Implementation of inter-island financial transmission rights
Current implementation work
The first FTR auction will be held on 12 June 2013. The first auction notice will be sent out on 24 May 2013.
The following activities are underway:
- The FTR manager, EMS, is preparing the FTR auction engine (i-HEDGE), and supporting those who plan to participate in FTR auctions.
- The clearing manager, NZX, is enhancing its clearing and settlement system to accommodate FTRs.
- User acceptance testing for the FTR manager system is underway. More implementation details are available at: http://ems.co.nz/ftr/ftrdates.
FTR allocation plan varied to defer FTR market start to June 2013
The Authority has deferred the FTR market by one month to avoid a possible overlap with pole 3 commissioning. As the start dates are set out in the FTR allocation plan, the Authority proposed a one-month delay by proposing a variation to the plan.
The FTR manager consulted on the plan change and received five submissions, all in support of avoiding an overlap with pole 3. The submissions and summary of submissions have been published on the EMS website and the latest version of the FTR allocation plan, and the altered FTR calendar, are also available on the EMS website.
The first FTR auction will be in June 2013 offering July 2013 FTRs.
Participant registration open
Participant registration opened on 29 January 2013. More information is available on the FTR market page.
Variation to the clearing manager's FTR prudentials methodology approved
On 19 December 2012 the Authority approved a variation to the FTR prudential security assessment methodology submitted by the clearing manager, NZX. The latest methodology (December 2012) is available on the clearing manager’s website.
The clearing manager has also published more information for FTR participants on its website, including file formats and sample invoice files.
IRD ruling on income tax treatment of FTRs
Inland Revenue (IRD) has issued a product ruling relating to the treatment of FTRs in income tax. The Authority requested this ruling from IRD on behalf of participants to help provide clarity regarding how to treat FTRs in income tax returns. This ruling may save the need for participants to individually seek advice from the IRD. The ruling applies to FTR participants who prepare their accounts in accordance with International Financial Reporting Standards.
The ruling states that FTRs are not “the same as” or “similar to” other derivative instruments (with reference to a particular aspect of tax law). Therefore participants will not be required to use the same spreading method for FTRs as for other derivative instruments. The ruling is attached here:
Key establishment dates and resources for future participants
The FTR manager has published key dates for the opening of participant registration, participant user acceptance testing, dummy auctions, and more.
The FTR manager has published draft FTR policies including:
- FTR calendar of auction dates
- FTR registration process
- FTR grid and auction rules
- FTR prudentials policy.
The clearing manager industry training plan is published under Resources.
Variation to the FTR allocation plan approved
On 5 December 2012 the Authority approved a minor variation to the FTR allocation plan submitted by the FTR manager, EMS. The latest FTR allocation plan (December 2012) is available on the FTR manager’s library page.
GST ruling on financial transmission rights
The Authority has received product rulings on the GST treatment of option and obligation financial transmission rights from Inland Revenue. The rulings mean that payments made by or to purchasers under the terms of FTRs are not subject to GST. In addition, assignment payments are also not subject to GST. The rulings expire on 18 October 2015. The rulings are attached here:
FTR allocation plan approved
The Authority has approved the FTR manager's draft FTR allocation plan.
Under the Code, the FTR manager is required to set out the FTR auction rules, describe the FTR products and the FTR design in the FTR allocation plan. The FTR manager consulted with industry on a draft plan in April and May 2012 before submitting it to the Authority for approval.
The plan, submissions, and other related information can be accessed on the FTR manager's website.
Clearing manager's FTR prudentials methodology approved
The clearing manager's draft FTR Prudentials Security Assessment Methodology has been approved by the Authority, with the proviso that the clearing manager, NZX, add further information on its approach to setting initial margins.
The clearing manager will develop its approach to setting initial margins in consultation with industry participants and submit the approach to the Authority to be approved and added to the FTR prudentials methodology before December 2012.
To view the FTR prudentials methodology, submissions, and other FTR clearing and settlement information, go to the clearing manager's website.
FTR regulations came into force on 1 June 2012
Regulations to support the FTR market came into force on 1 June 2012.
- identify the FTR manager as a market operation service provider, having all the rights and obligations of market operation service providers under the Act, the Regulations, and the Code;
- establish a liability limit for the FTR manager of $500,000 from any one event or series of closely related events, and $2 million from all events in any one financial year; and
- make the clearing manager liable to holders of financial transmission rights (FTRs) who suffer loss that occurs as a result of any failure by the clearing manager to comply with its obligations under the Code.
The Authority consulted on these proposed regulations in October and November 2011. Submissions can be viewed on the consultation page.
