cases deposit shall cover the highest monthly invoice within the last 12 months or 100,000 € for a new balancing group contract (to be adjusted after the first invoice). BRP can avoid a deposit by monthly pre-payment; [E] ratings are not specified in the contract; Deposit is determined by means of used energy per seven days or traded energy within 33.5 hours multiplied with an average balancing prize; pre-payment is not used. Main concern is electricity entry: No Entry nomination for day-ahead by 2:30h (D-1) leads to clarification measures. Worst case: No clarification possible termination of BG; information of joined parties. BUT: Termination will not come effective for D, for D the imbalance would have to be covered with reserve energy Follow-up process is not agreed on and can lead to time and liability issues.

Conclusion: Deposits can only be taken in when there are concerns about the BRPs bonity, his payment behaviour, … There is no obligatory deposit for all BRPs.

Billing

Terms “Regelenergie” and “Ausgleichsenergie”

1. Regelenergie (control energy) – physical energy procured by TSO-E/Market Area Manager to keep system stable (“real time”)

2. Ausgleichsenergie (balancing energy) – Difference between entry and exit in the balancing group used for billing purposes (“monthly/yearly”)

Electricity: quarter-hourly balancing of entry and exit; balancing energy is weighted with quarter-hour shape price “reBAP”, resulting out of the costs for procured control energy


Gas: daily balancing of entry and exit; Invoice consists of three to four price elements:

Balancing energy weighted with balancing energy price (price referring to daily second-highest and second-lowest reference prices at NCG-hub, Gaspool-hub, TTF and Zeebrugge hub); From the Market Area Manager’s point of view the second-highest price x 1.2 is taken to sell balancing energy and the second-lowest x 0.9 is taken to buy balancing energy.

Structuring fee is used to give an incentive for hourly balancing although daily balancing is used (e.g. 24h * 100,000 kW * 0.34 ct/kWh = 8,160 €/d)

Control and balancing energy apportionment is used to balance the cash-flows all over the system to zero. The actual apportionment is 0 ct/kWh (is reviewed every six months)

Conversion fee is used, when exchanging energy between low caloric gas BG and high caloric gas BG (actually 0.4 ct/kWh)

10. Exchanges & Clearing There is de facto only one exchange in Germany: EEX, with clearing house ECC. EEX trades both spot and term contracts for power and gas. Products are comparable to the Dutch market. The power market in Germany is however much more liquid (including intraday); the gas market is less liquid.

Legally, EEX consists of several sub entities (like EPEX spot and PEGAS) often including other owners (like PowerNext from France). All products are however cleared via ECC.

Volume via cleared exchanges significant (~50% of trade volume)

11. Production

11.1. Concentration ratio| 11.2. Type of ownership (private/public, local/international group

Power: the 4 large production companies control app. 78% of the installed conventional capacity. Renewable capacities are annually increasing by app. 10 GW and have a share of app. 44%

Gas: No significant production in Germany (app. 10% of total consumption; 6% of total amount transported).


12. Metering Companies

General: Liberalisation of Metering started 11/01/2011. Competition is still low. DSO is responsible by default.

Metering processes are standardized by Bundesnetzagentur and do not differ between protected or non-protected customers. Metering companies have to register with DSO (pass communication check and admit to technical standards; no financial check required)

Metering companies report digitally to DSO, DSO reports to TSO the allocation (daily basis, 15/60 min granularity [E/G]). Metering issues can be reconciled after allocation with no impact on unbalance allocation

13. Strategic Reserve

13.1 -energy only markets

Power: Market driven; TSO-E are responsible for contracting reserve capacity (minimum: Minute reserve) and are eligible to “force” delivery, consumption or non-consumption. This enforcement is based on contracts; as far as energy was used for system balancing costs are socialized via balancing energy bill

Gas: Market driven, however TSO-G de facto are responsible for the additional supply in case of under or over supply. They are authorized to force delivery or delivery-stop from BRP on a similar contractual base as TSO-E

Any other comments?


2. Parties

Topics Germany

TSO

- Type of ownership

Electricity (TSO – E):

1. Tennet TSO GmbH, 21,000km HV grid length; owned by Tennet NL 2. Amprion, 10,700km HV grid length; privately owned 3. 50Hertz, 10,000km HV grid length; privately owned 4. TransnetBW, 3,360km HV grid length; privately owned

Gas: 11 TSO-G (app. 33,000 km HP grid length in total) plus 2 Market Area Managers The biggest four TSO – G (Grid operation) are

1. Open Grid Europe GmbH; 11,700km HP grid length; privately owned 2. ONTRAS Gastransport GmbH; 7,200km HP grid length; privately owned 3. Thyssengas GmbH, 4,200km HP Grid length; privately owned (Macquarie) 4. Gasunie Transport GmbH; 3,200 km HP Grid length; owned by Gasunie NL 5. Gascade Gastransport GmbH; 2,400 km HP Grid length; owned by BASF and Gazprom

Market Area Managers (Balancing Group and Energy Management; Operation of gas hub; no grid operation)

6. NetConnect Germany GmbH & Co. KG; owned by 6 TSO-G including Open Grid Europe and Thyssengas

7. GASPOOL Balancing Services GmbH; owned by the other 5 TSO-G including ONTRAS Gastransport and Gasunie


As Shareholder TSO-G are liable for pre-financing operational costs of Market Area Managers (Control and balancing energy apportionment account). In 2012 this were several 100 M€ for each Market Area Manager; actually these accounts are quite in balance.

Major DSO’s There are more than 900 power and gas DSO in Germany (760 of them with less than 100,000 customers; shareholder: 90% municipalities; 10% private or federal states).

Biggest DSO:


DSO-E/G (4/900) Figures

Westnetz (RWE) 215,000 km; 5,050 TC*; E/G

www.westnetz,de

Bayernwerk (E.ON) 158,000 km; 2,522 TC; E/G

www.bayernwerk.de

EWE Netz (EWE) 136,000 km; 1,882 TC; E/G

www.ewe-netz.de

Netze BW (EnBW) 104,000 km; 2,868 TC; E/G

www.netze-bw.de

TC*: thousand customers


Large number of local Retail suppliers (e.g. Stadtwerke) in most cases joined up in one company with the local DSO (Deminimis rule: less than 100,000 connection points no legal unbundling required; only separate balancing and (process-)data storage).

80% of the households / 40% of business/industrial customers are supplied by local retailer; local retailer normally has an upstream supplier being the BRP

Depending on the grid customers can choose between 70 – 90 retailers (local suppliers from other locations, retailers related to the big energy corporations or international suppliers, new entrants)

Metering Companies DSO is default measurement point operator unless another company requires this role (has to be registered by DSO according to standardized rules). Even if there is a metering company DSO remains the central hub for metering data.

Metering companies are either related to DSO or retail suppliers or metering companies from other industries (i.e. TECHEM).

http://www.westnetz,de/

http://www.bayernwerk.de/

http://www.ewe-netz.de/

http://www.gasnunie.de/



The “big 4” are the still most relevant BRP but with decreasing influence due to international players, building up purchase communities (Trianel; Thüga and others) new entrants

Major Producers (gas:including importers) For E: E.ON, RWE, Vattenfall, EnBW; For G: EON, WINGAS, RWE, Gazprom; no significant production

Recent Relevant bankruptcy Flexstrom, 2013, >500,000 power and gas customers all over Germany.

Experience Flexstrom TSO-E:

- TenneT had been provided with sufficient deposit no issues with balancing the BG: Positiv.

- Trustee is supposed to claim numerous re-payments (charging BG and EEG-payments) of bankrupted customers: Negativ.

Experinces Flexstrom TSO – G: none



MAM/Bal-Coor: Market Area Manager [G] or Balancing Coordinator; TSO –E P/PR: Payment / Prepayment P/D[Pr]: Payment / Deposit [Prepayment] P: Payment

System described above can be drafted in a “House – of – Contracts”. As long as everybody fulfills his payment and maybe deposit duties (P / Pr; P / D [Pr]) the house runs fine. Concerning this study it is to be answered what happens if Supplier or BRP struggle to make their payments. The four red marked contracts are affected by this struggle.

Supplier:

Upstream supply contract with BRP (not regulated)

Grid usage contract with DSO (regulated)

BRP:

Trading Contracts (EEX or OTC) (not regulated)

Balancing Group contract with Balancing Coordinator (TSO-E) or Market Area Manager (G) (regulated)

Topics Germany


Technical view

Separation between Standardlastprofil (SLP) customers (Standard Load Profile) being metered on an annual basis and Registrierende Lastgangmessung (RLM) customers (Registered Load Metering) on a quarter hour basis [E] or hourly basis [G]

Limits SLP; can be adjusted by DSO or according to customer needs with no influence on the commercial point of view below

E: < 100,000 kWh/a G: < 1,500,000 kWh/a


Commercial view

On a commercial point of view customers are separated into three groups: (1) private customers [SLP]; (2) business and public customers [SLP + RLM]; (3) Industrial and major customers [RLM]

Regulatory view

Only private households and commercial customers with less than 10,000 kWh/a energy demand [limits are the same for power and gas] are protected customers (according to German Energy Act). The protection covers:

One assigned base supplier (supplier with the majority of households supplied in a grid [has to be checked every three years]) per grid with the duty to supply if no one else supplies a protected customer

Easy to read Standard contract (underlying GT&C legislation) and prize conditions for the base supply tariff and for every other household tariff covering a mandatory content – is mandatory for every supplier of households

Proposal of at least one additional tariff

Information about contract adjustments with special right to notice of termination for customers

Pre-payment arrangements are not enforceable before beginning of supply

Contracts with households are always non-interruptible

2. Regulator

2.1. - mandate

- Bundesnetzagentur (BNetzA) is national regulator and an agency of the Ministry of Economic and Energy Affairs

- In Germany grid operation is regulated (access to the grid for consumers and suppliers and access to the metering point) due to the fact that grid operation is a natural monopoly; Grid operation should be unbundled from the rest of the value chain, but due to the aforementioned De-minimis Rule 90% of the grid operators are not covered by ownership and management unbundling. The BNetzA is not responsible for them but the federal regulation agencies in the different federal states

- Access to gas storages is regulated as well, but less extensive like grid access. - BNetzA or Federal regulation agencies give permission to grid fees - Protection against and Removal of grid access burdens for consumers and suppliers


- Standardization of supplier change processes, grid balancing processes, congestion management processes

- Improvement of net connection for power plants - Special duties in the field of power grid expansion - Reporting / Transparency duties according to German Energy Act - BNetzA monitors power generation plants (> 10MW) annually. Operator has to announce total or

partial shutdown minimum 12 months in advance. Power generation plants registered as system relevant need BNetzA – permission to shutdown (TSO-E is in the loop)

3. TSO - E TSO-E operate a control zone (Four all over Germany); responsible for national system stability, consistency check of trades and security of transport analysis. TSO-E manage balancing primarily through contractual duty to be balanced and price incentives towards the balance responsible parties. Direct control of steering of demand and supply is last resort. TSO-E are responsible for the imbalance settlement, the data needed for this is provided by DSOs.

