ELECTRICITY MARKET BALANCING AND SETTLEMENT REGULATION

 

ELECTRICITY MARKET BALANCING AND SETTLEMENT REGULATION

In Turkey, the electricity is trading in bilateral contracts market or balancing market. Energy Market Regulatory Authority (EMRA), desires to trade electricity in bilateral contracts market and trade electricity at the balancing market only in the exceptional situations for balancing the electricity demand and supply.

In our report, we will point out the novelties brought by Electricity Market Balancing and Settlement Regulation (herein defined as New BSR/N-BSR) published in Official Gazette No. 27200 dated 14/04/2009. Later on we will point out the expected legal controversies that will arise from BSR.

1. Novelties and Changes of BSR

a. Day-Ahead Market

Day – Ahead Market serves the purpose of day-ahead balancing of electricity demand and supply.

In the Day-Ahead Market all transactions made on a daily basis. The National Load Dispatch Center (NLDC) plays an important role in the Day-Ahead market. The NLDC will be to determine the hourly transmission capacity of itself for the day in the Day-Ahead market by 09:30 each day, and inform the firms accordingly. The offers and bids made by firms shall be evaluated, approved or rejected by the NLDC by 10:30 each day. Between 11:00 and 13:00, the Day-Ahead prices for each hour and region the following day shall be prepared by the Market Financial Settlement Centre (MFSC), who shall inform all the relevant firms concerning day-ahead loading and load shedding instructions by 13:00. Firms have the right to object to MFSC between 13:00 and 13:30, in case of inconsistency of loading and load shedding instructions, with available offers. Each day between 13:30 and 14:00, the MFSC shall evaluate any objections and inform the relevant firms about the results. When an objection is justified, the MFSC may change the amount of instruction to make it consistent with loading and load shedding. All the accepted Day-Ahead offers and bids create an obligation of physical electricity demand and supply for the relevant firms in a certain day, certain time interval and certain location. If there is a possibility for the corrected instruction to affect the instructions to other firms within the scope of Day-Ahead planning, the MFSC shall re-prepare Day-Ahead generation/consumption instructions for the relevant hour.

Another novelty of BSR is the block offers and bides and flexible offers. By this N-BSR firms do not only make hourly bids. They may submit block offers and bids for multiple consecutive hours in the following day, and their offers and bids will be valid and binding for the period that the block offer covers. And the firms may submit flexible offers which are consisting of hourly offer volumes and offer prices.

b. Demand Side Participation

In accordance with the provisions of BSR, demand side will participate the balancing market by favour of firms. Thereby, they will have an affect of pegging the electricity price, by reducing their electricity power consumption during peak hours.

c. Balance Responsible Group

Firms may group by notifying MSFC and a firm from the Balance Responsible Group will bear the balance responsibility on behalf of the group. Herby, firms will create a portofilo for reducing their total imbalance by establishing a balance within their own groups.

d. Hourly Basis Settlement Period

Another novelty of BSR is the settlement period. In accordance with the provisions of Ex-BSR the settlement operations were made on the basis of daytime, peak and night. With the N-BSR, each hour in an invoicing period constitutes a settlement period.

