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Invoicing and Collateral Fredrik Åström, Fingrid Oyj

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Fingrid Oyj
Fingrid Oyj

The document discusses invoicing and collateral requirements for imbalance settlement in the Nordic electricity market. It provides details on: 1) How eSett invoices BRPs on a weekly basis for imbalances, reserves and fees from three weeks prior. Invoices are sent as e-invoices or PDFs. 2) Payments are direct debited from BRP settlement accounts. eSett settles invoices the same week as invoicing. 3) Collateral must be provided by BRPs to meet requirements calculated based on volume, prices and past invoices. Collateral can be in the form of cash in a pledged account or an on-demand bank guarantee.

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Invoicing and collateral NBS Keskustelutilaisuus 20.4.2015 Fredrik Åström / Fingrid Oyj
2 Topics 1. Invoicing and payments 2. Collateral model 3. Required setup 2
3 Issuing of invoices • eSett invoices imbalances, activated reserves and fees on a weekly basis – Positive invoice amount (BRP pays to eSett)  “Debit Notice” – Negative invoice amount (eSett pays to BRP)  “Credit Notice” • Each Monday, eSett invoices the settlement result and fees from the delivery week that started three weeks ago • BRP receives one invoice per country where it operates • BRPs can select to be invoiced either in default currency (EUR) or in local currency (NOK or SEK) • Invoice sent as e-invoice, which consists of two components: – Invoice message in XML, which allows for automatic import of the invoice into the BRP’s accounting system – A PDF file with an image of the invoice, which facilitates manual review of the invoice • BRPs that do not want to receive e-invoices will get invoice by email in PDF format
4 Payment of invoices • eSett direct debits incoming payments from the BRP to eSett – Invoice not to be paid by BRP – Invoice amount debited from BRP’s settlement account • Invoices are settled by eSett during the same week: – Amount of Debit Notice debited by eSett on Wednesday – Amount of Credit Notice paid out by eSett on Thursday • A holiday in the interval Monday - Thursday in any of the NBS countries shifts the activities on and after the holiday one business day forward • Payments executed as same-day value payment – Payment amount available to recipient’s bank on the same day as the payment is initiated – Payment amount is typically also credited to recipient’s account on the same day, but this depends on agreement between account holder and bank
5 The imbalance settlement results are invoiced and settled ~3 weeks after the delivery day Calendar days Week 1 Week 2 Week 3 Week 4 Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Delivery days 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Mon 1 Tue 2 Wed 3 Thu 4 Fri 5 Sat 6 Sun 7 Delivery day D0 Reporting of data D2 – D13 Settlement of week 1 final Invoicing of week 1 Direct debiting of debit invoices Payment of credit invoices Schedule of imbalance settlement and invoicing Delivery day Data reported Settlement final Settlement invoiced Incoming payments to eSett debited Outgoing payments to BRP credited
6 Topics 1. Invoicing and payments 2. Collateral model 3. Required setup 6
7 Two alternative forms of collateral A. Cash collateral • Cash on an account in an approved Settlement Bank • Account pledged to eSett by signing Pledged Cash Account Agreement defined by eSett • Currency of account can be EUR, NOK or SEK • Same account used for settlement of incoming and outgoing invoice payments B. On-demand guarantee • Issued by approved Settlement Bank • Shall be unconditional, irrevocable and payable on first demand • Issued according to On-Demand Guarantee template defined by eSett • Currency of guarantee can be EUR, NOK or SEK Any combination of these two forms of collateral is also possible.