Market facilitation for allocation and allocation reconciliation (there is additionally a consumption reconciliation process at DSO level [see below])

DSO provide day-by-day allocation data during delivery month (not to the TSO but to the suppliers); DSO provide allocation data for whole delivery month after months end to TSO; Allocation can be adjusted within defined deadlines. TSO – E prepares monthly invoices and provides them to the BRP. There are different deadlines for delivery of balancing data, clearing of balancing data, accounting of imbalances, clearing of accounting. First settlement is done 2 months after the end of delivery month. Maximum deadline 8 month for clearing and accounting. Payment on minimum after 2 weeks (can be longer if TSO agreed in contract)

Reconciliation only focusses on allocation data. Especially for profiled customers allocation data is only the daily estimation, not the annual adjustment according to metering data (See DSO below). As a matter of fact a supplier always has minimum two upstream suppliers ((1) The chosen upstream supplier and (2) the DSO for reconciliation amounts; share depends on DSO estimation skills)

No license required for signing a balancing group contract; TSO-E is eligible to demand bank guarantee when expecting any financial issues


4. TSO - G Rights / duties are separated between TSO-G (grid operator) and Market Area Manager (balancing coordinator)

TSO-G and DSO-G; responsible for system stability and integrity of their transport system. Responsibility for security of supply is shared between Market parties (commodity) and grid operators (transport capacity and system stability).

Collecting nominations from suppliers on connecting point basis; matching nominations

Half-daily and daily allocation with daily balancing Market Area Manager (Balance groups) Half-daily allocation is used to give BRP an overview of the status. If he expects imbalances for the daily balancing he can adjust entry/exit for the rest of the day

Congestion Management

Requests amount of required balancing energy for own grid. Market Area Manager acts as buyer of balancing energy and optimizes distribution of balancing energy between grids in Market Area.

Open Grid Europe delivers specific services for the operation of the NCG Hub to NCG

Market Area Manager

NCG/Gaspool manage balancing primarily through price incentives.

Market facilitation for allocation and allocation reconciliation (Mehr-/Mindermengenabrechnung) ; Both processes in principle are similar to TSO – E; Main difference is that Market Area Manager reimburses reconciliation costs / income and adds them to the control and balancing energy account which is socialized (billed to every BRP) by the control and balancing energy apportionment [actually the account is balanced and no apportionment is billed].


‘near real time’ allocation to program responsible.

Issue BRP contracts, account and financial settlement of imbalances

Issue contracts for balancing gas and holds Merit-order list (primarily EEX order, standardized and non-standardized bilateral contracts on lower MOL ranks)

Running NCG- and Gaspool hub

5. DSO Assuring Copper plate and congestion management ([E]: directly responsible for ordering congestion energies; [G]: price incentives by Market Area Manager)

Responsible for meter installation (when in default position, otherwise DSO has to define metering point; installation is responsibility of metering company), connection as a whole, connection register, allocation, financially responsible for correct meter values, even if there is a metering company (incentive towards metering company: withdrawal of registration)

Distribution tariffs and contracts

Distribution tariff (RLM capacity price [€/kW]; SLP: base price [€/a] plus energy price [€/kWh] is invoiced to holder of distribution contract (normally Supplier; in a few cases the Customers) monthly. Invoices also cover all related taxes and dues. Supplier has to pay within 10 working days.

Credit risk can be covered by bank guarantee if demanded by DSO

Drives the principle of “Grundversorgung” (Base Supply) for protected customers; When there is no supplier on a protected connection, DSO makes Base Supplier to supply this connection regarding base supply conditions (last resort). Base supplier is the supplier in the net supplying most of the customers; is publicized on DSO – website and appointed for each grid separately; Customer can determine base supply monthly by assigning a new supplier.


DSO has to run different reconciliation processes:

1. Electricity: Reconciliation for profiled customers (Mehr- / Mindermengenabrechnung Strom) on his own costs; annual process

2. Gas: Reconciliation for profiled customers (Mehr- / Mindermengenabrechnung SLP); reimbursed by Market Area Manager; annual process with monthly prepayment (DSO -> Market Area Manager) by invoicing the grid balance account

3. Gas: Reconciliation for metered customers (Mehr- / Mindermengenabrechnung RLM); reimbursed by Market Area Manager; monthly process; Reconciliation amount = Allocation data *(balancing caloric value (used for allocation) – accounting caloric value) [Interesting about this point: although the accounting caloric value is known when allocation reconciliation deadline is reached DSO is not permitted to use this but has to use the balancing caloric value for reconciliation]

Grid accounts at the grid-to-grid connection points

Electricity: Grid entries and allocated energies are balanced. DSO is responsible for purchasing control energy for his grid on his own risk; reimbursement by Reconciliation process for SLP

Gas: Grid entries and allocated energies are balanced. DSO is not responsible for purchasing control energy for his grid on his own risk; but he participates of the Control energy purchasing process of the Market Area Manager; Reconciliation process for SLP and RLM handled by DSO against the Control and Balancing Energy Apportionment (Market Area Manager). Major imbalances in the grid account are billed monthly as apre-payment on reconciliation.

6. Supplier No regulated party (Base suppliers have to publicize base supply conditions and at least one additional contract)

responsible for invoicing grid costs, taxes and dues to Customers;

Pre-payment mechanism allowed (in case of Flexstrom, this was up to one year).

Supply to non-protected customers is not regulated except the principle of Base Supply (Grundversorgung). DSO is responsible to assign the function within its grid. Base supplier is the supplier serving the majority of household customers in a grid. In most cases this is the local public utility


7. Balance Responsible No - License system, including optional bank guarantee

No regulation on open forward positions. Primary responsibility for balancing of grid

Annual system testing and IT certification process is in place


8. Production No separate role in the regulation (apart from REMIT); Operator has to announce total or partial shutdown minimum 12 months in advance. Power generation plants registered as system relevant need BNetzA – permission to be shutdown (TSO-E is in the loop)

9. Metering Companies Have to act according to the BNetzA “Wechselprozesse im Messwesen” (WiM; Change processes in metering business); In first place WiM addresses to DSO, but interface parties like metering companies have to act accordingly to make the system work

Have to be registered by DSO (meet communication requirements and operate according to DSO – given technical rules); no financial restrictions for registration

Regulation on technical criteria of metering installations by technical codes.

10. Market Facilitation TSO, DSO, Market Area Managers (G) and Balancing Coordinator (TSO-E) are the centralized data hubs facilitating Market. They guarantee access, standards, compliance, non-discrimination and transparency under control of the national regulation agency BNetzA

Main principle is to allocate costs to ‘root cause company’ but there a various socialization mechanisms as well.

11. Exchanges No separate role in the regulation, EEX is reference for settlement prices for E / NCG and Gaspool hub are references for settlement prices for G; All trading at the EEX is under control of the securities trading act. The Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN) is responsible for conducting control measures. Every trader has to register witrh BaFIN before registering with EEX.

Reference prices are used to facilitate bilateral trading (non-regulated) and to determine balancing prices



TOPICS Germany

12. Supplier of last resort Bankruptcy (as one reason for non-payment) does not directly entitle DSO to terminate the grid usage contract, but to demand a deposit / bank guarantee. If that is not given the contract may be terminated after 10 days; This is regulated in the standardized grid usage contract (Attachment Gas / Electricity)

Supplier does not fulfill his payment duties for the grid usage contract. After 30 days of non-payment DSO is eligible to demand a deposit (if hasn’t already); Deposit has to be given within 10 days. If not immediate termination of contract.

Supplier does not fulfill his payment duties for the upstream supply contract with BRP: Conditions depend on individual negotiation; Assuming the supply contract can be terminated within 30-50 days and the sub-balance account is closed DSO is no longer able to allocate and therefore a major precondition of the grid usage contract is no longer given termination of contract. As far as big portfolios are concerned termination may take place quicker when bigger entry energy amounts are missing.

In both cases the consumer / customer does not necessarily know about his supplier struggling and makes further payments until he is informed by DSO that he has to change supplier and meanwhile is owing grid fees to the DSO.

Principle: base supplier takes over for protected customers; unless they have registered a new supplier on their own. During the time it takes to find a new supplier or to switch to base supplier (normally supply changes are by the next 1st of a month) protected customers are still supplied; supply costs are taken over by DSO (E; and later socialized by increasing capacity tariffs) or the control and balancing energy apportionment (socialized over all gas participants) except they can be allocated to a new supplier retroactively.

Bigger suppliers failing: Precondition – they have customers in many grids. For each grid a (different) base supplier may take over e.g. 100 grids => customer base of failing supplier is distributed to 100 base


suppliers. Big DSO like Westnetz are operating several grids and have (different) base suppliers for each.

There is no defined process when a base supplier falls away (e.g. Stadtwerke München; app. 800,000 electricity and gas customers in Munich). Normally next biggest suppliers should take over, but the supplier might struggle with this responsibility. In this case it is up to the DSO (maybe supported by TSO-E/Market Ares Manager; BNetzA and politics) to negotiate with multiple suppliers (whether they already supply in the grid or not does not matter) in order to find a quick solution. The suppliers incentive to collaborate is in the first step “generation of additional business” and in the second step “avoid an increase in socialized costs”. This scenario is seen to be theoretical due to expected municipality intervention. This scenario mainly effects DSO – level; in Germany no base supplier area is that big that a failure would lead to major issues in TSO – level.

Non – protected customers have to assign a new supplier on their own; if not DSO is eligible to disconnect a non-protected customer.