2. Expected Legal Controversies

Firms have to sign a type agreement with Turkish Electricity Transmission Company (TETC), which is approved by EMRA and named as “Market Participation Agreement”, under BSR. Firms can not put an annotation to the articles of this agreement or change them in anywise.  Market Participation Agreement passes all the liabilities of the agreement to firms, and minimizes the liabilities of TETC. In accordance with the provisions of both the Electricity Market Law (EML) and Electricity Market Licensing Regulation (EMLR), firms are authorized to operate in the electricity market by having a licence. Firms can operate their services permitted in their licenses in electricity market as stated both in EML and EMLR. But according to BSR there is an additional agreement firms have to sign called Market Participation Agreement –most important headlines are pointed below- which brought important responsibilities to firms and so brings problems along. Ignorance of trust principle to management, more responsibilities to disadvantage of participants and advantage of management will result in many legal problems in future.    The respectability of the electricity market will be provided by application of the guarantee system precisely. MFSC have to take a guarantee from the firms that includes all of their operations’ total risk of non-payment of their debts- arise from settlement. In accordance with the provisions of Market Participation Agreement, firms share the debts of the other firms which have not paid on time. This system is formed at BSR and named as “share of receivables not paid on time”. According to us, it is contrary to equity of obliging the firms for third parties debts on the basis of the provisions of Market Participation Agreement, that has to be signed by the firms for operating at the electricity market. Moreover, we believe that regulation of obliging a firm of third parties debt have to be formed at EML, not only at BSR. Therefore the regulation of obliging the third parties debt of BSR makes this Regulation unlawful. Additionally, its MFSC’s obligation to take guarantee from the firms and assure that the firms guarantee includes all of their operations’ total risk. Since its MFSC’s obligation to take guarantee from firms and compensate the unpaid debts of the firms from their guarantee and since the firms do not have any right and/or obligation to take guarantee from the firms or control the firms guarantee whether their guarantee covers all of their operations’ total risk or not, its obvious that “share of receivables not paid on time” arise from the breach of MFSC’s obligation. Therefore MFSC has to be responsible of these unpaid debts. Moreover, if a firm’s guarantee does not cover all of its operation’ total risk, MFSC will not give permission to that firm to operate at the market. The “share of receivables not paid on time” arises when a firm is not capable of repaying its debts and when the probability of a debt repay failure takes place, covering the total risk is MFSC’s responsibility.  And market participants neither has right nor responsibility to assure other participants’ obligatory guarantees or to control of their payment. Therefore, the reason of “share of receivables not paid on time” arising is MFSC’s violation of its obligations. Because of this reason, MFSC and management should undertake the responsibility of “share of receivables not paid on time”. In our point of view, such a third party’s -who does not exist in law- debt’s repayment promise’s adjustment in regulation (BSR) is clearly against the law.  Moreover, MFSC’s toleration to a Market Participant’s market activity that has not deposited the obligatory guarantee would result in insecurities about MFSC’s objectivity and equality.     MFSC learns firms’ trade secret in consequence of operating day-ahead planning and settlement operations. However, market participation agreement does not have an efficient regulation for keeping the trade secrets. And disclosure of firms trade secrets would give rise to “Unfair Competition” under Turkish Commercial Code. MFSC has the obligation of maintaining the process of Market Management System (MMS) therefore take all the necessary measures for preventing the fault of the system, under BSR. But again in accordance with the BSR, in case of fault occurrence at the system, MFSC will not be responsible to firms for their loss arise from the fault of the system. Since firms do not have any right and/or obligation for maintaining the process of the system and since maintaining the process of MMS is the obligation of MFSC, its obvious that any fault at the system would arise from MFSC’s breach of its obligation. Therefore, it would be a contrary to equity of firm’s responsibility of the loss resulting from the fault of the system- which constitutes MFSC’s breach of its obligation. In Turkey, case law regarding electricity market has not been established yet. But, if an agreement creates a significant unconformity between the performances of the parties, Turkey Supreme Court invalidate or amend the articles of the agreement that creates the significant unconformity between the performance of the parties if pacta sunt servanda would be contrary to equity. 

In accordance with the provisions of BSR, MFSC would give a written notification to the firms which do not perform loading and load shedding instructions without valid reasons. If they continue not to performing MFSC’s loading and load shedding instructions without valid reasons, MFSC would notice the situation to EMRA. And EMRA would apply sanctions in accordance with EML. But BSR do not have a detailed regulation regarding which reasons are valid reasons, after how many breach MFSC have to inform the situation to EMRA…etc. Firms transcend of MFSC’s instructions constitute “Unfair Competition” under Turkish Commercial Code. But EMRA does not announce the firms which do not perform the loading or load shedding instructions without valid reason, therefore firms can not learn the other firms which create unfair competition. EMRA has to announce the firms which breaches their obligations and announce which code did they breach… etc. Thereby, firms can take legal steps for the unfair competition.

The overcome of regulatory defects about these matters, electricity market is surely going to be more likely to achieve its goal becoming a market depends on competition. 

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