8 Collateral schedule • Dynamic collateral model: collateral requirements recalculated each week to reflect changes in counterparty exposure • Standard schedule: – Collateral requirements calculated and published in Online Service by 13 CET on Monday – BRPs shall provide sufficient collateral to meet requirement by End of Business on Monday: • Amount of cash collateral must be credited to settlement account during Monday (i.e. included in Monday’s closing account balance) • On-demand guarantee must be provided to eSett by 15 CET on Monday – By End of Business on Monday, the BRP shall also post sufficient additional funds to settle the next invoice if it is a Debit Notice
9 Exceptions to collateral schedule • If Monday is a holiday (in any of the countries), eSett will publish the collateral requirement on the next business day • If the risk exposure changes significantly during the week, eSett will publish an updated collateral requirement • Collateral updates are published by 13 CET and the BRP shall provide sufficient collateral to meet the updated requirement by End of Business on the day when the updated requirement was published
10 Collateral monitoring • Daily collateral monitoring is performed by eSett • For this purpose eSett will retrieve daily account balances from each collateral account • eSett verifies that each BRP has met collateral requirement by the End of Business deadline on Monday based on Monday’s end-of-day account statement on Tuesday morning • A failure to post sufficient collateral by the deadline constitutes a material breach of the imbalance settlement agreement • Currency treatment: – Calculation of collateral requirement and monitoring of collateral is carried out in EUR – Any collateral deposits in SEK and NOK are converted to EUR with daily ECB rate
11 Release of Excess Funds on a Pledged Cash Account • If a Pledged Cash Account holds more funds than what is necessary for meeting the Collateral Requirement and settling the next debit invoice, the BRP may request from eSett that the excess balance be released from the Pledged Cash Account – This request can be submitted through Online Service on any day in the week • If the request is valid, eSett will instruct the Settlement Bank to transfer the Excess Balance to another designated account of the BRP
12 The size of the counterparty risk components varies from day to day Week 1 Week 2 Week 3 Week 4 M T W T F S S M T W T F S S M T W T F S S M T W T F S S On Monday: On Tuesday: On Wednesday: On Thursday: On Friday: On Saturday: On Sunday: 1. Invoiced 1b Overdue invoice* 2. Settlement ready, not invoiced 3. Settlement data being reported Continuously about three weeks of settlement outstanding * Overdue invoices should not be possible due to collateral model Risk of irregular behavior from calculation moment onwards 1-3 days Moment of calculation
13 Standard formula for calculation of collateral requirement 𝐶𝑜𝑙𝑙𝑎𝑡𝑒𝑟𝑎𝑙 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡 = 3 ∗ (𝑆1 + 𝑆2) + 𝑚 ∗ 𝑉1 + 𝑉2 ∗ 𝑃 Where S1 = Average of sums of invoiced production fees, consumption fees and consumption imbalance fees per week for the last 3 invoiced weeks S2 = Average of absolute amounts of sums of invoiced production and consumption imbalances per week for last 3 invoiced weeks V1 = Consumption volume from last 7 settled days V2 = Bilateral and spot sales volumes from last 7 days m = Multiplier: • 3/7 for the share of (V1+V2) that does not exceed 80,000 MWh • 1/7 for the share of (V1+V2) that exceeds 80,000 MWh but does not exceed 400,000 MWh • 0 for the share of (V1+V2) that exceeds 400,000 MWh P = Average of the consumption imbalance prices in the different MBAs during the last 7 days, where the price of each MBA is weighted according to the share of the BRP's total turnover that took place in respective MBA m × (V1 + V2) can be at most 80 000 MWh Minimum amount of the collateral requirement is 40 000 € ~ Imbalances that have occurred but not been paid for yet ~Exceptional imbalances that may occur from this point onwards until they are recognized
14 Exceptions to the Standard Formula • The collateral requirement will be calculated according to an adjusted formula in situations where the standard formula does not appropriately reflect the prevailing counterparty risk • An adjusted formula is used in e.g. the following situations: – The week contains holidays that prolong the settlement period – There are risks of delays in the payment process e.g. due to labor disputes in banks – When there have been exceptional movements in market prices – When the results of the day-ahead market cannot be calculated in normal order • An adjusted formula is also used for the following BRPs: – New BRP – BRP whose balance obligation has changed substantially – BRP participating in shadow auction for NordNed link – BRP with erroneous volume data – BRP in financial distress • The objective is always to reflect the prevailing counterparty exposure as closely as possible based on the data available
15 Topics 1. Invoicing and payments 2. Collateral model 3. Required setup 15
16 BRP's settlement bank Account balances Invoice Information and money flows between the parties eSett's invoice operator (Basware) BRP's invoice operator Request to release excess collateral Collateral requirement Request for Transfer Payment instruction Instruction to increase collateral Request for Transfer eSett's bank (Nordea) Other accountCollateral increase Collateral release Credit Debit BRP's settlement account eSett's settlement account BRPeSett
17 Required setup for invoicing • Agreement with e-invoice operator for receiving e-invoices • Inform eSett of the e-invoicing operator and e-invoicing address to be used • BRP can agree with its e-invoice operator about the format in which it wants to receive the e-invoice – eSett will issue invoices in Finvoice 1.3 format – Invoice operators will handle the necessary translation if the BRP chooses to use another format • If the BRP does not want to receive e-invoices it shall inform eSett of an email address to which the invoice will instead be sent in PDF format