When contracting a new supplier pre-payments given to the old supplier are not taken into account. The old supplier owes over-payment to the customer. In case of bankruptcy the customer has to apply for it (can take several years until customer gets repaid a (low) share of his outstanding money)


Case of bankruptcy: Compare with supplier above, Reference: balancing group contract Gas / Electricity (Attachment)

Main concern is not the financial fulfillment of the contract but provision of energy (esp. but not limited to E) for the next day. If there is no valid nomination for the coming day and BRP indicates he is not willing to nominate TSO-E / Market Area Manager (G) may immediately terminate BG, informs effected parties / suppliers and makes them assigning new BRP or care for entry by themselves. Follow-up process: Termination of contract --> Information to DSO --> Switch over customer to base supplier. In the meantime the lack of energy for the customers is covered with control energy. time and liability issues possible. TSO-E / Market Area Manager (G) does not purchase the missing entry energy on a case-to-case base but once stability issues are expected they mitigate them by means of control energy TSO (E) / Market Area Manager (G) is de facto SoLR on BG level; costs are either assigned directly where applicable (e.g. still valid exit BG with no joined entry BG Exit BG is balanced) rest is balanced/socialized via reBAP (E) or control and balancing energy apportionment (G).

BRP does not fulfill his payment duties for the Balancing Group contract.

http://www.westnetz.de/web/cms/de/1715848/westnetz/netz-strom/netznutzung/grundversorger/


Due to various deadlines TSO-E realizes 60-70 / Market Area Manager 50 – 60 working days after the delivery month that BRP does not pay the imbalance invoice. For electricity It needs another 20 working days (second delivery month) to demand deposit / bank guarantee; For gas this is not necessary. If deposit / bank guarantee is not given within 10 working days Balancing Group can be closed (SUM app. 100 [E] / 70 [G] working days after the first delivery month ended). [E]: Suppliers / Sub-balancing contract responsible parties are informed immediately and can change their assignment by 1st next month; [G] Market Area Manager does not know the suppliers in the Balancing Group therefore cannot inform them (worst case: DSO cannot allocate due to BG closure and determines suppliers grid usage contract); Suppliers have to inform DSO about new Balancing Group for allocation (according to supplier change rules)

BG may be terminated much faster if big portfolios are concerned

BRP does not fulfill his payment duties for trading contracts with other BRP or EEX: Conditions depend on individual negotiation; Effect of termination is that no entry amounts are nominated to the Balancing account TSO-E/Market Area Manager recognize greater imbalances repeatedly. For Gas no deadlines are mentioned but for electricity imbalances over 33,5 consecutive hours can lead to a closure of BG within 48 hours. Information duties are as mentioned before.

Principle: other BRP take over but have to be actively contracted by the supplier who’s BRP is busted. If supplier fails to find a new BRP in short time he risks to get his grid usage contracts terminated. Searching for a new BRP might take some time so negotiating with TSO, DSO and other BRP is required

On BG level customers are not known and therefore no subject to any procedure

In case of insolvency TSO – E prefers to collaborate with a trustee. Trustee may assure entry supplier for at least one the coming day makes switch procedure at least a bit more plannable.

16. Legal Framework Bankruptcy law prevails over E/G legislation. No special position for power and gas companies. Trustee has to maximize value of the estate

17. Experiences with bankruptcies Bankruptcy do not have direct impact on the business descripted above as long as the Trustee provides the other parties with sufficient deposit (except he is trusted anyway); Bank Guarantee or Pre-payment. His duty is to keep the business running and make the company attractive for investment. The weakest points in the chain seem to be the upstream suppliers. They may be the first to terminate contracts in order to reduce risks


– then it might be hard to find a new one as information about the bankruptcy is public. DSO / TSO have a similar risk but are potentially able to negotiate with BNetzA or their federal regulation agency to cover the risk by the next permission of tariffs.

Information across market roles is limitedly available (due to confidentiality etc.)

18. Role regulator Neither BRP nor supplier are regulated parties, but TSO-E can inform against BRP when he is violating major duties (keep balancing group in balance); BNetzA can initiate supervisory procedures against BRP (can take more than a year after violation that supervisory procedures are in place); [G] BNetzA has not being assigned any role.

19. Role TSO The TSO in the function of grid operator has no direct role, when a BRP or supplier is struggling.

TSO-E or Market Area Manager are administrating the balance of the all-over system and are responsible for a low amount of socialized costs. If the termination of contracts tend to cause greater imbalances in the system or increases costs that have to be socialized they will act in their role as balancing energy buyer on behalf of the TSO who has to maintain system stability and try to find new participants to take over responsibility for the supply chain. In the field of non-protected customers of a failing supplier curtailments are very likely after a few days. Protected customers should be taken over by Base supplier.

20. Role DSO Facilitates base supply if no other supplier is in place

21. Role Market facilitator no separate role in Germany

22. Measurement Company of Last resort

In case a private measurement company falls away, the DSO takes over; As most measurements are done by DSO and ‘new entrants’ have very limited share, no big topic so far.

23. Production There are no special rules for production in case of bankruptcy. Bankruptcy is always connected to a lot of negotiation – in the special case of bankruptcy of a system relevant production site it is most likely that would take over financial responsibility

TSO-E have an issue with failing renewable entry: entry amounts are to be nominated for the coming month (four day in advance latest). If a renewable energy generator fails at the beginning of a month there is no procedure for renomination TSO-E does not know how to deal with that.


24. Exchanges The EEC is regulated by Bafin (banking regulation). The EEX is regulated by the Exchange committee of Saxonia (one of the states of Germany). To the knowledge of UMS, there are no special provision in case of bankruptcy.


Timelines are defined above when the termination of contracts were discussed. Where immediate reaction is required (e.g. BRP does not nominate entry for coming day) no process or timelines are defined. TSO – E prefer to have a defined procedure to cover at least ten days for planned party switches.

Summary: Supplier: 30 days for demand of deposit plus 10 days for giving deposit BRP: can take up to 100 [E] / 70 [G] days before BG contract can be terminated

26. Experience;

Regulation is based on a non-discriminating access to the grid connections and metering points in order to facilitate market and give customers the opportunity to change suppliers. Central players are the TSO and DSO. Costs are assigned by a cost – by – cause principle but have also included a socializing apportionment system (i.e. costs of balancing energy that may increase in a case of bankruptcy)

2013 the Flexstrom bankruptcy was the biggest Germany has experienced so far. 500,000 customers all over Germany were affected and had to search for a new supplier. These customers had paid a one year pre-payment. Customers had to register for repayment with the trustee and will have to wait several years to get repaid a small share of it.

Disconnecting a customers in the case of the bankruptcy of supplier/BRP is no threat at all. During the time of changing the supplier the customer is still supplied. Normally the new supplier takes over retroactive and past consumption is assigned via the reconciliation process (Mehr-/Mindermengenabrechnung) no balancing groups affected but the socializing balancing energy apportionment.

The supplier change processes (GPKE and GeLi Gas) are standardized and in many cases automated. Implementations reference on a “normal” supplier change rate. In case of a bankruptcy this rate can be exceeded causing timeline violations with after work and special (time consuming) reconciliation processes. Especially GeLi Gas implementations were already “stress – tested” by the Market Area Manager NetConnect Germany when he changed all his balancing groups to one date (well prepared, without the potential surprise of a bankruptcy)

So far, all bankruptcies have been relative small players with no significant impact on production or non-


involved players.

To think of a failure of one of the four big players (E.ON; RWE; EnBW or Vattenfall) means that one or more of these companies have to fail all over their individual value chains. This is thinkable but would have a major impact on social life in Germany governmental intervention expected comparable to the “Rettungsschirm” for the bank industry. The big Four are too big to fail.


Customers had to register for repayment with the trustee and had to wait several years to get repaid a small share of it. The normal end-user supply contract is a full-service contract and pre-payments cover commodity, grid and tax and levies but do not differ between them customers have to pay these costs again with the new supplier although they already might have pre-paid for a period.

Reasons for

deposits

non-payments ratings bankruptcy earlier contracts Example Deposit

Electricity

(Deposit within

10 days)

two "significant"

late payments

within last 12

months

usable, but not

specified

applied for

bankruptcy or a

conducted

enforcement

average 7 day supply demand

and average trading amount

within 33.5 hours weighted

with medium market price

(app. 40€/MW);

e.g. 100 MW firm supply /

trading:

100MW * 40€/MW *(24h/d *

7d + 33.5 h) = 806,000.00 €

Gas

(Deposit within 7

Working days;

can be replaced

delay of min. 10% of

the invoice from the

previos month

or repeated delay

S&P (BBB-)

Fitch (BBB-)

Moody's (Baa3)

Creditreform

applied for

bankruptcy or a

conducted

enforcement

unordinary termination of an earlier

BG contract within previous 2 years

1 or 2 previous balancing

invoices (is strongly

dependant on BRP's

prognosis skills) or 100,000 €


by pre-payment) (Index 2.0) for new contract

TSO-E / Market Area Manager is not eligible to demand

deposit under these limits!

Reasons for immidiate

termination

Electricity - non-payment of demanded deposit

- repeated violation of contract duties (although demanded)

Gas - non-payment of demanded deposit

- repeated violation of contract duties (although demanded)



Belgium


1. Introduction



Germany.



The documents below gives the version for the Belgium situation


Topics Belgium2


1.1. maximum demand statistics (gas per day)

1.2. % protected / non Protected Customers

80 TWh (E, as measured by Elia), 190 TWh (G, split 75% HiCal & 25% LowCal).

Max demand (E, Elia grid) = 13400 MW, Max Demand (G) = ~ 2 TWh/day

A ‘protected customer’ in Belgium regulation means (gross modo) a person dependent on social security. Regulation wise, this category is a subset of the ‘household’ category. Ball park: Households have some special protection (especially related to indexing of tariffs and right to be not disconnected) and “protected customers” within the household group get additional monetary benefits and rights. We guestimate that circa 30% of Belgium energy demand is for households.

(G) all customers on DSO – level (residential, commercial and industrial) are protected

2 Sources for this report: website ELIA, licences, codes, reports from CREG/VREG, governmental departments and major market participants. All numbers are indicative


customers (not allowed to be disconnected)

2. Production capacity (firm),


Power: App. 13 GW installed firm capacity plus circa 6000 MW renewables & waste

Gas storage total volume 7 TWh, app. 0.2 TWh/d delivery capacity. There is also storage available in LNG terminal.


