In a joint statement addressed to the responsible institutions and the main participants on the liberalized market the two associations ATEB and ASEP emphasize on the main controversial points regarding the new operational rules of Centralized market for bilateral contracts (CMBC), a segment on Independent Bulgarian energy exchange.
DEAR LADIES AND GENTLEMEN,
Association of traders with electricity in Bulgaria (ATEB) and Free energy market association (ASEP) support the establishment of transparent, liquid and united electricity market as well as the facilitation of the different forms of trading. The last month of 2017 was very turbulent for adoption of new regulations in the energy sector. During that month were amended the Electricity trading rules, introduced a new mechanism for calculation of the cap balancing prices and adopted a significant change in the Bulgarian Energy Act obligating all producers with installed capacity over 5 MW to sell their electricity only via the platforms of Independent Bulgarian energy exchange (IBEX). We point out the way the amendments in the Energy Act (EA) were introduced through another unrelated bill with a proposition submitted in the last moment between the readings and without any official discussion with the stakeholders. The change was voted by the Energy commission in the Parliament within 24 hours after its introduction. In the light of the recent legislative changes came the amendments in the operational rules of Centralized market for bilateral contracts (CMBC) on IBEX. The new rules of CMBC were published at the end of the last working day before the Christmas holidays. The deadline provided for comments was only one working day. Despite the statements submitted within this deadline from the stakeholders (traders, consumers and RE producers) requesting extension of the deadline for comments, such extension did now follow.
Due to the aforementioned reasons we address you with the current letter to highlight some of the general problems regarding the implementation of the new rules of Centralized market for bilateral contracts on Independent Bulgarian energy exchange (IBEX):
1. To guarantee the financial security of the market participants, IBEX is supposed not only to administer the deals on the market for bilateral contracts, but also to assure their financial liability through the implementation of clearing house. In the new rules art. 1 states “The Operator is not a party to any transaction, concluded on CMBC”. This way the exchange operator does not take the financial responsibility for the correct execution of the transactions, but acts only as a mediator between the market participants. In our view, implementation of a clearing house is the only reliable way for managing the financial risk of the market participants. We insist till such a service is provided, the operational rules of CMBC to remain unchanged, i.e. maintaining the rules that are in force since 16.12.2016. We consider that IBEX does not have the capacity and the expertise to manage the financial risk in a situation when the whole offering of electricity is on the platforms of IBEX. The means of conducting transactions, the contracts, financial limits, collaterals and the ways of making payments defined in the rules are in our opinion risky and potentially harmful for the electricity market. Given that all the offering on the liberalized market is on IBEX, its rules, contracts and financial mechanisms should guarantee complete security for the correct conclusion and execution of transactions. This will ensure the normal functioning of the market and will increase the trust of the market participants in it. At the moment we see such an opportunity only after the implementation of a clearing house – the preferred, secure mechanism used on most of the European energy exchanges. We propose till the end of February IBEX to request and announce the offers for clearing services and to introduce their conditions to the market participants. Moreover within the next six months (till the mid of July) we will expect the clearing house to start operation and new rules of CMBC to be adopted.
2. The exchange has the right to change and amend its rules without the approval of Energy and water regulatory commission (EWRC), Ministry of energy or other institution. The contracts for participation as well as the contracts between IBEX and the market participants can be unilaterally changed by IBEX through the rules. Such changes would result in different terms on already signed contracts putting IBEX in a dominant position and increasing the risk of the market participants. That is why we propose the rules on CMBC to be excluded from the contracts. We also insist the rules, fees and contracts of IBEX to be officially approved by EWRC after a public consultation with the market participants. We remind you that there could be only one license for exchange operator in Bulgaria according to art. 43, para. 1, p. 2 from the Energy Act (EA). This fact along with the new regulations introduced with art. 100, para. 3 from EA set IBEX in a monopoly position on the liberalized market. That is why we consider the possibility (in art. 32, para. 3 from Electricity Trading Rules) for provision of mandatory instructions by EWRC regarding the rules of IBEX as not sufficient. It is appropriate the control and the possibilities for monitoring and investigation of EWRC on IBEX to be extended by an amendment in the Energy Act.
