Proposed Amendments to the Integrated Text of the Electricity Market Rules and to the Rules Governing the Forward Electricity Account Trading Platform
1. Foreword
With a Decree of 19 December 2003 (published in “Supplemento ordinario alla Gazzetta Ufficiale” no. 301 of 30 December 2003, “Serie Generale”), the Italian Minister of Productive Activities approved the Integrated Text of the Electricity Market Rules (hereafter “Electricity Market Rules”). The Electricity Market Rules were subsequently amended and supplemented by a Ministerial Decree of 15 June 2007 (published in “Supplemento ordinario” no. 148 to “Gazzetta Ufficiale” no. 150 of 30 June 2007). On 4 May 2007, “Gestore del Mercato Elettrico S.p.A.” (hereafter “GME”) adopted urgent amendments to the Electricity Market Rules under art. 3, para. 3.5 thereof. The amendments were finally approved by a Ministerial Decree of 17 September 2008 (published in “Gazzetta Ufficiale” no. 243 of 16 October 2008, “Supplemento Ordinario” no. 233).
In compliance with art. 17 of Decision 111/06 adopted by “Autorità per l’Energia Elettrica e il Gas” (hereafter “AEEG” – the Italian electricity & gas regulator), GME prepared the draft Rules Governing the Forward Electricity Account Trading Platform (hereafter “PCE”). These Rules (hereafter “PCE Rules”) were successfully verified by AEEG’s Department of Markets (Decision of 7 February 2007) and subsequently amended and supplemented.
The guarantee and settlement-of-payment system that GME applies in the Electricity Market and on the PCE is covered by the Electricity Market Rules and by the PCE Rules, respectively. The implementing provisions and, namely, the timelines for payments in the Electricity Market and on the PCE are covered by the Technical Rules.
Operators have long expressed the need to have a more flexible and less burdensome guarantee and settlement-of-payment system. To respond to this need and change the current system, GME investigated a number of assumptions and tested their feasibility with the objective of leaving the current solidity and reliability of the market unaltered, in terms of risk incurred by operators and by GME itself as a central counterparty.
The above investigation evidenced that, considering the current regulatory framework, the coverage of the total value of operators’ payables through first-demand bank guarantees is the most secure way to guarantee the reliability of the market. The investigation also indicated that any change to the regulatory framework permitting GME to assess guarantee systems alternative to first-demand bank guarantees requires to shorten the timelines for payments, aligning them with those of the most advanced markets.
GME investigated the assumption of shortening these timelines with the two-fold purpose of making the guarantee system less burdensome and of adapting the operation of the Italian Electricity Market to international standards. The alignment of the timelines for payments with the ones of other markets would also respond to the requirements arising from the ongoing process of integration of European markets.
The following paragraphs describe the current settlement-of-payment system used in the Electricity Market and on the PCE and the proposed amendments that GME submits to interested parties for consultation, in compliance with article 3, para. 3.4, and article 4 of the Electricity Market Rules and with article 3, para. 3.5, and article 4 of the PCE Rules.
2. Current settlement-of-payment system
Under the current rules of the settlement-of-payment system, GME i) determines the net position of debit or credit of each Market Participant for each applicable period, on the basis of invoices sent/received by GME as a central counterparty, and ii) receives/makes payments in respect of the resulting balances. Therefore, for the purposes of payments, the net position of credit/debit of each Market Participant is determined in each market on the basis of the purchase/sale transactions concluded or registered on the same markets and having delivery periods that are included in the same invoicing period. The invoicing period for both the Electricity Market and the PCE is the calendar month (month m).
Considering the role that “Acquirente Unico” (hereafter called “AU”) plays in the Electricity Market, the timelines for payments in the same market were defined in accordance with the provisions of the “Testo Integrato Vendita” (TIV – AEEG’s Decision 156/07) [1] concerning the invoicing period and the settlement of payments arising from the sale of electricity to distributors by AU. The payment cycle currently applied in the Spot Electricity Market (MPE) and on the PCE involves the following timelines:
- within the 14th day of the month m+1, GME makes available notifications of the payables/receivables accrued in the invoicing period preceding the current period;
- within the 6th working day of the month m+2, invoices are made available;
- within the 10th working day of the month m+2, GME notifies Market Participants of the balances between invoices payable and invoices receivable;
- within the 15th working day of the month m+2, net debtors make payments to GME;
- within the 16th working day of month m+2, AU makes payments to GME and GME makes payments to creditor Market Participants.
In the Forward Electricity Market (MTE), the payment cycle is shorter, as payments are settled on the 15th and 16th working days of the month m+1.
The above system implies that a debt contracted in the market and/or on the PCE is to be guaranteed through a bank guarantee until the payment is made. Therefore, the longer the payment cycle, the higher the amount to be guaranteed through first-demand guarantees.
