P385 ‘Improving the efficacy and efficiency of the Section H Default provisions’
Formal title: Improving the efficacy and efficiency of the Section H Default provisions
The BSC Panel has the ability to take mitigating action and provide financial protection when an Event of Default is triggered, but the current arrangements in BSC Section H ‘General’ are overly complex and prolong the period before an Event of Default is declared until it is often too late.
The frequency of Balancing and Settlement Code (BSC) Parties failing to pay their debts and defaulting on the BSC has increased in recent years. After a period of 10 years without a Supplier of Last Resort event, there was a single occurrence in 2016 followed by an unprecedented 7 events in 2018 and 3 in 2019 at the time of writing.
Therefore, when a Party in financial difficulty has been identified, the BSC Panel should have the opportunity to apply Consequences of Default as early as possible. This will allow failing Parties be promptly identified to the BSC Panel and the wider industry, potentially allowing the Panel to restrict the Parties activities and risks to counterparties.
This Modification proposes to amend BSC Section H in such a manner as to introduce new Events of Default and simplify and reduce the periods after which an Event of Default is triggered.
The following changes should be considered by an industry Workgroup:
- Parties can remain in Level 1 Credit Default for 90 days or any intermittent period of 120 days out of 180 before triggering an Event of Default. Level 2 Credit Defaults can remain for 60 days or any period of 75 days out of 120. These periods before an Event of Default should be reduced with no intermittent periods.
- A Relevant Credit Default Series that will lead to an Event of Default occurs when a Party has breached 100% Credit Cover Percentage (CCP) 6 times in 6 months with a cooling off period in which further Credit Defaults are no longer counted. The number of occurrences should be reduced and simplified to count any Level 1 or 2 Credit Default towards a Relevant Credit Default Series, with no cooling off period.
- A new Event of Default should be introduced that triggers when a BSC Party uses Credit Cover to pay Trading Charges on 3 or more occasions within a 30 calendar day rolling period.
- A new Event of Default for Parties should be introduced that triggers when a Party publically announces that they are ceasing to trade.
P385 was raised by Centrica on 3 April 2019. ELEXON are currently seeking members to join the P385 Workgroup. If you would like to join the Issue group, please contact email@example.com
ELEXON will present the Initial Written Assessment to the BSC Panel at its meeting on 11 April 2019.