The regulations can be viewed at:
FTR implementation: Financial Markets Authority declarations on FTRs
The Financial Markets Authority (FMA) has gazetted two notices:
- The Futures Contracts (Financial Transmission Rights) Notice 2012 defines FTRs as futures contracts that are regulated under the Securities Markets Act 1988.
- The Authorised Futures Dealers (Financial Transmission Rights) Notice 2012 identifies what kind of persons may trade in FTRs (approved participants'), and authorises the FTR manager and the clearing manager to deal in futures contracts that are FTRs.
The Authority sought these declarations as part of the establishment of the FTR market. As a financial product, FTRs are regulated under the Securities Markets Act 1988 and are subject to FMA scrutiny.
FTR manager selected
On 3 April 2012 the Authority appointed Energy Market Services (EMS), a division of Transpower New Zealand Limited, to the role of FTR manager.
The Authority selected EMS via a competitive open tender. EMS has engaged Nexant Inc, a US supplier of FTR auction software, to run FTR auctions on its i-HEDGE system.
Request for proposals for FTR manager
On 31 August 2011 the Authority released a request for proposals (RFP) for the role of FTR manager on the Government Electronic Tenders Service website (GETS). The deadline for submission of proposals to the Authority was 5.00pm, Monday 31 October 2011.
Prototype source code
As part of the RFP, on this page the Authority provided the source code for prototype software applications that fulfil a subset of two of the FTR manager's functions. This source code is referred to in Appendix 6 of the RFP.
For the function of FTR grid design files include:
Microsoft access 2007 database application for processing outage data from POCP website (located in \vSPDExcel_v1.1_FTR\FTR_Transmission_Outage).
|VSPD_FTR.xls||Microsoft excel user interface of the GAMS-based application "vSPD-FTR", which performs security analysis on outage states to derive limits on the FTR grid (located in \vSPDExcel_v1.1_FTR\Programs\).|
|FTR_BEN_to_OTA.gdx||vSPD-FTR data file for determining maximum volume of FTRs from Benmore to Otahuhu. It has a 5000 MW demand at Otahuhu, a one cent energy offer at Benmore and a $200 energy offer at Otahuhu (located in \vSPDExcel_v1.1_FTR\Input) (binary file).|
|FTR_OTA_to_BEN.gdx||vSPD-FTR data file for determining maximum volume of FTRs from Otahuhu to Benmore. It has a 5000 MW demand at Benmore, a one cent energy offer at Otahuhu and a $200 energy offer at Benmore (located in \vSPDExcel_v1.1_FTR\Input) (binary file).|
|*.gms||Various GAMS source files required by the vSPD-FTR application (located in \vSPDExcel_v1.1_FTR\Programs\).|
For the function of determining FTR rentals:
|BatchConvertFP_FTP_Server.m||Unzips final pricing case zip file and calls CreatePostMSP_GDX.m for each final pricing case to be processed.|
Processes one final pricing case, producing, among other things, csv files of:
|loss_proc.sql||Calculates the FTR rentals generated by AC line loss curve blocks for each trading period within a specified date range for the specified set of balanced extreme FTR injection patterns. There are two balanced extreme FTR injection patterns denoted as inj_DCN (maximum transfer from Benmore to Otahuhu) and inj_DCS (maximum transfer from Otahuhu to Benmore) (clauses 7(2), 8(2), 8(3), 9(5) of schedule 14.6 of the Code).|
|constr_proc.sql||Calculates the FTR rentals generated by branch constraints involving AC line flow terms for each trading period within a specified date range for the specified set of balanced extreme FTR injection patterns (clauses 7(3), 8(4), 9(4) of schedule 14.6 of the Code).|
Note - shift factors are referred to in the software as participation factors or pfactors.
FTRs are futures contracts under the Securities Markets Act 1988 and Futures Contracts (Financial Transmission Rights) Notice 2012. The FTR manager and clearing manager are authorised futures dealers in respect of FTRs under the Authorised Futures Dealers (Financial Transmission Rights) Notice 2012. However, the FTR manager and clearing manager may only deal with approved participants, as set out in the Authorised Futures Dealers (Financial Transmission Rights) Notice 2012. The FTR manager and clearing manager will not deal in FTRs with any person, other than an approved participant. FTRs are not being offered outside New Zealand.
The information on the Electricity Authority website relating to FTRs is of a general nature only and does not constitute personalised financial advice. While the Authority has made every effort to ensure that the information provided is accurate, you should not rely on this information to make any financial decision. If you are an approved participant and are considering purchasing or trading FTRs, you should carefully consider the risks and benefits and, if necessary, seek professional advice.
Money paid for FTRs will be held in [name of account], and does not represent a liability of the Authority, the FTR manager or the clearing manager. None of the Crown, the Authority, the FTR manager or the clearing manager (or any of their directors, officers or managers) nor any other person guarantees the performance or returns of any FTR or the repayment of capital.