It follows that the shortening of the payment cycle – involving a reduction of the net debit to be guaranteed – responds to the need (that operators have expressed many times) to have a less burdensome guarantee system.
Furthermore, in view of the integration of European markets, the duration of the Italian market payment cycle might represent a barrier to the development of the market coupling mechanism. Indeed, a comparison with the billing methods prevailing in the main European spot power markets clearly shows that the Italian payment cycle is not in line with them. In particular, in some markets (e.g. the French or German one), the billing of payables/receivables is made on a daily basis and, in other markets, payments are made on a weekly basis.
In view of the above, GME deems it useful to propose an amendment which shortens the payment time limits.
3. Settlement-of-payment system: proposed amendment
Considering the present payment time limits in the Italian market, involving a payment cycle of about 80 days, the medium-term goal to be pursued is the alignment of the Italian market with the time limits adopted in the European power markets. Therefore, GME proposes the shortening of the payment cycle in two stages.
In stage 1, the current payment cycle for the MPE and PCE might be aligned with the one adopted for the MTE. In stage 2, the payment time limits might be reduced to one week (or to less than one week), while retaining a monthly invoicing period. The feasibility of a weekly payment cycle depends on i) the change of the regulatory framework, namely of the provisions governing the guarantee and settlement-of-payment system, and ii) the taxation rules applicable to transactions in GME’s markets.
In stage 1, the invoicing period would remain equal to one month (m), whereas payments should be settled, in each market, within the following time limits:
- within the 4th day of the month m+1, GME makes available notifications of the payables/receivables accrued in the invoicing period preceding the current period;
- within the 6th working day of the month m+1, invoices are made available;
- ithin the 10th working day of the month m+1, GME notifies Market Participants of the balances between invoices payable and invoices receivable;
- on the 15th working day of the month m+1, net debtors make payments to GME;
- on the 16th working day of the month m+1, GME makes payments to net creditor Market Participants.
In stage 2 (which may be started only after changing the regulatory framework), the settlement of payments would be reduced to a weekly cycle, while retaining an invoicing period of one calendar month:
- on the 1st working day (g) of each week, GME notifies the net credit or debit balances pertaining to the payables/receivables accrued in the applicable periods included in the previous week;
- on the working day following the day g, net debtors make payments to GME in respect of the previous week;
- on the 2nd working day following the day g, GME makes payments to net creditor Market Participants in respect of the previous week.
As an alternative, if a daily payment cycle were implemented, the payments in respect of each day of the week should be made by net debtor Market Participants on the 2nd working day following the day of delivery, whereas GME would make payments to net creditor Market Participants on the 3rd working day following the day of delivery.
With regard to the invoicing process, the invoices payable and receivable in respect of purchase/sale transactions in the applicable periods belonging to each invoicing period (m) will be made available within the 6th working day of the following month (m+1).
If a weekly/daily cycle were implemented, the amount of the bank guarantees should cover the total value of the transactions made and whose payments have not yet been settled. In particular, for the purposes of the technical adequacy verifications, the amount of Market Participants’ bank guarantees in each week/day should cover:
- in the Day-Ahead Market (MGP)/Adjustment Market (MA), the possible net payables that the Market Participant accrues during the payment cycle, increased by the possible payables accruing in the days for which payments have not yet been settled;
- for the MTE/PCE, the possible net payables arising from transactions with delivery periods belonging to the same week/day, increased by the possible net payables accruing in the weeks/days for which payments have not yet been settled.
With a view to simplifying the management of the payment cycle, GME has already implemented a platform, called ME_Settlement, through which some procedures related to the sending/receiving of notifications and invoices have been automated. This choice is expected to mitigate the operational impact of the new system on Market participants (who will have to adapt their accounting and administrative procedures to the new timelines).
Question for consultation no. 1: Do you agree on the need for shortening the payment cycle? If no, why?
Question for consultation no. 2: Considering AU’s role in the Electricity Market, do you think that a shorter payment cycle may have an impact on Electricity Market prices and to what extent?
Question for consultation no. 3: Do you think that the implementation of Stage 1 may start in March 2009? If you do not agree on the proposed start date, when do you think that Stage 1 of reduction of the payment cycle may start and why?
Question for consultation no. 4: In Stage 2, which payment cycle – weekly or daily – better responds to operators’ requirements and why?
Question for consultation no. 5: If the necessary changes are made to the regulatory framework, do you think that the implementation of Stage 2 may start in January 2010? If your answer is no, when do you think that the final goal may be reached and why?
Interested parties are invited to send their comments, if any, within 4 January 2009
or
- by fax to +39-06-80124524
For additional information or clarifications, contact:
+39-06-80124974 (Markets)
+39-06-80124529 (Legal & Regulatory Office)
[1] The same payment time limits had been specified in AEEG’s Decision 05/04.
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