Domestic production Gas: negligible

3. Import/Export E: Saldo import 9.6 TWh/a (France; Netherlands). Gas: all imported, including LNG. Very well connected.


Electricity: Interconnectors

France: 2000 MW

Netherlands: 1500 MW

Gas: Interconnectors (18 entry points, 1130 TWh entry capacity, UK, Norway, NL, F, G, LNG) Import: 800 TWh/a Export: 600 TWh/a (LNG: 95 TWh/a)


5. Fuel mix policy E: Phase out Nuclear by 2025; 21% renewable electricity by 2020. Discussions on guaranteed return on power plant capacity investments. Strategic reserve (new process) was launched on 1 Nov 2014 (see website Elia: http://www.elia.be/en/grid-data/Strategic-Reserve; http://www.elia.be/~/media/files/Elia/Grid-data/Strategic-Reserve_UserGuide.pdf; http://www.elia.be/~/media/files/Elia/Products-and-services/ProductSheets/E-Evenwicht/E9_E_Strategic_Reserve.pdf) . G: discussions about additional storage and shale gas, but seems less urgent than in E.

6. Security of supply risk Belgium is having Sec of Sup risk in power for winter 2014/2015, triggered by nuclear

http://www.elia.be/en/grid-data/Strategic-Reserve

http://www.elia.be/en/grid-data/Strategic-Reserve

http://www.elia.be/~/media/files/Elia/Grid-data/Strategic-Reserve_UserGuide.pdf

http://www.elia.be/~/media/files/Elia/Grid-data/Strategic-Reserve_UserGuide.pdf

http://www.elia.be/~/media/files/Elia/Products-and-services/ProductSheets/E-Evenwicht/E9_E_Strategic_Reserve.pdf

http://www.elia.be/~/media/files/Elia/Products-and-services/ProductSheets/E-Evenwicht/E9_E_Strategic_Reserve.pdf


outages. Country is import dependent (E & G). For gas, thanks to good

interconnections, no issues are foreseen. For power, rolling load shedding are possible

under extreme circumstances; topic is on weekly basis in newspapers. See for Situation

of the security of supply and risks of electricity scarcity

http://publications.elia.be/upload/UG_upload/IX9YJOZC45.pdf;

http://publications.elia.be/upload/UG_upload/G4U4KAX4Y3.pdf;

http://publications.elia.be/upload/UG_upload/N6SWBPT364.pdf

For gas, there is no Sec of Supply risk, as there is ample import capacity available. The

only SoS risk would be in case NL would stop exporting low cal gas due to e,g, power

interruptions in NL.


7.1. Price levels 7.2. Investment climate for production 7.3. Competition on retail side (margin indication)

Price levels in Belgium are above NL and France (esp 2015), triggered by nuclear outages. Price level not attractive enough to attract new build, but high enough to avoid mothballing. Competition in retail is high, especially taking into account the very complex regulation. Switch rates around 4% in Wallonia & Brussels and around 8% in Flanders. There is some price regulation in retail supply, especially related to indexing and price control: see the system of “vangnetmechanisme” – artikel 20bis, §§1 tot 5 van de elektriciteitswet en artikel 15/10bis, §§1 tot 5 van de gaswet). Margins seem to be acceptable, as no players went bankrupt and there is no outflux of players.

8. Demand Suppliers


There is 1 dominant players in retail: Electrabel (E & G, 40-50% market share). Other players are EDF (20-10%), ENI (10-20%), Lampiris, Eneco and Essent (each 5-10%). Most companies are private (and have non-Belgium owners).

In general, competition is higher in Flanders but above mentioned market shares are valid across the country, across size and for both E&G (Eni being bigger in G, EDF in E).

Switch rates around 4% in Wallonia & Brussels and around 8% in Flanders.

http://publications.elia.be/upload/UG_upload/IX9YJOZC45.pdf

http://publications.elia.be/upload/UG_upload/G4U4KAX4Y3.pdf

http://publications.elia.be/upload/UG_upload/N6SWBPT364.pdf



E: The BRP- (“ARP” in the Belgium legal framework) system is comparable to the Dutch

system. ELIA grants ARP status to applicable parties. There is no difference between

BRPs (unlike NL, where we have “ volledige erkenning” as well as “handelserkenning”).

The Belgium system has ball park the same amounts as BRPs as the Dutch system. The

BRP is responsible for the difference between scheduled energy and actually consumed

(or produced) energy, as determined for his portfolio. The difference is charged against

the unbalance price; this unbalance price has a bid/ask spread and is determined via

ancillaries and restoration mechanisms used (see :

http://www.elia.be/~/media/files/Elia/Products-and-

services/Balancing/Imbalance_2012-2015_EN.pdf ), among others the bid ladder (via

CIPU contract; in principle all plants >25 MW have a CIPU contract and are incentivized

to contribute to the bid ladder; Elia contracts capacity with certain min & max prices for

ramp up/down to assure minimum depth of the market). In case of SoS emergencies,

the price is fixed at 4500 €/MWh Activation of the strategic reserve by Elia is a

necessary condition but is not sufficient to trigger this specific tariff incentive. Elia uses

a real-time indicator, the ‘structural shortage indicator’ (or SSI), to characterise the

situation that the area’s security of supply would be in if no strategic reserve had been

launched. It is the combination of the strategic reserve activation with the SSI which

triggers the specific tariff incentive16. When both conditions (strategic reserve and SSI)

are met for two consecutive quarter-hours, the imbalance tariff for the current quarter-

hour has been set by CREG at €4,500/MWh.

In the Belgium E system, it is possible to have 2 (or more) BRP’s on one connection point at TSO level (one for supply, one for consumption; or share of the supply between BRP’s: band supply product: see http://www.elia.be/~/media/files/Elia/Products-and-services/ProductSheets/A-Access/A3_F_Fournisseurs.pdf ).

G: 2 balancing zones (Hgas/Lgas), rest of system comparable to NL (entry/exit, mixture of daily and hourly balancing, on-line balancing information, role exchange in intraday trading). The Belgium hub is called ZTP (so comparable to TTF); the Zeebrugge beach

http://www.elia.be/~/media/files/Elia/Products-and-services/Balancing/Imbalance_2012-2015_EN.pdf

http://www.elia.be/~/media/files/Elia/Products-and-services/Balancing/Imbalance_2012-2015_EN.pdf

http://www.elia.be/~/media/files/Elia/Products-and-services/ProductSheets/A-Access/A3_F_Fournisseurs.pdf

http://www.elia.be/~/media/files/Elia/Products-and-services/ProductSheets/A-Access/A3_F_Fournisseurs.pdf


hub is de facto integrated in it. Fluxys is responsible for unbalance management. Fluxys buys (sells) the balancing gas on Ice-Endex.

Exit points on BG level are consumers connections TSO-level or city gates (DSO connections); The nominated entry versus the metered / caluculated shipper share at city gate are balanced; Reconciliation covers metering adjustment at entry points and city gates; Reconciliation for DSO level is in responsibility of the DSO.

10. Exchanges & Clearing There are 3 exchanges active in Belgium: Belpex (part of APX) for day ahead prices; ICE/Endex (forward E-prices plus Spot Gas ZTP). In addition, some products are also quoted at EEX. In general, Belgium market is significantly less liquid that Dutch market. Clearing houses are ICE Clear Europe and APX clearing.

11. Production

11.1. Concentration ratio 11.2. Type of ownership (private/public, local/international group

E: production GDF/Electrabel: 67%; EDF 15% and EON 10%. No own gas production. Several smaller E-production companies especially on RES.

All big production companies are owned by non-Belgium private/stock listed companies.

12. Metering Companies Measuring is responsibility of the distribution companies. There are circa 25 E and G distribution companies plus Elia and Fluxys (who measure the customers which are directly connected to their HV/High Pressure grid).


13.1. -energy only markets

Belgium has launched on 1/11/14 the so-called Strategic Reserve (as adopted in the law of 26 March 2014). Elia was responsible for the establishment of this Strategic Reserve. see point 5.

Any other comments?


2. Parties

Topics Belgium

TSO

- Type of ownership

(TSO – E/G): Elia/Fluxys as single System Operator (SO) and TSO.

Elia is for 52% stock listed. Some 45% is owned by state holding. EDF (via SPE) is also having a small share. Fluxys is majority owned by a State holding (Publicgas) with a minority share for a Canadian pension fund.

Major DSO’s There are circa 25 distribution companies, but only 8 are active in the day to day operations & measurement (ORES, Tectea, RdW, AIESH, AIEG in Wallonia, Sibelga for Brussels and Eandis and Infrax for Flanders).

Reason for above mentioned gap between 25 and 8 DSO’s: In Flanders there are ~ 10 distribution companies, but they all use Eandis or Infrax as ‘window to the market’ (and note that those distribution companies are owner of Eandis respectively Infrax). In Wallonia, ORES is the ‘window to the market’ for 7 DSO’s. Nearly all distribution companies are doing power as well as gas.


There are circa 40 retail suppliers of Electricity & Gas. Please note that a separate license is needed for Wallonia, Brussels and Flanders (and separate for Power and Gas), so that not every supplier is active in the whole country. License is always needed, also if you supply large industrials only; in Flanders it is possible to use the license of other countries under certain circumstances (in case same legal entity has already license in other country or region). The complete list (combination from all 4 regulators) is on http://www.brugel.be/Files/media/SIGI/53fc493fe4093.pdf

http://www.brugel.be/Files/media/SIGI/53fc493fe4093.pdf


Major suppliers E: Electrabel (ECS, 40-50%), EDF-Luminus (~ 20%), ENI, Essent, Lampirus, Eneco (5-10%).

Major Suppliers G: Electrabel (~40%), Eni (~25%), EDF (10%).

Market share are for the country, based on volume.

Metering Companies Metering is done by the DSO’s (respectively TSO’s if applicable).

Major Balance Responsible Parties

GdF/Electrabel is the most relevant, as it controls majority of E-production and is major supplier of power & gas. There are however many BRP’s parties active.

There is no license system for BRP but a registration system. This is at Elia, based on the BRP-contract (see http://www.elia.be/en/products-and-services/balance/process), with fluxys it is via Huberator.