3. The changes in the rules of CMBC are significant and will affect all market participants because since 1.01.2018 all deals on freely negotiated prices with producers with installed capacity over 5 MW are concluded only on the platforms of IBEX. IBEX hasn’t provided any arguments or reasons why the amendments in the rules of CMBC are necessary. From the exchange mention that the new rules are needed due to the creation of new para. 3 in art. 100 in EA. After we got familiar with the new operational rules of CMBC we considered that the changes do not have a direct relation with the quoted amendment of the EA and does not facilitate its application. The older operational rules which were in force since 16.12.2016 allow the proper application of the new regulation set in EA. That is why we request to retain the older rules in force till the implementation of a clearing house
4. The Standardized contract for sale/purchase /SCSPE/ and the participation contract to be standardized European contracts developed by the European federation of energy traders (EFET). Such contracts are in accordance with REMIT and are widely recognized and used on the market in Central and Western Europe. Moreover many of the main market participants have already signed such contracts for bilateral trading between each other and the adoption of EFET contracts on IBEX will facilitate their trading activities on CMBC. EFET contracts provide flexibility and security during bilateral trading and minimize the risks for the counterparties. The current contracts related with CMBC are not secure enough and refer to the rules of IBEX which could be unilaterally changed by IBEX. By changing the rules IBEX unilaterally changes the conditions on already signed contracts.
We also want to draw your attention to some of the controversial points in the proposed new operational rules of CMBC:
- The small and medium renewable energy producers have to register on the exchange in order to sell their electricity on the liberalized market. Their participation and annual fees are very high and practically are a barrier for their registration on the exchange. For this reason we propose RE producers to participate on IBEX through the electricity traders without the obligation to make their own registration. By implementing this proposal the access of RE producers to the exchange will be facilitated.
- The deadlines for suspension of a trading participant defined in art. 46 and art. 48 to be clearly set as a number of days. The current deadlines are determined individually by IBEX without any clear criteria. This allows for different market participants to apply different deadlines, which is in contradiction with the principle of equality.
- 49 states that the exchange operator has the right to suspend trading participant and to delete his already registered offers for sale and/or purchase in case the normal functioning of CMBC is under threat. There is no definition of the term “normal functioning of CMBC” which questions when exactly the art. 49 will be applied.
- When a trading participant is suspended from CMBC (art. 45 – 48) is advisable to notify all the other trading participants as well as to publish the reasons for his suspension.
- In art. 56 and art. 62 is described when a participation contract is considered to be terminated. But the two articles have set different regulations: art. 56 “when all the financial liabilities towards IBEX are paid.” and art. 62 “when all financial liabilities are met under these Rules.” We propose unification of the articles by using the text in art. 62 in order to avoid contradictions and to guarantee that the receivables to IBEX and to other trading participants will be obtained after the participation contract of particular market player is terminated.
- In art. 70 to art. 75 are illustrated the requirements for collaterals. Despite IBEX not being a counter party on the deals concluded on CMBC, IBEX is beneficiary on the bank guarantees in all obligations for payments set in the contracts of CMBC. The obligations of the companies making a bank guarantee for participation refer to payments, interests and collaterals for non-acceptance or non-delivery of electricity on CMBC and not only to the payments for IBEX. In the rules there is no defined procedure and deadline for payments made by IBEX using the bank guarantees provided by the defaulting party to the non-defaulting party. Also the obligations related with the guarantees for participation overlap with part of the obligations of the Seller in the collateral for good performance.
- In the acceptance term of the bank guarantee is written that IBEX accepts only bank guarantees issued by financially stable banks with high rating and has the right to refuse bank guarantees issued by a bank with low or decreasing rating, profitability or capital adequacy. We insist IBEX to publish the criteria for “financially stable banks with high rating” in order to avoid cases of refusal of accepting bank guarantees.