18 Required banking setup • Bank account (”Settlement Account”) in approved Settlement Bank – Account has to be held in Norway, Sweden or Finland – Currency can be EUR, NOK or SEK – Different settlement account per country possible if operating in multiple countries • Signing of Pledged Cash Account Agreement – Pledge of account to eSett to enable use as collateral – Right of disposal to eSett to enable direct debiting of account – Right for eSett to receive information about balances and transactions on account • Signing of other required agreements with Settlement Bank – E.g. agreement to enable same-day value payments – Settlement Bank to advise what agreements are required • List of approved Settlement Banks published on www.eSett.fi (forthcoming) – BRP to notify eSett if it would like to use a bank that is not yet on the list
19 Requirements on Settlement Banks • Domicile in Norway, Sweden or Finland • Member of SWIFT or operating through another SWIFT member • Ability to execute Request for Transfer instructions / MT101 with Same Day Value according to eSett’s schedule • Ability to include remittance information from incoming MT101 in outgoing payment • Ability to report balances in MT940 format according to eSett’s schedule • Credit rating on at least the following level: – Standard & Poor's: long term rating “A” – Moody's: long term rating “A2” – Fitch: long term rating “A” • Valid Settlement Bank Agreement with eSett • Valid bilateral agreement with eSett’s bank (Nordea) for execution of Request for Transfer transactions
20 Service fees • The BRP is responsible for all applicable service fees for the settlement bank services • eSett is not responsible for any fees or costs incurred by the Settlement Bank • The Settlement Bank can apply any pricing model to the settlement bank services
21 Schedule for preparations 2015 2016 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Settlement Bank Agreement published Signing of Settlement Bank Agreements BRPs to obtain Settlement Bank services eSett operating imbalance settlement for Finland eSett operating imbalance settlement for Norway and Sweden 31 May 1 Feb 18 Apr • Settlement Account opened and Pledged Cash Account Agreement signed at the latest 1 month before go-live • Initial collateral posted at the latest 1 week before go-live
22 Contacts Minnakaisa Ahonen CEO, eSett Oy +358 50 5425427 Minnakaisa.Ahonen@fingrid.fi Paula Berg Finance Manager, eSett Oy +358 40 4773551 ext-Paula.Berg@fingrid.fi Fredrik Åström Finance responsible in NBS project +358 40 7720548 Fredrik.Astrom@fingrid.fi
eSett Oy Läkkisepäntie 21 P.O.Box 530 FI-00101 Helsinki, Finland info@esett.fi www.esett.fi

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Invoicing and Collateral Fredrik Åström, Fingrid Oyj

  • 1. Invoicing and collateral NBS Keskustelutilaisuus 20.4.2015 Fredrik Åström / Fingrid Oyj
  • 2. 2 Topics 1. Invoicing and payments 2. Collateral model 3. Required setup 2
  • 3. 3 Issuing of invoices • eSett invoices imbalances, activated reserves and fees on a weekly basis – Positive invoice amount (BRP pays to eSett)  “Debit Notice” – Negative invoice amount (eSett pays to BRP)  “Credit Notice” • Each Monday, eSett invoices the settlement result and fees from the delivery week that started three weeks ago • BRP receives one invoice per country where it operates • BRPs can select to be invoiced either in default currency (EUR) or in local currency (NOK or SEK) • Invoice sent as e-invoice, which consists of two components: – Invoice message in XML, which allows for automatic import of the invoice into the BRP’s accounting system – A PDF file with an image of the invoice, which facilitates manual review of the invoice • BRPs that do not want to receive e-invoices will get invoice by email in PDF format
  • 4. 4 Payment of invoices • eSett direct debits incoming payments from the BRP to eSett – Invoice not to be paid by BRP – Invoice amount debited from BRP’s settlement account • Invoices are settled by eSett during the same week: – Amount of Debit Notice debited by eSett on Wednesday – Amount of Credit Notice paid out by eSett on Thursday • A holiday in the interval Monday - Thursday in any of the NBS countries shifts the activities on and after the holiday one business day forward • Payments executed as same-day value payment – Payment amount available to recipient’s bank on the same day as the payment is initiated – Payment amount is typically also credited to recipient’s account on the same day, but this depends on agreement between account holder and bank
  • 5. 5 The imbalance settlement results are invoiced and settled ~3 weeks after the delivery day Calendar days Week 1 Week 2 Week 3 Week 4 Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Delivery days 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Mon 1 Tue 2 Wed 3 Thu 4 Fri 5 Sat 6 Sun 7 Delivery day D0 Reporting of data D2 – D13 Settlement of week 1 final Invoicing of week 1 Direct debiting of debit invoices Payment of credit invoices Schedule of imbalance settlement and invoicing Delivery day Data reported Settlement final Settlement invoiced Incoming payments to eSett debited Outgoing payments to BRP credited
  • 6. 6 Topics 1. Invoicing and payments 2. Collateral model 3. Required setup 6
  • 7. 7 Two alternative forms of collateral A. Cash collateral • Cash on an account in an approved Settlement Bank • Account pledged to eSett by signing Pledged Cash Account Agreement defined by eSett • Currency of account can be EUR, NOK or SEK • Same account used for settlement of incoming and outgoing invoice payments B. On-demand guarantee • Issued by approved Settlement Bank • Shall be unconditional, irrevocable and payable on first demand • Issued according to On-Demand Guarantee template defined by eSett • Currency of guarantee can be EUR, NOK or SEK Any combination of these two forms of collateral is also possible.