List of the BRP’s : http://publications.elia.be/upload/List_Arp.html; http://www.huberator.com/en/membership/hub_members

Major Producers (gas:including importers) Power: GdF/Electrabel (65%), EDF (15%), EON (10%). Gas import is pretty competitive (see chapter 1), main importers are GDF, ENI, EDF

Recent Relevant bankruptcy Elia has known 2 bankruptcy cases: one in the very beginning of the liberalization and one in 2010 (Anode)). Fluxys has no known cases.

http://www.elia.be/en/products-and-services/balance/process

http://publications.elia.be/upload/List_Arp.html

http://www.huberator.com/en/membership/hub_members



Topics Belgium


In Belgium, a ‘protected customer’ is a customer who is (grosso modo) dependent on social security (and gets

additional financial benefits). In addition, all households have a special status, in the sense that they cannot be

(easily) disconnected in case of non-payment (first step: installation of “budget meter” and supply by

distribution company). This protection does not apply for non-residential customers. (G): all customers on

DSO-level (residential, commercial and industrial are protected as far as disconnection is concerned) A license

is always needed; depending on connection (TSO or DSO), commodity (Power or Gas) and geography

(Flanders/Wallonia/Brussels), the appropriate license(s) need to be applied for. So some companies have 8

licenses.

2. Regulator

2.1. - mandate

Principle: retail is responsibility of Flanders/Wallonia, Brussel; wholesale & strategic reserve is responsibility of

Federal government (in E; formally, the split depends on voltage level; in G: CREG is responsible for all

transport hence for Fluxys and all shippers/BRPs; the regional regulators are responsible for DSO’s and

suppliers). There are hence 4 regulators in Belgium (both for E and G), VREG (NL), CWAPE (F), Brugel (Brussel),

CREG (Federal).

De CREG is responsible for

. maximum price for ‘protected customers’, transmission tariffs

. HV grid > 70 kV

. transport and storage of Gas

. classical Production of E (thus gas and nuclear, except green power and CHP)

. consumer rights

. technical rules & regulations for > 70 kV level


. offshore (production and grid)

. strategic reserve; SoS

. Fluxys and ARP/Shippers

The regional regulators are responsible for

. penalties

. distribution tariffs

. appointment of DSO companies

. supply licenses for their region

. technical rules & regulations for their region

. green power (incl support systems)

. grids ≤ 70 kV (thus included Elia for these voltage levels)

. closed distribution systems

3. TSO - E Elia is the TSO; ball park their roll is comparable with TenneT, i.e. guaranteeing access and providing a reliable “copper plate”, monitoring security of supply, market enabling. All grids above 70 kV and several ≤ 70 kV are managed by Elia. The system of BRP (Belgium: ARP) is comparable to the Dutch & German system, with 15 minute balancing. Unbalance is charged to each BRP by ELIA.

BRP’s need to provide a bank guarantee (or cash deposit), minimum 93 kEuro, maximal 3 mln euro. Payment term 15 days. Exact amount of bank guarantee (or cash deposit) depend on the size of BRP’s portfolio. Exact amount has thus no direct link with the monthly bill/or credit nota that can vary very much (in function of the


size of the real time imbalance).

4. TSO - G Fluxys is the Belgium TSO for gas. They have 3 main tasks: providing transmission (High Pressure grids), providing storage and managing the LNG terminal. The BRP system is comparable to Gasunie, however Dutch market is more liquid. There are some 60 BRP in the gas system, on Huberator (the market enabling function of Fluxys) a list of customers can be found http://www.huberator.com/en/information/Hub_Customers_Details .

BRP (Belgium: ARP) needs to provide a bank guarantee, equal to 2 months (expected) invoices with a minimum of 100 kEuro; IN case entity has a rating of BBB+ or higher, the bank guarantee is waved (checked once a year).

Fluxys is responsible for the BRP system, Fluxys for the physical connections. Unbalance fees are charged by Fluxys within the Standard Transmission Agreement (STA; combined balancing and capacity agreement).

The regulatory regime is a.o. described in a Code of Conduct.

5. DSO There are circa 25 DSO’s. The DSO’s bill via Suppliers (“Leveranciers model”). The DSO’s are regulated by the regions. They have also some “political” tasks, related to providing free electricity to certain customer groups and other social measures (like budget meters etc.), all organized by public services obligations.

DSO tasks: Technical administration (comparable to NL), supplier of social weak, metering responsible, Allocation city gate amounts according to shipper shares, DSO reconciliation

6. Supplier There are circa 40 suppliers; most suppliers have a license for Power and Gas and majority is active in all regions. Each region has defined his own criteria for a supplier license (for example: the VREG asks for a very detailed business plan; we did not check how this is actually “lived”). In general, a minimum requirement for a license is: adequate staffing (with the right experience), enough financial backing and the ability to fill full various technical criteria. The license is valid for 5 years.

(G): Supplier is a role on DSO level; The corresponding role on TSO level is the Shipper

7. Balance Responsible There is a registration system in place including mandatory credit covering. Each connection point has a BRP (some points have 2 in E, in case there is sometimes supply and sometimes demand on one point; sometimes

http://www.huberator.com/en/information/Hub_Customers_Details


a TSO grid user may also have two BRPs for supply – see above). Reconciliation at DSO level is done by the distribution companies in cooperation with suppliers; financially however the BRP is responsible, not the supplier. Reconciliation (E and G) duration is comparable to NL (circa 20 months).

Responsible for correct programs in day-ahead (trade and transportforecast etc) on behalf of customers (local as well as portfolio requirements; portfolio is financially speaking the most relevant ) and for being balanced in real time (otherwise, imbalance tariff)

8. Production Electricity:

Currently, an authorization is needed to produce electricity in installations > 25 MWe (a declaration is needed

for installations < 25 MW). Currently, the Minister of Energy is responsible for licenses, granting is based on

advice of CREG. The license is NOT automatically transferable in case of change of ownership; this has to be

requested for on a case by case basis.

Gas production is not applicable in Belgium.

9. Metering Companies DSO’s (and Elia/Fluxys) are responsible for metering for their grid users. Allocation of the energy is responsibility of DSO and reconciliation is responsibility of suppliers and DSO’s together (methodology to be approved by regulators, and developed by market actors ; see http://www.atrias.be/NL/Paginas/About.aspx).

10. Market Facilitation The market facilitation role is on wholesale level done by Elia and Fluxys, supervised by CREG. For retail (suppliers), it is done by the relevant regulators.

11. Exchanges The BELPEX is the day ahead/intraday market. Volume is 30-50% of the Dutch APX. Belpex is part of the NWE DA market coupling. Belpex price is also used in reconciliation. It is not relevant for unbalance anymore (see : http://www.elia.be/en/grid-data/balancing/imbalance-prices; formula and price for each 1/4h). The gas spot market is on ICE-Endex (ZTP Gas spot).


http://www.elia.be/en/grid-data/balancing/imbalance-prices


TOPICS Belgium

12. Supplier of last resort There is no federal law regarding Supplier of last resort. It is de facto the responsibility of the Region

(VREG/CREG/Brugel), who have made guidelines/procedures.

Flanders-E: SoLR delivers from 0h01 the day after the original supplier is bankrupt (“unable to fulfill his

obligations”).

The SoLR is appointed beforehand by DSO; supply conditions have to be approved by VREG (5 days time

window). Customer can switch to new supplier, with one month notice time.

Wallonia-E: SolR is the pre-liberalisation supplier (de facto Electrabel or Luminus), unless the DSO has

appointed another SoLR.

Switching rules as in Flanders. The procedure is part of the “technical rules and regulations (article 124)”.

Brussels-E: DSO (Sibelga) is SolR.

In general, the procedure cover only principles and no details. In Flanders and Brussels, the DSO is (de facto)

the SolR, in Wallonia it is Electrabel or Luminus. This is also the case for situations where no supplier want to

supply the customer (for example due to bad payment history).

In gas, the DSO will (in all three regions) be the SoLR and ask the end user to choose another supplier as soon

as possible. Also here the regulators are discussing modification of the SoLR systematic.


Because of being supplier of social weak DSO has implemented all procedures for energy procurement

It should be noted that regulators (E & G) are currently considering a modification including a 15 day freeze

period and the idea of a pro rato distribution (comparable to the Dutch ‘restverdelingsystematiek’). However,

discussions have only just started


Electricity:

Elia has the right to revoke the BRP (Belgium: ARP) contract and registration (e.g. in case on bankruptcy). This is effective next day, meaning that even license is revoked on October 1 afternoon, the nomination for October 2 is void. Elia will inform all the involved parties about the revoking of the contract and registration; however no details are given/described what is exactly expected from the involved suppliers/producers/off takers. In summary, no operational procedures have been found related to BRP of last resort [check Elia].

There is no BRP of last resort: at TSO level, if the grid user has no BRP anymore, he is cut. He has the possibility to designate as BRP its access contract holder (that might be himself or an intermediate, most of the time its supplier). It is thus organized in the access contract for the Elia grid user.

Current developments: Atrias is currently developing, within its MIG 6 for 2017, a scenario of massive or BRP bankrupt and the accordingly allocation process between DSO-TSO. It will be based on immediate information exchanges between the Elia’s BRP register and the allocation process / access register from the DSO’s.

http://www.elia.be/~/media/files/Elia/Products-and-services/Balancing/20141007-MasterARP-NL-

http://www.elia.be/~/media/files/Elia/Products-and-services/Balancing/20141007-MasterARP-NL-2014_V1_1_WEB.pdf


2014_V1_1_WEB.pdf

Gas: Fluxys can cancel contracts directly (on notice), in case of bankruptcy of counterpart. IN case of other financial difficulties/downgrades, a cure time of 5 days applies.

Following bullet point summary of BRP failure procedure

If a shipper is in failure and this shipper delivers only final customers connected to the Fluxys grid, Art.132 of Code of Conduct applies.

If a shipper is in failure and this shipper delivers Public Distribution, Art.132 of Code of Conduct does not apply for Public Distribution. However Fluxys does not know the suppliers delivered by the shipper (no contractual relation between suppliers and Fluxys) _ need to be investigated with interactions with DSO’s.

If a supplier is in failure, Fluxys has no information of which shipper delivers the defaulter supplier and is not directly concerned by this issue.This is a regional competence for the regional regulators and DSO and it is set in the Regional Technical Regulations.