- In art. 83 is stated that all deals on the screens “Continuous trading” and “Hourly products” will be conducted through an algorithm “Auto-matching” or “Click trading”, but it is not clear which algorithm will be used. We suggest the deals on the two screens to be concluded only through “Auto-matching” because it reduces the possibilities for market abuses. We also suggest the leading criterion for making the deals to be not the time of submission of the bid but the best offered price. This will maximize the trading results and the time for submission of the bid won’t be so significant.
- The financial limit for products with delivery period longer that 32 days (art. 139.3) to be changed from 1% to 3%. We consider such an increase fair with respect to the long-term products with a delivery period of more than half a year. Such a change will limit the opportunities for market abuses and non-compliance with the contracts for purchase/sell of long-term products.
- According to art. 143 collateral is not required to be provided for purchase of product with delivery period of 31 days on the screen “Continuous trading”. We propose such collateral to be setl in order to avoid abuses and to guarantee correct financial transactions.
- In art. 144 are defined the collaterals on screen “Continuous trading” for payments by the Buyer and collaterals for good performance by the Seller. The collateral for good performance that the Seller has to provide for products with delivery period longer than 7 month exceeds the collateral of the Buyer. We suggest unification of the requirements so the period for delivery does not contribute to a variation of the collaterals provided by the Buyer and the Seller.
- The collaterals to be released within 3 days after the date of expiry of the Supplementary agreement and after all invoices are paid. The deadline in art. 145 is 10 days, which is unreasonably long period taking into account the fact that the collaterals are required to be submitted within 3 days.
- 153 states that all payments shall be made in BGN. Many of the market participants are international companies and usually prefer to use EUR. To facilitate the transactions of the market participants as well as to prepare for future market coupling we propose the payments to be made in EUR, including the deposits.
- We suggest when there is a delay of payment on invoices issues by IBEX according to art. 156, IBEX to send notification to the market participant reminding him to make the payment. After 2 working days period since the notification was sent, if the participant does not make the payment/s the exchange operator will have the right to suspend him from CMBC. The participant must cover the interest – standard interest rate+10% during the period of delayed payment. We made this proposition to avoid unnecessary suspensions due to unintentional delays in payment.
- In art. 158 and art. 161 are determined the deadlines for payments of products traded on screens “Continuous trading” and “Hourly Products”. We consider such restriction as unnecessary, because IBEX is not a counter party and hence it is not correct to define deadlines for payments on deals concluded between the market participants. We point out that one of the main advantages of the liberalized market is the opportunity to negotiate the terms and deadlines for payments. Eliminating this possibility reduces the flexibility of payments and makes the trading on screen “Continuous trading” unattractive. Also the mandatory payment in advance for products with delivery period up to 31 days (art. 158.2) we consider restricting and favoring abuses. We suggest these products to be paid subsequently after or during delivery and also the Seller to be obliged to provide collateral for good performance for those type of products.
We also want to draw your attention to the way the new rules were published – as a completely new document, rather than as systematized points containing only the changes. That made it extreme difficult to compare the old and the new rules of CMBC. In the future we urge any amendments in the operational rules of CMBC to be published in a way similar to the amendments in the regulatory documents such as Energy Act, Electricity trading rules, ordinance, etc. Also we consider the provided deadline of 1 working day for statements as highly insufficient for submission of proper commentaries.
Regarding the new fees we notice that they are not reduced despite the expected increase of income of IBEX originating from increase of participants and traded volumes. A logical step was to lower the fees since the bulk of electricity supply on the liberalized market will now go on the exchange. Another important point is that the tariffs continue to be unilaterally determined by IBEX as a monopoly and are not under the regulations of any institution. That is why we support the initiation of a legislative change that would oblige the EWRC to determine the tariffs on IBEX, using a cost oriented model.
We are hoping to take into consideration the proposals made by ATEB and ASEP in order to have transparent and non-discriminatory Centralized market for bilateral contracts. We appeal for urgent meeting between the main groups of market participants – producers, traders, consumers, IBEX and EWRC to resolve the controversial issues and to reach consensus regarding the operation and development of the energy exchange in Bulgaria.