  • 8. 8 Collateral schedule • Dynamic collateral model: collateral requirements recalculated each week to reflect changes in counterparty exposure • Standard schedule: – Collateral requirements calculated and published in Online Service by 13 CET on Monday – BRPs shall provide sufficient collateral to meet requirement by End of Business on Monday: • Amount of cash collateral must be credited to settlement account during Monday (i.e. included in Monday’s closing account balance) • On-demand guarantee must be provided to eSett by 15 CET on Monday – By End of Business on Monday, the BRP shall also post sufficient additional funds to settle the next invoice if it is a Debit Notice
  • 9. 9 Exceptions to collateral schedule • If Monday is a holiday (in any of the countries), eSett will publish the collateral requirement on the next business day • If the risk exposure changes significantly during the week, eSett will publish an updated collateral requirement • Collateral updates are published by 13 CET and the BRP shall provide sufficient collateral to meet the updated requirement by End of Business on the day when the updated requirement was published
  • 10. 10 Collateral monitoring • Daily collateral monitoring is performed by eSett • For this purpose eSett will retrieve daily account balances from each collateral account • eSett verifies that each BRP has met collateral requirement by the End of Business deadline on Monday based on Monday’s end-of-day account statement on Tuesday morning • A failure to post sufficient collateral by the deadline constitutes a material breach of the imbalance settlement agreement • Currency treatment: – Calculation of collateral requirement and monitoring of collateral is carried out in EUR – Any collateral deposits in SEK and NOK are converted to EUR with daily ECB rate
  • 11. 11 Release of Excess Funds on a Pledged Cash Account • If a Pledged Cash Account holds more funds than what is necessary for meeting the Collateral Requirement and settling the next debit invoice, the BRP may request from eSett that the excess balance be released from the Pledged Cash Account – This request can be submitted through Online Service on any day in the week • If the request is valid, eSett will instruct the Settlement Bank to transfer the Excess Balance to another designated account of the BRP
  • 12. 12 The size of the counterparty risk components varies from day to day Week 1 Week 2 Week 3 Week 4 M T W T F S S M T W T F S S M T W T F S S M T W T F S S On Monday: On Tuesday: On Wednesday: On Thursday: On Friday: On Saturday: On Sunday: 1. Invoiced 1b Overdue invoice* 2. Settlement ready, not invoiced 3. Settlement data being reported Continuously about three weeks of settlement outstanding * Overdue invoices should not be possible due to collateral model Risk of irregular behavior from calculation moment onwards 1-3 days Moment of calculation
  • 13. 13 Standard formula for calculation of collateral requirement 𝐶𝑜𝑙𝑙𝑎𝑡𝑒𝑟𝑎𝑙 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡 = 3 ∗ (𝑆1 + 𝑆2) + 𝑚 ∗ 𝑉1 + 𝑉2 ∗ 𝑃 Where S1 = Average of sums of invoiced production fees, consumption fees and consumption imbalance fees per week for the last 3 invoiced weeks S2 = Average of absolute amounts of sums of invoiced production and consumption imbalances per week for last 3 invoiced weeks V1 = Consumption volume from last 7 settled days V2 = Bilateral and spot sales volumes from last 7 days m = Multiplier: • 3/7 for the share of (V1+V2) that does not exceed 80,000 MWh • 1/7 for the share of (V1+V2) that exceeds 80,000 MWh but does not exceed 400,000 MWh • 0 for the share of (V1+V2) that exceeds 400,000 MWh P = Average of the consumption imbalance prices in the different MBAs during the last 7 days, where the price of each MBA is weighted according to the share of the BRP's total turnover that took place in respective MBA m × (V1 + V2) can be at most 80 000 MWh Minimum amount of the collateral requirement is 40 000 € ~ Imbalances that have occurred but not been paid for yet ~Exceptional imbalances that may occur from this point onwards until they are recognized
