Code Change Panel

CODE CHANGE PANEL

Revision of settlement statements

Report

March 2000

Revision of settlement statements

This report proposes changes to the Code to:

amend the arrangements for the issue and payment of revised settlement statements;

permit routine revision of settlement statements based on best available data; and

streamline aspects of the dispute resolution process relating to settlements.

NEMMCO put forward draft changes to chapter 3 of the Code intended to clarify the arrangements for the issue and payment of revised settlement statements whether arising from the resolution of a dispute or from the correction of data or processing errors uncovered by NEMMCO. Those changes:

would require NEMMCO to routinely recalculate settlements at periods of 20 weeks and 30 weeks post the billing period to capture and correct data or processing errors;

require NEMMCO to recalculate settlements for all market participants following the resolution of a dispute and, depending on a materiality threshold, issue either a special or a routine revised statement for the relevant billing period; and

extend coverage of the settlement provisions to network service providers in view of the potential for settlements revisions to impact on settlement residues;

The Panel accepts the core of NEMMCO’s proposal but believes they would be improved by:

deleting the routine statement at 30 weeks;

permitting either NEMMCO or an affected party to seek to join the affected party to a dispute;

allowing a correction to the quantum of settlements residues applied to the reduction of network charges should a settlements revision affect the settlements residue.

Consultation

The panel invited comments on the NEMMCO proposals including supporting material from NEMMCO and raising a number of issues. Comments were received from Loy Yang Power Management Pty Ltd., Transgrid and Energex Retail Pty Ltd.

NEMMCO’s supporting statement. In support of its proposed Code changes, NEMMCO stressed that it operates on a full cost-recovery basis and has no capacity to absorb variations which may arise in the operation of the settlements function. Consequently, whenever errors arise in settlements, NEMMCO is obliged appropriately to adjust affected participants’ accounts. Statements may need to be revised for many reasons, some due to the resolution of disputed accounts in accordance with Code processes and others because of the detection of errors in data entry or processing.

The Code contains provisions for the issue of revised statements but these provisions are narrowly defined and doubt has arisen within NEMMCO as to its capacity to adjust settlement statements without undertaking a formal dispute resolution process in respect of each disputed account. As NEMMCO is currently aware of a number of adjustments required as a result of billing errors, notably (but not only) as a consequence of changes in the interpretation of ancillary services contracts, a large number of formal disputes would be registered. This could result in a substantial drain on the resources of both NEMMCO and market participants and lead to an undesirable increase in costs.

NEMMCO therefore put forward draft Code changes with the aim of avoiding excessive resort to dispute resolution procedures. In proposing the current changes, NEMMCO has also sought to replicate a degree of functionality in the settlements statements processes which existed in the earlier State-based markets of NSW/ACT and Victoria.

Key issues. The Panel sought comments on two aspects of the proposals in particular whether:

NEMMCO’s proposal for limiting the time allowed for further appeals in response to revised settlement statements will be sufficient to prevent cascading disputes. The Panel raises the question whether, instead, the alternative dispute resolution procedures in chapter 8 of the Code should be modified to allow parties likely to be adversely affected by adjustment of a settlement statement at a single connection point to be joined to the initial dispute; and

the six months for notification of a dispute remains reasonable having regard to the needs of both current and future market participants or whether that period could be reduced without unduly impacting on the rights of customers, what shorter period might be more appropriate and, if a period shorter than six months were to be adopted, whether the arrangements should also be amended to preserve a right of dispute for account holders on non-standard (eg quarterly) data-gathering cycles

Discussion

Potential for delay through cascading dispute. The panel was concerned that NEMMCO's proposal could result in a series of cascading disputes as the issue of a revised statement triggered a new right to register a dispute.

Energex Retail supported a move to a clearer and specified process. Loy Yang Power was less concerned and had reservations about parties being joined to a dispute. The panel nonetheless believes there is a need to tidy up these arrangements. It proposes that a party ought have a right to be joined to a dispute in which they had a material interest. This is viewed as an initiative to bring forward the involvement of parties which might otherwise trigger subsequent disputes, leading to the cascading effect already discussed. The provision adopted will permit both an application by NEMMCO to join third parties and for third parties to make application to join a dispute.

Timing of notifying and resolving disputes. The Panel was also concerned about whether the time cycles for the dispute process remain appropriate to the needs of both current and future market participants. Clause 3.15.18(b) of the Code currently requires that a dispute be raised within six months of the billing period to which it relates. The Panel sought comments on:

whether the period for notification of a dispute remains reasonable having regard to the needs of both current and future market participants or whether that period could be reduced without unduly impacting on the rights of customers;

if so, what shorter period might be more appropriate; and

if a period shorter than six months were to be adopted in clause 3.15.18(b), whether the clause should also be amended to preserve a right of dispute for account holders on non-standard (eg quarterly) data-gathering cycles.

