Mod_18_10_v2 : SEM Intra-Day Trading 6 December 2011

2 Background

3 The EU is moving towards greater integration of electricity market arrangements, particularly to facilitate greater trading across Europe. EU Congestion Management Guidelines require re-allocation of unused Interconnector capacity on both D-1 and D. Ireland Infringement Letter - June 2010  Continuing infringement cases against Ireland for violating Electricity Regulations.  Key concerns are: 1) no intra-day congestion management mechanism at all interconnections 2) no common co-ordinated congestion management method SEM Committee Decision (SEM-10_011)  RAs to develop a Modification to facilitate intra-day trading  RAs to set up a Working Group to discuss proposal and alternatives  RAs to bring a proposed Modification (agreed by the Modifications Committee) to the SEM Committee. Why Intra-Day Trading?

4 Development of the IDT High Level Design Intra-Day Trading Modification Mod_18_10 raised March 2010: Phase 1 (development and approval of High Level Design)  Working Groups 1 to 7: development of High Level Design.  25 Nov Modifications Committee Meeting 32 – Modifications Committee recommended to approve High Level Design.  02 Mar SEM Committee approved implementation of High Level Design.  01 Feb Modifications Committee Meeting 33 – SEMO asked to develop legal text based on High Level Design.

5 Development of IDT Legal Drafting Phase 2 (development of detailed Code changes to deliver HL Design)  The legal text has been developed and considered by the IDT Working Group on an incremental basis, in three “Functional Groups”: Functional Group 1 – Registration and Participant Submissions. Functional Group 2 – Other Data Transactions and MSP Software. Functional Group 3 – Settlement and Credit Risk Management.  Working Group schedule: 10 May 2011, Working Group 8: Functional Group 1 29 June 2011, Working Group 9: Functional Group 3 27 September 2011, Working Group 10:Functional Group 2 10 November 2011, Working Group 11:Entire “final” Mod  In addition, eight conference calls have been held as part of the Working Group process.

6 IDT Legal Drafting and Plain English Documents Mod_18_10 v2 combines all of the proposed IDT changes for FG1 + FG2 + FG3:  All FG1 changes are highlighted in yellow, and changed marked.  All FG2 are change marked, but are not highlighted.  All FG3 changes are highlighted in cyan, and changed marked. Note: all highlighting is not part of the legal drafting changes and will be removed. A series of “Plain English Documents” accompanies the legal drafting of the IDT Modification:  Separate PEDs for each of: FG1, FG2 and FG3.  Additional PED for Transitional Provisions (see Mod_34_11).  These are designed to facilitate the understanding of the legal drafting changes to the Code.

7 Participant/Regulatory Authority Comment Summary FG1 Review (following WG8) - 80 comments addressed  Topics including: typos/drafting suggestions; Gate Windows/Trading Windows; registration processes; query processes; and definitions. FG1+FG3 Review (following WG9) comments addressed  Topics including: typos/drafting suggestions; calculation of credit exposure/exclusion of PQ Pairs; issue of Notices; calculation of EEP/ECP; and definitions. FG1+FG2+FG3 Review (following WG10) comments addressed  Topics including: typos/drafting suggestions; credit cover calculations; publication/reporting timings; MSP Software Run Cancellation impacts; responses to WG10 actions; and definitions. Entire Modification Review (following WG11) - 8 comments addressed  Topics including: COD for Interconnector Unit in WD1 Ending Overlap Optimisation Period; SEMO manual publication processes; and MSP Software Run Cancellation impacts.

8 Summary of SEM Intra-Day Trading Design

9 The SEM Intra-Day Trading design is detailed in the High Level Design:  Bidding to multiple Gate Windows (EA1, EA2 and WD1) for the relevant Trading Day.  Restriction of Interconnector Unit bidding in the EA1 Gate Window to Capacity Holders.  Reallocation of unused Interconnector Capacity to any Interconnector Unit (with no requirement to be a Capacity Holder) in EA2 and WD1 MSP Software Runs.  Trading Window for EA1/EA2 is the entire Trading Day and for WD1 is the second portion of the Trading Day  Fixing of Interconnector Unit capacity allocations from EA1 MSP Software Run (MIUNs) in the EA2 and WD1 MSP Software Runs.  Limiting total Interconnector Unit Nominations in EA2 and WD1 by the Available Transfer Capacity.  MSP Software Cancellation to occur when certain conditions are met. If this occurs, COD and TOD will continue to be used in subsequent MSP Software Runs.  Changes to Credit Cover arrangements in respect of Interconnector Units. Summary of the SEM Intra-Day Trading Design

10 SEM Intra-Day Trading Design: Three Gate Windows / Trading Windows Start Overlap Opt’n Period Trading Day - 1Trading Day Gate Window Closure (GWC) EA1 Gate Window Opening (GWO) e.g. as per current GWC EA2 GWO GWC WD1 GWO GATE WINDOW 10:00 TD-29 to 09:30 TD-1 GATE WINDOW 09:30 TD-1 to 11:30 TD-1 GATE WINDOW 11:30 TD-1 to 08:00 TD EA1 Trading Window EA2 Trading Window WD1 Trading Window Ending Overlap Opt’n Period Ending Overlap Opt’n Period Ending Overlap Opt’n Period EA1 Interconnector Unit trades fixed EA1 and EA2 Interconnector Unit trades fixed OPTIMISATION TIME HORIZON Only Interconnector Users with Capacity Holdings can submit COD Note: Settlement will continue to be Ex-Post, based on Dispatch and Generator Unit performance against Dispatch. No changes are proposed to settlement payments or charges.