  • 14. 14 Exceptions to the Standard Formula • The collateral requirement will be calculated according to an adjusted formula in situations where the standard formula does not appropriately reflect the prevailing counterparty risk • An adjusted formula is used in e.g. the following situations: – The week contains holidays that prolong the settlement period – There are risks of delays in the payment process e.g. due to labor disputes in banks – When there have been exceptional movements in market prices – When the results of the day-ahead market cannot be calculated in normal order • An adjusted formula is also used for the following BRPs: – New BRP – BRP whose balance obligation has changed substantially – BRP participating in shadow auction for NordNed link – BRP with erroneous volume data – BRP in financial distress • The objective is always to reflect the prevailing counterparty exposure as closely as possible based on the data available
  • 15. 15 Topics 1. Invoicing and payments 2. Collateral model 3. Required setup 15
  • 16. 16 BRP's settlement bank Account balances Invoice Information and money flows between the parties eSett's invoice operator (Basware) BRP's invoice operator Request to release excess collateral Collateral requirement Request for Transfer Payment instruction Instruction to increase collateral Request for Transfer eSett's bank (Nordea) Other accountCollateral increase Collateral release Credit Debit BRP's settlement account eSett's settlement account BRPeSett
  • 17. 17 Required setup for invoicing • Agreement with e-invoice operator for receiving e-invoices • Inform eSett of the e-invoicing operator and e-invoicing address to be used • BRP can agree with its e-invoice operator about the format in which it wants to receive the e-invoice – eSett will issue invoices in Finvoice 1.3 format – Invoice operators will handle the necessary translation if the BRP chooses to use another format • If the BRP does not want to receive e-invoices it shall inform eSett of an email address to which the invoice will instead be sent in PDF format
  • 18. 18 Required banking setup • Bank account (”Settlement Account”) in approved Settlement Bank – Account has to be held in Norway, Sweden or Finland – Currency can be EUR, NOK or SEK – Different settlement account per country possible if operating in multiple countries • Signing of Pledged Cash Account Agreement – Pledge of account to eSett to enable use as collateral – Right of disposal to eSett to enable direct debiting of account – Right for eSett to receive information about balances and transactions on account • Signing of other required agreements with Settlement Bank – E.g. agreement to enable same-day value payments – Settlement Bank to advise what agreements are required • List of approved Settlement Banks published on www.eSett.fi (forthcoming) – BRP to notify eSett if it would like to use a bank that is not yet on the list
  • 19. 19 Requirements on Settlement Banks • Domicile in Norway, Sweden or Finland • Member of SWIFT or operating through another SWIFT member • Ability to execute Request for Transfer instructions / MT101 with Same Day Value according to eSett’s schedule • Ability to include remittance information from incoming MT101 in outgoing payment • Ability to report balances in MT940 format according to eSett’s schedule • Credit rating on at least the following level: – Standard & Poor's: long term rating “A” – Moody's: long term rating “A2” – Fitch: long term rating “A” • Valid Settlement Bank Agreement with eSett • Valid bilateral agreement with eSett’s bank (Nordea) for execution of Request for Transfer transactions
  • 20. 20 Service fees • The BRP is responsible for all applicable service fees for the settlement bank services • eSett is not responsible for any fees or costs incurred by the Settlement Bank • The Settlement Bank can apply any pricing model to the settlement bank services
  • 21. 21 Schedule for preparations 2015 2016 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Settlement Bank Agreement published Signing of Settlement Bank Agreements BRPs to obtain Settlement Bank services eSett operating imbalance settlement for Finland eSett operating imbalance settlement for Norway and Sweden 31 May 1 Feb 18 Apr • Settlement Account opened and Pledged Cash Account Agreement signed at the latest 1 month before go-live • Initial collateral posted at the latest 1 week before go-live
  • 22. 22 Contacts Minnakaisa Ahonen CEO, eSett Oy +358 50 5425427 Minnakaisa.Ahonen@fingrid.fi Paula Berg Finance Manager, eSett Oy +358 40 4773551 ext-Paula.Berg@fingrid.fi Fredrik Åström Finance responsible in NBS project +358 40 7720548 Fredrik.Astrom@fingrid.fi
  • 23. eSett Oy Läkkisepäntie 21 P.O.Box 530 FI-00101 Helsinki, Finland info@esett.fi www.esett.fi