The Panel also sought comments on whether:

the proposed schedule for the issue of revised statements and the process to be followed in producing the policy for routine and special revised statements are appropriate; and

there is likely to be any additional requirement for flexibility in the treatment of small account holders.

Loy Yang Power supported retention of the 6 month period for notification of a dispute and objected that the proposed periods of 20 weeks and 30 weeks respectively for issue of routine revised statements were excessive. Loy Yang Power instead proposed that the periods be reduced to 10 weeks and 15 weeks respectively. Energex Retail supported limiting the period for revision of settlement statements to the absolute minimum.

NEMMCO has noted that the period of 20 weeks is related to the expiry of the period for a quarterly meter reading cycle when full retail contestability is implemented and 30 weeks to the expiry of the six months dispute notification period. Whilst it is plausible that the proposals for retail competition may result in the routine issue of settlement revisions at 20 weeks the need for the 30 week statement is not apparent. Notification of a dispute at or near the end of the six month notification period should be a rare event and will invoke the dispute resolution process. Resolution of the dispute will lead to a special revised statement if there is no routine revised statement due.

The panel has therefore chosen to adopt a single period of 20 weeks for the issue of a routine revised statement to maintain a discipline on the settlements process but anticipate at least the starting position for full retail competition. Whilst this period could be shorter, the possibility exists that the preferred trading arrangements for full retail competition will create a need for routine revisions on an even longer timescale. A future need may emerge in the context of full retail competition to revisit the settlements statement revision timetable.

Network service providers. TransGrid was concerned that the deeming approach taken by NEMMCO would expose NSP's to an excessive administrative burden. The Panel is satisfied that the arrangements represent a reasonable approach and that the additional administrative burden is the minimum possible.

TransGrid further noted that the NSP would bear a risk that, having been paid a settlements residue amount, it has no ability to adjust the amount to be applied to the reduction in network service charges as a result of a settlements revision. The Panel accepted that an amendment to clause 3.6.5(a)(6) should be made to permit that the amount allocated by a network service provider to defray network charges may be adjusted to account for variations arising from the issue of a revised settlement statement or a special settlement statement.

The Code Change Panel proposal

The Panel has elected to enhance the core of the NEMMCO proposal by creating a mechanism for parties who may potentially be materially affected by the resolution of a dispute to be notified and to seek an opportunity to represent their interest prior to the dispute being resolved and a revised settlement statement issued. This is intended to limit the scope for disputes to cascade.

The panel, whilst noting that some settlements revision is inevitable, is concerned that over-reliance on routine revisions will be prejudicial to efficient operation of the market and therefore proposes to limit the opportunity for routine revisions. Finally, the Panel noted that for the proposed amendments to work as intended it is necessary to ensure that network service providers have a capacity to appropriately adjust the quantum of monies arising from settlements residues rebated to customers.

Conclusion

The Panel therefore recommends that the changes submitted by NEMMCO be accepted subject to the following modifications:

deleting the routine statement at 30 weeks;

permitting either NEMMCO or an affected party to seek to join the affected party to a dispute; and

allowing a correction to the quantum of settlements residues applied to the reduction of network charges should a settlements revision affect the settlements residue.

Code changes to give effect to the to the proposed solution are attached.

Irene LeeStephen KellyAlan Moran

MemberChairmanMember

22 March 2000

Amended Text of Revision Code Changes. Comments have been added in text boxes to explain the intent of the following words.

Comment: - Transmission Network Service Providers are not Market Participants, but are involved in settlement residue transactions and adjustments. Hence it is necessary to ensure that the relevant settlement provisions bind TNSPs.

3.6.5 Settlement residue due to network losses and constraints

(a)(6)any portion of settlements residue distributed to a Network Service Provider or amount paid under clause 3.18 to a Network Service Provider, including any such payments as adjusted by a routine revised statement or special revised statement issued under clause 3.15, will be used to offset network service charges.

(b)A Transmission Network Service Provider or [its jurisdictional delegate] is a Market Participant for the purposes of clauses 3.3.1 and 3.15 (excluding clause 3.15.1(b)) but not otherwise

Comment: - The act of raising a dispute is important to the timing of the 6-month window, particularly if the matter is referred to the Dispute Resolution Panel. It will be up to Participants to decide whether to formally register the dispute. All discrepancies can only be amended up to 6 months back from the date of registration of the dispute. It is not contemplated that the Code changes would be retrospective and matters currently raised will be dealt with on a case by case basis.

3.15.18 Disputes

(a)….

(b)….

(c)Disputes under clause 3.15.18:

(1)can only be raised by a Market Participant issuing a written notice of dispute in the form prescribed by NEMMCO’s DMS and otherwise in accordance with clause 8.2.4 (a);

(2)must be resolved by agreement or pursuant to clause 8.2; and

(3)are for the purpose of this clause, deemed to have been raised on the day NEMMCO receives the written notice of dispute.

