Correction to No Load Cost - “and” vs “or” MOD_07_19 Correction to No Load Cost - “and” vs “or” 11th April 2019 Katia Compagnoni

Summary Information Mod_17_19 seeks to address an error in the T&SC Part B, paragraph F.11.2.3, that has affected the calculation of No Load Costs; This was caused by an oversight in the drafting of the legal text; The error lead to an overestimation of No Load Costs for the purpose of the calculation of weekly Make Whole Payments; The impact to date has been masked by a number of issues on that and other related calculations; SEMO is of the view that this error should be rectified as soon as possible to contain the impact on Participants and consumers. Quick summary of the background and expected outcome for this proposal

Legal Drafting F.11.2.3 The Market Operator shall determine all No Load Costs (CNLuγ) payable for each Generator Unit, u, in each Imbalance Settlement Period, γ, as follows: (a) CNLuγ shall have a value of zero for each Imbalance Settlement Period, γ, falling wholly within the Period of Physical Operation or in which the Period of Physical Operation starts or ends, where: (i) The Final Physical Notification Quantity (qFPNuγ(t)) for the Generator Unit, u, has a non-zero value for any time within that Imbalance Settlement Period; and or (ii) The Metered Quantity (QMuγ) for the Generator Unit, u, has a value of zero for that Imbalance Settlement Period, γ. (b) In all circumstances not listed in paragraph F.11.2.3(a): (i) Where, in accordance with section F.3.3, Complex Bid Offer Data is to be used in respect of the first Bid Offer Acceptance, o, in an Imbalance Settlement Period, γ, falling wholly within the Period of Physical Operation, or in which the Period of Physical Operation starts or ends, CNLuγ shall have a value equal to the No Load Cost submitted in accordance with Chapter D (Balancing Market Data Submission) for the Generator Unit as part of the applicable Complex Bid Offer Data, multiplied by the Imbalance Settlement Period Duration (DISP); and (ii) Where, in accordance with section F.3.3, Simple Bid Offer Data is to be used in respect of the first Bid Offer Acceptance, o, in an Imbalance Settlement Period, γ, falling wholly within the Period of Physical Operation, or in which the Period of Physical Operation starts or ends, CNLuγ shall have a value of zero.

Justifications for Mod_07_19 Since the logical connector is “and” in between the conditions, both provisions must be true to allow No Load Cost to be set to zero. However the original market design intention was that if either conditions (i) or (ii) are met, then the No Load Cost will be set to zero. Extract from the ‘Imbalance Settlement Plain English Document’ : “The following tests will determine if no-load costs should be deemed relevant for the balancing market: No-load costs will not be incurred in any settlement period within the period for fixed cost relevance where the FPN profile is present. If Trade in the Opposite Direction to the TSO were to extend to start and no-load considerations, this part of the test can be extended to also consider the PN at the time the BOA was accepted; No-load costs will not be incurred in any settlement period within the period for fixed cost relevance where the metered quantity for that period is zero as the unit generating will be deemed undelivered; Otherwise, no-load costs are relevant and will be recovered in the balancing market.”

Justifications for Mod_07_19 (2) The logic behind each test is as follow: “(i) The Final Physical Notification Quantity (qFPNuγ(t)) for the Generator Unit, u, has a non-zero value for any time within that Imbalance Settlement Period” : this refers to instances where FPNs other than zero, denote an Ex-Ante Market position, therefore the Generator recovers costs in Ex-Ante; “(ii) The Metered Quantity (QMuγ) for the Generator Unit, u, has a value of zero for that Imbalance Settlement Period, γ.” : this refers to instances where the Generator did not incur the costs and therefore it is not entitled to recover them; There is no requirement for the two tests to happen at the same time; each one is independent from the other;

Justifications for Mod_07_19 (3) The error only affects sub-paragraph (a) of F.11.2.3; In sub-paragraph (b), criteria (i) and (ii) are clearly meant to be separate circumstances in line with the design; This is because the same outcome cannot be happening in both cases: the first BOA cannot use Complex COD, and Simple COD at the same time; The condition and the outcome are explicitly stated in each sentence; Still SEMO will, in due course, review similar constructions throughout the T≻

Legal Drafting F.11.2.3 The Market Operator shall determine all No Load Costs (CNLuγ) payable for each Generator Unit, u, in each Imbalance Settlement Period, γ, as follows: (a) CNLuγ shall have a value of zero for each Imbalance Settlement Period, γ, falling wholly within the Period of Physical Operation or in which the Period of Physical Operation starts or ends, where: (i) The Final Physical Notification Quantity (qFPNuγ(t)) for the Generator Unit, u, has a non-zero value for any time within that Imbalance Settlement Period; and or (ii) The Metered Quantity (QMuγ) for the Generator Unit, u, has a value of zero for that Imbalance Settlement Period, γ. (b) In all circumstances not listed in paragraph F.11.2.3(a): (i) Where, in accordance with section F.3.3, Complex Bid Offer Data is to be used in respect of the first Bid Offer Acceptance, o, in an Imbalance Settlement Period, γ, falling wholly within the Period of Physical Operation, or in which the Period of Physical Operation starts or ends, CNLuγ shall have a value equal to the No Load Cost submitted in accordance with Chapter D (Balancing Market Data Submission) for the Generator Unit as part of the applicable Complex Bid Offer Data, multiplied by the Imbalance Settlement Period Duration (DISP); and (ii) Where, in accordance with section F.3.3, Simple Bid Offer Data is to be used in respect of the first Bid Offer Acceptance, o, in an Imbalance Settlement Period, γ, falling wholly within the Period of Physical Operation, or in which the Period of Physical Operation starts or ends, CNLuγ shall have a value of zero. In sub paragraph (b) condition and outcome in the same sentence

Example of Existing and Proposed Outcome Estimated materiality on Fixed Cost Charge (CFC) of both Mod_34_18 and Mod_07_19 :

Implications of not Implementing Mod_07_19 By not implementing this modification, No Load Costs will continue to be overstated and recovered inappropriately; Additional burden will be placed on Dispatch Balancing Cost and therefore passed onto Imperfection Charges and ultimately the consumers; SEMO is of the opinion that this change should be made effective from the earliest date possible, after the RAs decision (if indeed approved); Although retroactive implementation is normally not an option, in this case this cost was effectively not calculated until the System deployment of the 29th January 2019; it could be considered to avoid large overpayments expected in M+4;

Example of Existing and Proposed Outcome Estimated materiality on Fixed Cost Charge (CFC) of Mod_07_19 before the system deployment on the 29th Jan 2019:

Further Considerations SEMO is looking into adding functionalities to the CFC template developed following Mod_34_18, in order to aid PTs in managing differences in revenue; SEMO is aware of another potential issue affecting F.11.3.1 (a) (ii) for which a separate Modification will be raised in due course; This is not expected to be of high materiality and will only occur in limited circumstances.