If a shipper who is also a supplier is in failure, there is two case to investigate: 1. For final customers, Code of Conduct principles are applying

2. For public distribution, the regional legislations are applying

14. Strong protection of households and socially vulnerable people.

15. Experiences with bankruptcies The only practical experience Elia had was so solved : Elia decided to stop and revoke the BRP contract, it was decided for a fixed date, few days after (after a short period of observation of the situation); information was sent to all DSO’s and concerned regulators. It was followed by a massive switch of the portfolio of this BRP to another BRP: the (new) company who takes over the activities of the bankrupted BRP. The rest of the energy was sent to the “residue” of the DSOs (during 2 months, the time to have all clients taken over by other suppliers/BRPs). The allocation of the energy was manually done during that time.

http://www.elia.be/~/media/files/Elia/Products-and-services/Balancing/20141007-MasterARP-NL-2014_V1_1_WEB.pdf


16. Role regulator Appoints SolR (Flanders), no detailed regulation.

17. Role TSO Can revoke BRP contract and registration (but no BRP of last resort available/arranged)

18. Role DSO Is SoLR in Flanders and Brussels. Switch back to pre liberalization supplier in case of Wallonia

19. Role Market facilitator Role for SoLR, not in BRP.

20. Measurement Company of last resort

Not applicable (role DSO)

21. Exchanges Belpex is supervised by CREG (only for some aspects, because Belpex is a non-fully regulated activity) and FSMA (Financial Services and Markets Authorities).

Endex is supervised by Bank of England.


No “grace” period mentioned. No detailed procedures available [check Elia/Fluxys].

In general: 1 day periods in Power and Gas, except for BRP it is a 5 days period in Gas.

23. Experience;

• No experience yet in gas; power: “Anode bankruptcy – when Elia decided to stop and revoke its BRP contract, it was decided for a fixed date, few days after (after a short period of observation of the situation); information was sent to all DSO’s and concerned NRA(s). It was followed by a massive switch of the portfolio of this BRP to another BRP: the (new) company who takes over the activities of the bankrupted Anode. The rest of the energy was sent to the “residue” of the DSOs (during 2 months, the time to have all clients taken over by another suppliers/BRPs). The allocation of the energy was manually done during that time.”


In Flanders & Brussels, DSO is responsible from D+1 onwards (SolR). In Wallonia, it is the pre-liberalization supplier (unless DSO has appointed someone else). All cost before switching are responsibility old supplier (respectively old BRP) and are (in case of BRP) presumed to be covered by the bank guarantee. In case the bank guarantee is not enough to cover the (unbalance) bill, the non-covered costs are recovered via the tariffs or under the bankruptcy law principles (Elia has no special priority ranking among debtors)



United Kingdom


1. Introduction



Germany.

To guide this comparison, we have made the overview of UK (England & Wales) as described below.





Topics UK3


1.1. maximum demand statistics (gas per day) 1.2. % protected / non Protected Customers

359 TWh/a (power; own generation incl.)/ 793 TWh/a (gas) Daily demand: 85 GW (E) / Gas is not provided on a daily/hourly basis

Graphic represents production of electricity

3 Sources for this report: websites, licences, codes, reports from Ofgem (National Regulation Agency), governmental departments and major market

participants


Natural gas covers 27% of the total consumption of primary energies in UK; Other sources are renewables, coal and nuclear. Oil is mainly for transport

Circa 1/3 [E]; 1/2 [G] of the volume is delivered to Protected Customers (“households”) excluding transport


2. Production capacity (firm):


Power: App. 100 GW installed capacity installed (15% renewables + 20% nuclear [accepted as carbon light and therefore subject to subsidiaries])

gas storage total volume 64 TWh, app. 1.5 TWh/d delivery capacity Domestic production Gas: 424TWh/a

3. Import/Export

E: import 16,6 TWh/a (France; Netherlands) Export; 2.1 TWh (Ireland) Gas: Net Import app. 535 TWh/y (Norway, Belgium and the Netherlands) incl. LNG by ship (20%) Export: 100 TWh/a (Belgium, NL and Republic of Ireland)



Electricity: Interconnectors France – UK 2.0 GW NL – UK 1.0 GW Wales – Ireland 0.5 GW N. Ireland – Ireland 0.6 GW Scotland – Ireland 0.5 GW

Gas: Interconnectors Import: 3.1 TWh/a Export: 1.0 TWh/d LNG: 1.5 TWh/d

5. Fuel mix policy

“ British Energy Mix Policies focus on increasing the use of carbon light technologies. Contrary to German policy nuclear power is recognized as carbon light and therefore subject to subsidiaries (FiD tariffs)


6. Security of supply risk In 2012 Ofgem reported risk potentials for gas and electricity supply for further consideration to the British government. Identified main risks:

Electricity: (abstract of the study with electricity supply risks)

Annual report to government about potential security and supply risks for the next five winters

Main concern is decline in margins due to reduced demands (Energy efficiency measures) in connection with an increase of renewable production connected on DSO level

Ofgem has approved new tools (the New Balancing Services) that National Grid can use to balance the system if margins tighten

The government has also confirmed its intention to introduce the Capacity Market to reduce risks to security of supply in the medium term and beyond

The Capacity Market works by offering all capacity providers (new and existing power stations, electricity storage and capacity provided by demand side response) a steady, predictable revenue stream on which they can base their future investments.

Gas: (abstract of the study with gas supply risks)

decline in UK continental production has inevitably resulted in increased reliance on international gas markets to deliver security of supply to gas customers and electricity generation

Consideration of diversification of international gas resources (but) makes GB market dependent from external events (Norwegian production problems, Russia – Ukraine conflicts, …)

60% and 70% of all gas sources would need to be lost for there to be interruption of gas supplies to domestic consumers (means all external resources plus 50% of own production)

A loss of gas supply of between 25% and 30% during a period of very high demand (again assuming storage to be 50% full at the start of winter) would probably result in a curtailment of gas supplies to power stations.


With the increase of imports BG wholesale and retail prices become more dependent from global market trends (less gas storage in relation to demand than any other European nation)

it is important that market arrangements properly reflect the importance of security of supply and its value to consumers

Another critical aspect of energy policy is the extent to which it is appropriate for GB security of supply to rely solely on the actions of market participants responding to price signals, particularly given the potential market failures and associated risks we have identified.


13.2. Price levels 13.3. Investment climate for production 13.4. Competition on retail side (margin

indication)

Market is government driven to a high degree by implementing reforms and programs to:

Attract investments

Secure supply

Reduce consumer bills

Power: Wholesale price level are higher than in NL and are additionally attracted by subsidies for carbon light production not attractive for fuel based production (esp. not for gas), Maximum NASDAQ – futures are Season ahead (Summer / Winter)

ELECTRICITY MARKET REFORM (EMR)

The reformed electricity market will deliver the low carbon energy and reliable supplies

that the UK needs, while minimizing costs to consumers.

EMR introduces two key mechanisms to provide incentives for the investment required

in our energy infrastructure.

Contracts for Difference (CFD) provides long-term price stabilisation to low carbon plant, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers.

https://www.gov.uk/government/publications/electricity-market-reform-contracts-for-difference


The Capacity Market provides a regular retainer payment to reliable forms of capacity (both demand and supply side), in return for such capacity being available when the system is tight.

retail price pressure – electricity difference between highest – lowest proposal: 20% of highest proposal; 20-30 suppliers available per region; only a few with really competitive prices; majority is close to highest price

Gas: Wholesale prices in UK are about the same level as in NL/Ger

Gas demand is estimated to be declining due to energy efficiency measures

retail price pressure, gas difference between highest and lowest proposal: 30% of highest proposal; app. 10 suppliers available per region, only a few with really competitive prices; majority is close to highest price.

8. Demand Suppliers


The 6 largest Power and Gas suppliers are: Centrica plc, E.ON UK, Scottish and Southern Energy (SSE), RWE npower, EDF Energy and ScottishPower (together called “The Big Six”) Market share electricity and gas: 60 – 70 %


Centrica plc: privately owned and stock listed (biggest share Invesco Ltd. [5.08%]) E.ON UK: owned by the German E.ON Corporation Scottish and Southern Energy: privately owned and stocklisted RWE npower: owned by the German RWE Corporation EDF Energy: owned by French state-owned EDF Corporation Scottish Power: owned by Spanish Iberdrola

15 additional main suppliers for gas and electricity. These 21 companies have a total share of app. 95% of the domestic market; Some 30-35 licensed suppliers share the

https://www.gov.uk/government/collections/electricity-market-reform-capacity-market


remaining 5%.

Supplier switches in UK:


National Grid – by the Transmission Licence Standard Conditions – is made to operate

the transmission grids for electricity and gas and is responsible to balance the system

physically. The company Elexon is responsible for settling imbalances according to the

Balancing and Settlement Code (BSC) / Electricity. Elexon is supported by the BSC Panel

giving advice and final decision.

[Exelon – website]:…” The BSC places an obligation on the BSC Panel to ensure that the

provisions of the BSC are given effect: fully, promptly, fairly, economically, efficiently,

transparently and in such a manner as will promote effective competition in the generation,

supply, sale and purchase of electricity.

BSC Panel functions include:

Ensuring that the BSC is given effect, according to its terms, and ensuring that BSC Parties comply with the BSC provisions.

Establishing Panel Committees of industry experts to carry out functions on its behalf, including establishing arrangements for resolving Trading Disputes arising under the BSC.

Deciding on the suspension of specific rights of any Defaulting BSC Party according to Section H of the BSC.

Overseeing changes to the BSC through the Modification process, and recommending to the Authority on whether Modification Proposals should be approved.

Adopting new and revised Code Subsidiary Documents (CSDs).


Determining values for trading parameters to be applied in the BSC, and recommending to the Authority in respect of others.

Acting as an appeal body in some instances, e.g. Trading Dispute Referrals.

Providing reports and other information to the Authority.

Setting the terms of reference for the BSC Auditor and considering the BSC Audit Report.

Approving the Business Strategy prepared by ELEXON for each BSC Year. The BSC Panel must assess Modification Proposals against a defined set of criteria laid out in the

Transmission Company’s Licence. These are known as the Applicable BSC Objectives.

The Panel makes determinations on trading parameters and has powers to ensure BSC Parties

are complying with the BSC rules.

The BSC Panel, under normal circumstances, meets on a monthly basis. It will convene ad-hoc

urgent meetings when required.

Panel Members must act impartially and not be representative of any one Party or class of

Parties. A full list of the BSC Panel functions and details of the Applicable BSC Objectives are

published in BSC Section B. Trading Parties elect Industry Panel Members for two-year terms. The

last election was in 2012. The next one will be in 2014.”