(d) A market participant that may be materially affected by the outcome of a dispute under clause 3.15.18 may be joined to that dispute by the Dispute Resolution Adviser on request by that market participant or by NEMMCO.

3.15.19 Revised Statements and Adjustments

(a)Where a dispute about a final statement has been either resolved by agreement between NEMMCO and the relevant Market Participant (“the Disputant”) or determined under clause 8.2 and an adjustment to the settlement amount stated in the disputed final statement is required, NEMMCO must:

Comment: - Either way, NEMMCO must recalculate the settlement amounts for all Participants. This means that NEMMCO does not have to raise a secondary dispute with the counterparty Participant/s to obtain agreement.

(1)recalculate the settlement amount for that Market Participant and each other Market Participant who received a finalstatement for the relevant billing period:

(i)in accordance with the applicable procedures set out in the Code and,

(ii)taking into account the adjustment;

Comment: - If the adjustment is less than 5% of the original amount for any Participant, then the adjustment is deferred to the next routine revised statement.

(2)if the recalculated settlement amount for the Disputant is between 95% and 105% of the relevant settlement amount:

(i)calculate for each Market Participant the amount by which the relevant settlement amount must be adjusted to be equal to the recalculated settlement amount after taking into account any routine or special revisedstatement; and,

Comment: - If the resolution of the matter cannot be achieved until after the second routine revised statement, then a ‘special’ ie additional and unplanned revised statement has to be issued.

(ii)for each Market Participant include that amount in the next routine revised statement given to those Market Participants for the relevant billing period practicable and if there is no routine revised statement, in accordance with clauses 3.15.19 (a) (3)(ii) and (iii).

Comment: - If the adjustment is more than 5% for any Participant, then a ‘special’ revised statement is issued as soon as practicable and in addition to the routine revised statements.

(3)if the recalculated settlement amount for the Disputantis less than 95% or more than 105% of the relevant settlement amount:

(ii)give each Market Participant a special revised statement for the relevant billing period in addition to any routine revised statement given under clause 3.15.19 (b).

Comment: - and a notice will be given by means of a settlement update

(iii)give each Market Participant a notice advising of the reason why a settlement statement was given by NEMMCO under clause 3.15.19 (a) (3).

Comment: - Routine revised statements become a Code obligation

(b)For each billing periodNEMMCO must give each Market Participant a routine revised statement approximately 20 weeks after the relevant billing period and approximately 30 weeks after the relevant billing period. Each routine revised statement must recalculate the Market Participant’ssettlement amount for that billing period:

(1)taking into account all amended metering data, amended trading amounts, amended Participant fees and any other amounts payable or receivable by Market Participants under Chapter 3 of the Code; and.

(2)using the most recent version of NEMMCO’s settlement calculation software applicable to that billing period.

(1)state the revised settlement amount for the relevant billing period;

Comment: - The policy will contain those items specified in part (e) below.

(2)be issued in accordance with the revised statement policy;

Comment: - Supporting data for routine revised statements will be system generated in the MMS and will be identical in scope to that for final statements. Special statements may be determined by spreadsheet calculation and agreed with the affected participants only. In this case the adjustments will appear as manual entries and supporting data will not be available from the MMS, but will be provided on spreadsheets to an equivalent level of detail.

(3) be issued with revised supporting data for the transactions for the relevant billing period and must include supporting data for all amounts payable or receivable..

Comment: - Timing is consistent with the Code because the 8 days between revised and final is the same as the 10 days between revised and settlement currently in the Code. Note that this is not open ended as the adjustment must appear in the next final statement after the 8 business days, ie between 8 and 13, since final statements are no more than 5 business days apart.

(d)NEMMCO must include in the next final statement to each Market Participant issued not less than 8 businessdays after NEMMCO has issued a routine or special revised statement to that MarketParticipant:

(1) the net amount (excluding interest) payable or to be paid as a result of the routine or special revised statement after taking into account any other routine or special revisedstatement:

(i) necessary to put the Market Participant in the position it would have been in if the routine revised statement had been given as the final statement for the relevant billing period; or

(ii)under any special revised statement,

Comment: - Interest calculation is deferred to the final statement so that a better estimate of the relevant interest amount can be made, and only one settlement amount is payable each week.

(2)any interest payable or to be paid on the net amount referred to in 3.15.19 (d) (1) computed at the average bank bill rate for the period from the payment date under clause 3.15.16 of the relevant final statement to the payment date of the final statement referred to in this clause.

Comment: - Points required in the policy are listed in the Code.

(e)NEMMCO must develop and publish a policy for routine and special revised statements. NEMMCO mayamendthepolicyatanytime. NEMMCO mustdevelopandamendthepolicy in accordance with the CodeConsultation Procedures. The policy must include: