144A Calculation of Value at Risk VAR

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144A Calculation of Value at Risk (VAR)

• Simon Trivella 24th May 2007
• Distribution Workstream

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Background

• UNC Modification 114 Non-Implementation
• Workstream Discussions
• Clarification on Best Practice Interpretation
• Connection and Use of System Code (CUSC) CAP127
• Alternate UNC Modification 144A

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UNC Modification 114

• Introduced VAR into UNC
• Value at Risk at any point in time is the sum
  of
• (i) The aggregate amount (other than Energy
  Balancing Charges) invoiced to the User in the
  previous calendar month pursuant to Section S
  (irrespective of whether such amount has become
  due for payment) and
• (ii) the daily average of (i) above multiplied by
  15.

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UNC Modification 114

• Non-Implementation Decision by Ofgem
• Title of Modification
• Other areas of code remain unchanged
• Increase in warning notices and cash calls

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Workstream Discussions

• Non-implemented Credit Mods to be developed
• Concerns raised over VAR negative / zero values
  in new VAR calculation in draft modification

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Clarification on Best Practice

• (a) the aggregate value of all charges which at
  that time have been billed to such counterparty
  (but not necessarily due) but remain unpaid and
• (b) a deemed amount equal to the aggregate value
  of all UoS charges that would be incurred in
  fifteen day period at the same average daily rate
  implicit in billed charges under (a).
• This additional amount provides a proxy for UoS
  charges that are accrued but unbilled at any
  point in time, broadly in line with the
  time-weighted average of such charges arising in
  each monthly billing period.

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UNC Modification 144

• Value at Risk at any point in time is A
  (15(A/B))
• A is the aggregate amount (other than in respect
  of Energy Balancing Charges) invoiced to the User
  pursuant to Section S but remaining unpaid
  (irrespective of whether such amount has become
  due for payment) and
• B is the number of calendar days in the month in
  which the amount invoiced in A was accrued.

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CUSC Modification CAP127

• Calculation and Securing the Value at Risk (VaR)
• BizzEnergy Ltd Alternative Amendment
• Ofgem Decision Letter - VaR should be
  determined by considering the value of unpaid
  invoices plus 15 days usage. Ofgem understands
  that the payment regime under CUSC is based on
  forecast usage, and bills are issued at the
  beginning of every month with payment due on the
  15th day of the month in question. Therefore it
  can be argued that for the first 15 days of the
  month a User is in debit and then in credit for
  the remainder of the month.

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Alternate Modification 144A

• In the Ofgem decision letter for CAP127 it is
  made clear that the additional 15 days usage
  reflects the invoice due date for the appropriate
  CUSC invoices being the 15th of each month.
• The equivalent due date for UNC invoices is the
  20th (based on the usual Capacity Invoice due
  date).

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Alternate Modification 144A

• The aggregate amount of Transportation Charges
  invoiced to the User in the previous calendar
  month but remaining unpaid (irrespective of
  whether such amount has become due for payment)
  plus
• The average daily rate of the aggregate amount of
  Transportation Charges invoiced to the User in
  the previous calendar month multiplied by 20.

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Thank You
Questions / Comments