1.   What is the disclosure of risk management contract information regime?

The disclosure of risk management contract information regime provides interested parties with a mechanism for comparing key risk management contract details. The regime addresses the lack of information available for the formulation of historic contract curves and allows parties to assess the competitiveness of the risk management contract market. Parties looking to enter into a risk management contract are able to view details of historic contracts which will assist them when negotiating their own contracts.

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2.   Who submits contract details?

Only Participants, as defined in the Electricity Industry Participation Code 2010, are required to submit contract details. If the seller of a hedge contract is a Participant, the seller is required to submit contract details; if the buyer is a Participant they must verify that the submitted details are correct (if the buyer is not a Participant than verification is optional). If the buyer is a Participant, and the seller is not, the buyer is required to submit information. If neither the seller nor the buyer is a Participant, details of the risk management contract do NOT need to be disclosed.

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3.   What are the timeframes for submission?

A Participant must submit disclosure data no later than 5pm, 5 business days after the trade date for a CfD or options contract and 10 business days after the trade date for all other risk management contracts. Failure to comply will be considered a breach of the Electricity Industry Participation Code 2010.

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4.   Why are non-Participants exempt from the disclosure regime's requirements?

Non-Participants are exempt from the disclosure requirements because the Electricity Authority believes the inclusion of non-Participants would result in increased compliance costs with little additional assurance around disclosure. The Electricity Authority will consider reviewing this should the number of non-Participants involved in risk management contracts rise considerably.

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5.   What do I need to do if I receive an email from the risk management disclosure system asking me to verify information?

If you are a Participant you must verify the information within 2 business days. Failure to comply will be considered a breach of the Electricity Industry Participation Code 2010.

If you are a non-Participant you have the right, but not the obligation, to verify the disclosed information.

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6.   If I disagree with the information which has been disclosed what can I do?

If you disagree with the information that has been submitted, you can submit that the information is incorrect. You can do this by clicking on the "dispute" button next to the relevant contract on the verification page.

The submitting party will receive an email informing it that the contract information has been disputed; it will then be required under the Electricity Industry Participation Code 2010 to correct the information. You will be sent another email with the corrected information which you can then verify (or choose not to verify if you are a non Participant).

If the dispute is not resolved within 10 business days of the Participant receiving notice that the information is disputed, then the system will indicate the contract is subject to a long term dispute.

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7.   What do I do if I submit or verify a contract but later realise the information is incorrect?

Contract information can be amended by the submitter using the edit function on the system. A verification email will be sent to the other party advising them of the changes.

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8.   Why does the contract price on the verification page not match the price in my risk management contract?

As outlined below, the contract price on the verification page is a standardised version of the original price negotiated in your risk management contract. The contract price has been time weighted, and adjusted for both location and loss adjustment factors.

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9.   How do I calculate contract price?

The contract price only needs to be disclosed for physical contracts (FPVV and FPFV) and CfD contracts with terms of less than ten years.

In order to compare prices between CfDs and physical contracts Participants will be able to use a loss adjustment factor (LAF) of 0.937 for physical contracts. For contracts which exclude losses a LAF of 1 can be used.

All contracts that contain a profile will be presented as time-weighted averages. If a contract contains an adjustment clause, only the starting price needs to be disclosed.

The contract price is calculated using the following formula:

CP =

{

n ∑ Pi x TPi i=1                n ∑ TPi i=1

}

/ LF x LAF

Where:

CP     means the contract price

n        means the number of different prices within the contract

P_i       means a price specified in the contract (for contracts with an adjustment clause it is a starting price)

TP_i     means the number of trading periods during which each price in the contract applies

LF      means the location factor for the node at which the price is set in the contract, as published by the Board in accordance with rule 5

LAF   means a loss adjustment factor which is:

(a) if the contract price for the contract is referenced to a point of connection on the grid, 1; or

(b) for all other contracts, 0.937 (being the difference between 1 and the loss factor of 0.063).

 

The following worked examples illustrate how the contract price can be calculated:

1.      A profiled CfD contract which is $60/MW at peak for 32 trading periods and $30/MW off peak for 16 trading periods. The load during peak periods is 4MW and during off peak periods is 2MW. The contract was struck at ALB0331 in Northland which has a mean location factor of 1.07. The contract price for this contract would be calculated as follows:

CP= {(32 trading periods at $60+16 trading periods at $30)/48 trading periods}/ a location factor of 1.07

CP= $46.73

2.      An FPVV contract which is $72/MW at peak for 32 trading periods and $36/MW off peak for 16 trading periods. The contract was struck at WRK0331 in Edgecumbe which has a mean location factor of 1.01. The contract price for this contract would be calculated as follows:

CP= {(32 trading periods at $72 + 16 trading periods at $36)/48 trading periods}/a location factor of 1.01* an LAF of 0.937 for a physical contract

CP= $63.40

3.      An FPVV contract which is $56/MW at peak for 32 trading periods only. The contract was struck at ROX1101 in Southland which has a mean location factor of 0.93. The contract price for this contract would be calculated as follows:

CP= {(32 trading periods at $56)/32 trading periods}/ a location factor of 0.93 * an LAF of 0.937 for a physical contract

CP= $64.26

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10.   What is a grid zone area?

The purpose of the grid zone area is to protect parties' anonymity. There are five grid zone areas, three in the North Island and two in the South Island. Within each grid zone area there is a nominated node to which contracts are normalised.

Table one, below, outlines the different aggregations of locations into Grid Zone areas and displays the normalisation node for each Grid Zone area.

Table 1. Aggregated Grid Zone areas

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11.   What is a location factor?

A location factor is the historic price ratio between a specific node and the relevant normalisation node for that area for the previous 12 months. This information will be published annually on both the Electricity Authority's website and the risk management disclosure system and will allow Participants to make the necessary adjustment to their contract price calculation.

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12.   What can I use the information for?

The disclosed information on contract details can be used by Participants and interested parties to create historic contract curves (for comparison with market offers) or forward price curves. A historic contract curve should allow risk management market participants to formulate their own risk management strategies more efficiently.

Parties can search the system using the following criteria: location, date range and type of contract. Parties will be able to use high level filters to omit Energyhedge contracts, contracts with clauses (for example, adjustment clauses, FM clauses, suspension clauses), disputed contracts, and contracts for other parties.

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13.   Do I need a username and password?

You will need to log on to the system in order to submit contract details or view/download the full set of information for the contracts of which you are a party. Contract details can be viewed/downloaded without logging on, but confidential information will not be accessible. If you require a logon to the system, please contact the WITS administrator on 0800 426 648 or wits@nzx.com.

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14.   Some of the contracts don't have price or grid zone information, why is this?

Price and grid zone area are only required fields for contracts with a term of less than ten years. This exemption was deemed necessary because contracts with terms greater than ten years are the exception rather than the norm. Exempting this information from disclosure ensures the anonymity of longer term contracts. For all other contracts both of these parameters are required fields so they should be showing.

Table 2. Information required for contracts of different term lengths

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