11 SEM Intra-Day Trading Design: Summary of EA1, EA2 and WD1 MSP Software Runs EA1 EA2 WD1 Load/Wind Forecasts EA1 COD EA1 TOD (Forecast Availability etc) EA1 VTOD set EA1 MIUNs Load/Wind Forecasts EA2 COD EA2 TOD (Forecast Availability etc) EA2 VTOD set Load/Wind Forecasts EA2/WD1 COD WD1 TOD (Forecast Availability etc) EA2 VTOD set EA1 MSQs, SMPs Optimisation Time Horizon 06:00 – 11:30 Trading Window 06:00 – 05:30 EA1, EA2 MIUNs EA2 MSQs, SMPs Optimisation Time Horizon 06:00 – 11:30 Trading Window 06:00 – 05:30 WD1 MSQs, SMPs Optimisation Time Horizon 06:00 – 11:30 Trading Window 18:00 – 05:30 WD1 (TD-1) Initial Conditions EA2 Initial Conditions EA1 Registration Data & Other TOD Starting Gate Window Data For EA1, Default Data For EA2, latest Accepted at EA1 Gate Window Closure For WD1, latest Accepted at EA2 Gate Window Closure

12 SEM Intra-Day Trading Design: Contingency Data and MSP Software Cancellation rules As Intra-Day timescales are compressed, contingency rules have been developed to allow timelines to be met:  Load Forecast / Wind Forecast / ATC – use latest data received.  Active Capacity Holdings (EA1 only) – and fax from IA (ACHS to be sent as early as possible to IA and from IA to MO).  MIUNs – MIUNs from previous run for the same period, else IUNs from previous run for the same period, else zero. MSP Software Run Cancellation:  EA1, EP1 and EP2 MSP Software Runs will not be cancelled (paragraph 4.82D).  EA2 MSP Software Runs will be cancelled if any of the conditions in paragraph 4.82E are satisfied.  WD1 MSP Software Runs will be cancelled if any of the conditions in paragraph 4.82F are satisfied.

13 SEM Intra-Day Design: Elements of Credit Exposure Calculation Amounts invoiced and payment outstanding (netted) Amounts calculated but not yet invoiced (netted) Invoiced Settled Traded Offered For Interconnector Units only, amounts calculated based on traded values where Initial Settlement has not occurred (Energy or Capacity), based on export MIUNs and PQ Pairs Accepted. For Interconnector Units only, the maximum export exposure is implied by a set of Price Quantity Pairs submitted to a particular Gate Window. Credit exposure will in future be a comprised of: After each Gate Window Closure and MSP Software Run, the Available Credit Cover will be calculated for each Participant:  Sufficiency checks to be carried out after each Gate Window Closure, for Interconnector Users.  If sufficient Available Credit Cover, Offered Modified PQ Pairs = Accepted PQ Pairs.  If insufficient Available Credit Cover, Offered Modified PQ Pairs will exclude or amend Accepted PQ Pairs in order to ensure adequate credit cover is in place to cover possibly trading exposure.

14 SEM Intra-Day Design: Publication of Market Schedules and Market Prices The Working Group process included discussion of the scenario where the Market Schedule and SMPs can be calculated, but that the “Central Market System reporting function is not operable”. Following Participant comment, SEMO will be developing a business process which will:  enable Market Schedules/Prices/MIUNs to be provided to Participants by other means  define a cut-off time at which time the business process will be enacted (3pm has been suggested by Participants). Once the business process is developed, SEMO will raise a Modification Proposal that will seek to include relevant obligations within an Agreed Procedure (AP7?).

15 Legal Review of IDT Drafting

16 Legal review initiated by Modifications Committee (Sept 2011). McCann Fitzgerald appointed to undertake the legal review. The objectives of the legal review were to:  review the drafting changes proposed for SEM Intra-Day Trading;  identify any issues with the drafting where it is not legally robust, or where there are inconsistencies, and propose changes to address;  agree with SEMO the drafting changes that are required to address the issues identified by the legal review and confirm that these have been correctly completed, such that the revised drafting is legally robust; and  draft a report to the Modifications Committee and Regulatory Authorities, detailing the outcome of the legal review and confirming that the issues raised have been addressed in the updated legal drafting, thereby giving the Committee sufficient assurance that the Modification is legally robust. Legal Review - Objectives

17 Legal Review - Opinion The Legal Review Report is included in Mod_18_10_v2 and was separately published to the SEMO website on 23 November Section 1.2 “On the basis of the scope of work as described below, under the assumptions and subject to the qualifications and reservations set out in Schedule 1 hereto, and to any matters or documents not described to us, we are satisfied that the final form of the legal drafting for the Intra-Day Trading Modification proposal effectively and accurately reflects and implements the proposal”. Section 5.3 “As opined at Section 1, we are satisfied that the final form of the legal drafting for the Intra Day Trading effectively and accurately reflects the proposal therefore, as set out in the PEDs. We also note that no material concerns were raised in the course of our review, which (as described above) was an iterative process in relation to a large number of drafting comments and not a negotiation in relation to net material aspects”.

18 Discussion and Vote