BSC panels consists of twelve members being appointed by trading parties,

transmission parties and citizens parties.

BRP on the one hand side are the generators and on the other hand side the suppliers.

These parties have direct contracts (OTC). Trading via Exchanges does only cover short-

term covering of demand (max. Season-ahead [Winter or Summer]).

In GB a balancing group is build up by Balancing Mechanism Units (BM Units)

representing individual connection points (e.g. Generation plant or domestic demand)

or connection groups (representing the 14 DSO grids in GB; every supplier must have


these connection group BM Units)

Settling is done day-by-day on a half-hourly basis with an offset of up to 29 days. BSC parties (BRP) have to provide a credit to cover these 29 days. There are only recommendations about the height of credit cover (80% of energy demand x CAP (Credit Assessement Price; actually £49/MWh [Set by BSC Panel]). Finally it is on the BSC party’s choice if they want to risk Credit Default or not.

If a party is under Credit or Payment default it is carefully monitored by Exelon and reported to the BSC panel for making decision about further action. Finally these processes are Trade Sales (only in case of an insolvent BSC party scheduled takeover of duties by other parties) or revoking the supplier licence (Ofgem) with a “Last Resort Supply Direction” for another supplier

Reconciliation

All reconciliation is taking place on Balancing Group level. There is implemented a four step iterative process taking into account (half-)annual metering data from domestic and other small consumers. Every step leads to new invoicing. Reconciliation has a maximum duration of 28 months

Settlement

All costs and surpluses are distributed to all BSC parties (cash-in / cash-out principle)

Gas Unified Network code [Ofgem webite]: …”The Uniform Network Code (UNC) is the hub around

which the competitive gas industry revolves, comprising a legal and contractual framework to supply and transport gas.

It has a common set of rules which ensure that competition can be facilitated on level terms. It governs processes, such as the balancing of the gas system, network planning, and the allocation


of network capacity.

The introduction of the UNC came about following the sale of National Grid’s four Distribution Network (GDN) businesses. While each new GDN owner, along with National Grid Gas, is still required to produce its own Network Code, to prevent inappropriate fragmentation the substantive provisions of these Codes are incorporated by reference to a common document known as the UNC. If you wish to discuss whether you need to be a party to this code and, if so, how to become one, please contact the Joint Office of Gas Transporters directly.”

The UK gas transmission companies own the company “xoserve” being responsible for collecting and administrating all dynamic gas data (nominations, allocation and trading) and related services (matching, settlement, invoicing and reconciliation);

Day balancing process is provide for determining imbalances; Reconciliation is done in several iterative steps on TSO level

Charging for imbalances:

Imbalance charge: Imbalance between daily in and out

Scheduling charge: giving an incentive to keep forecast and real demand in a narrow range

Balancing Neutrality Charge: Difference between received (receivable) and paid (payable) amounts is charged monthly (somehow strange; seems to neutralize various effects special to gas transport (e.g. buffering, but not limited to that question for Ofgem))

For gas there are no Balancing groups in place but it is operated with User accounts. Each account is balanced separately according to a set of rules.

Invoices: Billing period is a month with daily billing; invoices have to paid within five working days

http://www.gasgovernance.co.uk/


Credit Cover Management: The Unified Network Code (Transportation Principle Document; 920 pages) comprises a long section about credit cover management. It appears that a cash call (request for additional credit) has to be paid within one business day otherwise a notice of termination for the coming business day may be given by National Grid.

10. Exchanges & Clearing The UK is having a very liquid gas market (NBP) and relative illiquid power markets (due to high vertical integration).

Active exchanges are ICE/Endex (incl spot gas) and APX (Power, but lower turnover in UK market than in NL market), Nordpool Spot (power), Nasdaq (forward markets)

Clearing houses are CME, Nasdaq Commodities, APX Clearing and IceClearEurope.

In general, most products are traded on more exchanges.

11. Production

13.5. Concentration ratio 13.6. Type of ownership (private/public,

local/international group

Power: Power producers are the biggest group with Ofgem Licence (app. 150 licensees) major power producers generate 90% of generated quantities and are following an official definition of a major producer the following companies (in alphabetic order; market shares are not provided; but the Big Six are also all in generation):

AES Electric Ltd., Baglan Generation Ltd., Barking Power Ltd., British Energy plc., Centrica Energy, Coolkeeragh ESB Ltd., Corby Power Ltd., Coryton Energy Company Ltd., DONG Energy Burbo UK Ltd., Drax Power Ltd., EDF Energy plc., Eggborough Power Ltd., E.ON UK plc., Energy Power Resources,


Falck Renewables Ltd., GDF Suez Teesside Power Ltd., Immingham CHP, Infinis plc., International Power Mitsui, London Waste Ltd., Magnox North Ltd., Peel Energy Ltd., Premier Power Ltd., RGS Energy Ltd, Riverside Resource Recovery Ltd., Rocksavage Power Company Ltd., RWE Npower plc., Scottish Power plc., Scottish and Southern Energy plc., Seabank Power Ltd., SELCHP Ltd., Spalding Energy Company Ltd., Statkraft Energy Ltd.

Gas: GB produces about 50% of its own demand – Production is declining quicker than demand is declining which increases the dependency from international resources. Gas Producers are not subject to the Ofgem licence system

No data about gas producers found

12. Metering Companies Metering is supplier’s duty; DSO has to implement Metering Point Administration Services (requirement for DSO licencing) to provide Supplier with administrative, technical and commercial data related to metering point.

Supplier is eligible to nominate an agent (no matter of licencing) covering the following duties:

The Meter Operator (MOA) installs and maintains the meter;

The Data Collector (DC) retrieves this data and calculates the energy quantities and

The Data Aggregator (DA) sums up the volumes for each Supplier. The DA


sends this information into BSC Central Systems (operated by Exelon).

There is an Ofgem licence in place for communication purposes related to smart metering. So far one company is licenced: Smart Meter DCC Ltd. in London


13.1. -Energy only markets

Power: On the duty of the System Operator National Grid; Grid codes related to the transmission system establish the contractual basis between TSO, Generators and Suppliers for keeping the electricity system stable. Participants act by a system of bids and offer; TSO has to choose by economic decision except e.g. of technical constraints (e.g. fast ramp-up is required)

Gas: Market driven, however TSO-G are responsible for the additional supply in case of under or over supply. They are authorized to force delivery or delivery-stop from BRP on behalf of the Unified Network Code

Any other comments?

2. Parties

Topics UK

TSO

- Type of ownership

(TSO – E/G): National Grid as single System Operator (SO)

National Grid owns and operates the power transmission network in England and Wales and operates but does not own the Scottish networks. (National Grid also provides distribution and transmission services in the US)

National Grid is the sole owner of gas transmission infrastructure [National Transmission


System (NTS)] in UK.

5. National Grid; public owned and stock listed in UK and US

Major DSO’s There are 14 licensed distribution network operators (DNOs) for electricity in Britain and each is responsible for a regional distribution services area. The 14 DNOs are owned by six different groups. The DNO groups are:

Electricity North West Limited

Northern Powergrid

Scottish and Southern Energy

ScottishPower Energy Networks

UK Power Networks

Western Power Distribution

There are eight gas distribution networks (GDNs), each of which covers a separate geographical region of Great Britain.

These eight networks are owned and managed by the following companies:

National Grid Gas plc – East Midlands, West Midlands, North West England and East of England (including North London)

Northern Gas Networks Limited – North East England (including Yorkshire and Northern Cumbria)

Wales & West Utilities Limited – Wales and South West England.

Scotia Gas Networks Limited – Scotland and Southern England (including South London).



The 6 largest Power and Gas suppliers are Centrica plc (British Gas), E.ON UK, Scottish and Southern Energy (SSE), RWE npower, EDF Energy and ScottishPower (together called “The Big Six”) Market share electricity and gas: 60 – 70 %


Centrica plc: privately owned and stock listed (biggest share Invesco Ltd. [5.08%]) E.ON UK: owned by the German E.ON Corporation Scottish and Southern Energy: privately owned and stocklisted RWE npower: owned by the German RWE Corporation EDF Energy: owned by French state-owned EDF Corporation Scottish Power: owned by Spanish Iberdrola

15 additional main suppliers for gas and electricity. These 21 companies have a total share of app. 95% of the domestic market; Some 30-35 licensed suppliers share the remaining 5%.

Metering Companies Suppliers are responsible for metering; Standards are implemented by Ofgem including a programme for accelerating the transition to smart metering (replacement of around 53 million gas and electricity meters by the end of 2020)

Suppliers may nominate agents for operating metering point and data delivery (no separate licence required)


The “big 6” are the most relevant BRP but with decreasing influence due to international players, and new entrants

Major Producers (gas: including importers) There is a lot of data available how much is produces but not by whom

Recent Relevant bankruptcy In GB five times the Last Resort Supply Direction was given by Ofgem; The last one was in 2008 to Electricty4Business that failed as a gas supplier; Last resort was given to British Gas.



Topics UK


GB distinguishes between domestic and non-domestic customers.

Unless the context otherwise requires, a Domestic Premises is a premises at which a supply of electricity is

taken wholly or mainly for a domestic purpose except where that premises is a Non-Domestic Premises.

A separation according to the quantity of supply is not in place.

2. Regulator

2.1.- mandate

The non-ministerial government department Ofgem is the Office of Gas and Electricity Markets; an

independent National Regulatory Authority. Main objective: protect the interests of existing and future

electricity and gas consumers. They do this in a variety of ways including:

promoting value for money

promoting security of supply and sustainability

the supervision and development of markets and competition

regulation and the delivery of Government schemes.

HOW OFGEM IS GOVERNED?

OFGEM IS GOVERNED BY THE GAS AND ELECTRICITY MARKETS AUTHORITY (GEMA). THIS CONSISTS OF NON-EXECUTIVE AND

EXECUTIVE MEMBERS AND A NON-EXECUTIVE CHAIR. NON-EXECUTIVE MEMBERS BRING EXPERIENCE AND EXPERTISE FROM A

RANGE OF AREAS INCLUDING:

industry

economics

consumer and social policy

science and the environment

finance and investment

European energy issues.

The Authority (Ofgem) determines strategy, sets policy priorities and makes decisions on a wide range of

https://www.ofgem.gov.uk/about-us/who-we-are/gas-and-electricity-markets-authority


regulatory matters, including price controls and enforcement. The Authority's powers are provided for under

various legal acts as e.g. the Gas Act and the Electricity Act

As Ofgem stands for the consumer s’ interests the whole value chain is regulated with an emphasis on grid

operation, balancing and energy supply contracts. There is a licence system in place for every part of the value

chain.

3. TSO - E TSO-E is the system operator National Grid responsible for transmission grids in GB, although not owning them all. responsible for national system stability, consistency check of trades and security of transport analysis. TSO-E is responsible for the physical balancing but not for the monetary settling, that is provided by Exelon on behalf of National Grid. Balancing is primarily manage through price incentives towards the balance responsible parties. Direct control of steering of demand and supply is last resort (TSO-E).The data needed for this settlement is provided by suppliers, generators or their agent parties.

Market facilitation for allocation and reconciliation.

4. TSO - G National Grid Gas plc is the system operator for Britain’s gas National Transmission System (NTS). It is responsible for maintaining residual balancing of the system so that demand and supplies are balanced and the system can be operated safely.

National Grid licensed with Ofgem as a Gas transmission operator with additional conditions for system operating. Licence conditions are designed to balance interests of National Grid on the one hand side and consumer interests on the other hand side.

In operating the Gas National Transmission System (NTS), National Grid is responsible to keep the system in balance, including buying or selling gas in the wholesale market.

Cash-out arrangements are operated in both the gas and electricity markets. These arrangements are designed to address the cost of energy balancing incurred by National Grid to the parties who created those costs by imbalances in their BG Groups.

5. DSO Is called Distribution Network Operator (DNO) in GB.

The DNO for electricity / gas are mentioned above. For gas there are additional six Independent Gas


Transporters (IGT) developing, operating and maintaining local gas transportation networks; they are price regulated under the ‘Relative Price Control’ (RPC). Competition in connecting customers is accepted.

Assuring Copper plate and congestion management

Responsible for providing Metering Point Administration Services, connection as a whole, connection register, an individual network code (in alignment with national network code) as contractual basis with grid users

Capacity or connection tariffs to be monetary regulated via Ofgem under the RIIO Network Model

Covering Credit risk is mandatory provided by bank guarantee or similar – The guarantee at least should cover a minimum of the debts for 15 days (can especially be higher when company rating exceeds certain limits – Is to be paid or given prior to supply.

Distribution Connection Usage Code

Distribution Connection and Use of System Agreement (DCUSA; some kind of association for Distribution Net Operators)

Own panel with similar duties like BSC Panel

6. Supplier Supplier is licensee with Ofgem (license conditions are 435 [E] / 344 [G] pages long!); When supplying domestic customers; a maximum of four tariffs have to be offered fulfilling transparency rules and full-service conditions. Customers being pensionable, disabled, chronically sick or (partially) blind are eligible to request for free-of-charge special supporting services (fast-lane; supporting online services, etc.)

Responsible for invoicing grid costs, taxes and dues to Customers;

Pre-payment mechanism allowed.

Ofgem is eligible to give a “Last Resort Supply Direction” to a supplier; which the supplier normally has to accept. This means the supplier has to take over the customers of another supplier who’s supplier licence has


been revoked by ofgem because of failing business performance

7. Balance Responsible There is a licence sytem in place including mandatory credit covering (process is mandatory but not the amount).


8. Production Electricity:

Matter of licence to Ofgem. On the one hand side they the “suppliers of the suppliers” on the other hand’s side they are TSO – agents for congestions prevailing and reserve delivery.

Producers may receive subsidies when conduct renewable generation or carbon light fueling (incl. nuclear fuels)

Gas

Gas production companies are not licensed with Ofgem. Instead of the production industry the shippers are licensed with Ofgem bringing gas from the production fields, interconnectors and LNG terminals to the virtual trading points and being upstream supplier for the demand suppliers.

9. Metering Companies Suppliers are responsible for metering; Standards are implemented by Ofgem including a programme for accelerating the transition to smart metering (replacement of around 53 million gas and electricity meters by the end of 2020)

Suppliers may nominate agents for operating metering point and data delivery (no separate licence required)

10. Market Facilitation The national regulation agency Ofgem is the main market facilitator operating licence systems, providing industry codes, controlling; reporting activities of licencees, operating programs for attracting politically demanded investments. Main objectives are protecting consumer interests, assure security of supply, realize affordable supply on a longterm basis. By means of licencing duties are delegated to licencees (Transmission Grid operator, Distribution Grid operator, Production companies, Interconnector operator and Supplier)

11. Exchanges No separate role in the regulation, National Balancing Point (NPB) for gas and NASDAQ for electricity over short-term trading (longest term: Season ahead); NBP gives a price reference for UK Wholesale prices for


consumer supply in gas and NASDAQ in electricity.

Long-term trading is conducted over the counter (OTC)


TOPICS UK

12. Supplier of last resort Ofgem may revoke a supplier’s licence and may appoint a Supplier of Last Resort (SoLR) by direction. OFGEM provides written guidance to the process.

If a supplier fails to fulfill financial or technical obligations Ofgem will try to appoint the supplier or its receiver in case of a bankruptcy in order to find a solution for the continuity of supply. Precondition is that the supplier agrees to fulfill his (financial) obligations for a period of time (not specified).

The process is recently changed, in the sense that process is different for suppliers < 500.000 customers (E+G separately counted) and suppliers > 500.000 customers.

Falling away of smaller suppliers:

Ofgem uses the time to ask other suppliers for their conditions to take over the failed supplier’s customers. The Last Resort Supply Direction is given to the supplier offering the most convenient and economic model for continuing supply (seen from the customer perspective). There can be one or more suppliers of last resort. SoLR is appointed by written notice.

The process in an overview:

obtaining information from a variety of sources about the failing supplier’s customer portfolio (all


information required to prepare a qualified proposal for supply many details);

discussions with any receiver appointed to the failing company;

providing information about the failing supplier’s portfolio to potential SoLRs and obtaining information from them about how they could take over responsibility for customers; and

deciding which supplier to appoint as a SoLR if OFGEM decides to revoke the failing supplier’s licence. There will also be an detailed assessment in advance.

The direction lasts for at least six months; prices for this so called deemed contracts are considered by Ofgem

(can be higher than customers’ former prices). Customer can agree a replacement contract with SoLR or

switch to another supplier. A SoLR is eligible to make a claim for higher costs paid by a levy on gas

transporters‟ and electricity distributors' Distribution Use of System (DUoS) charges in this case all

customers in a grid have to pay for higher costs, what Ofgem is not convenient about.

If no supplier agrees to be SoLR Ofgem is eligible to direct without consensus. In this case the Big Six are the preferred SoLR.

Timescale: not clearly specified but as quick as possible; The revocation and the effective date of appointment

of the SoLR always coincide; It is up to the SoLR to assure a timely switch of supply

IN case of suppliers > 500.000 connection points, the following process applies

.check whether there is public interest (widely defined). If yes, a special request (Ministry supported by

OFGEM) can be given to the court to appoint an administrator with ‘expertise in energy’ (confidential list). In

that case, also a bank guarantee may be given to the administrator in order to continue operations. Bank

guarantee is provided by Ministry of Finance. OFGEM is in the lead for the process. Bank guarantee is given for

6 months, with possibility to prologue another 6 months. Details of the process still need to be worked out

(“From paper to practice”).


Special for Gas

As there are different roles for supplier and shipper, shipper’s licence makes the shipper of the failing supplier

shipper for the SoLR, except SoLR is appointing another shipper.

Electricity:

It is very common in GB that a supplier also is BRP (BSC party) and the aforementioned procedures are also covering the balancing part. However, key focus is on supplier.

Gas:

Gas supplier and gas shipper are separated roles in GB. A shipper may act as an upstream supplier for several suppliers. Ofgem has no obligation when a shipper fails, but expects the supplier to take over shippers charges after 23 days and to appoint a new shipper within 25 days (gas suppliers licence condition).

13. Legal Framework Bankruptcy law prevails over E/G legislation. No special position for power and gas companies. Trustee has to maximize value of the estate and is Ofgem’s negotiation party

14. Experiences with bankruptcies Ofgem made a few experiences with smaller failing suppliers. In 2008 they have adjusted their SoLR – guidance and have conducted further bankruptcies accordingly without further adjustment.

15. Role regulator Ofgem’s duty is to assure continuity of supply for all customers and therefore plays a central role when


revoking supplier’s licence and appointing Suppliers of last resort. Other parties in the market are obliged to support these role by their own licence conditions

16. Role TSO Have to provide sufficient customer data to Ofgem to facilitate the SoLR appointment process; In the unlikely event that SoLR makes a claim for additional cost, TSO makes a levy on his charges

17. Role DSO Have to provide sufficient customer data to Ofgem to facilitate the SoLR appointment process; In the unlikely event that SoLR makes a claim for additional cost, DSO makes a levy on his charges

18. Role Market facilitator Elexon is the market facilitator. Its is governed by a so called BSC panel, consistent of market players and gridco’s. However, Ofgem has the ultimate decision making power related to market rules & facilitation.

19. Measurement Company of last resort

Does not seem to be a topic.

20. Exchanges Regulated by Bank Of England. Ofgem never refers to specific exchanges in their rules and regulations, they use phrases like “OFGEM will appoint the relevant price index after consultation with market parties”.


Ofgem may act within days (e.g. the supplier licence for Energy4Business in Oct. 2008 was revoked within two days and SoLR appointed). The maximum time for solving falling away of market parties is 14 days.

22. Experience;

Ofgem has revoked 265 licences so far (not only suppliers but also by application of licensee itself) and has given 5 Last Resort Supply Directions In 2008 the guidance for the Supplier of Last Resort process was adjusted according to some experiences

All failures were smaller companies. The separate procedure for larger companies has only been established recently and has not been tested in practice. OFGEM is hence interested in our experiences and ideas, as they want to be prepared for falling away of one of the ‘big six’ as well.


Ofgem advises SoLR to consider monetary abilities of domestic customers when offering a deemed contract for Last Resort supply without giving them any obligation. But they do not have to consider previous prepayments.

Any unbalance costs or bank guarantee costs (in case > 500.000 connection point procedure) will be ‘taken into account in next year distribution tariffs’.

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