Who needs to provide prudential security?
Each electricity purchaser must provide prudential security. The clearing manager determines the required level of prudential security by estimating each purchaser’s net exposure over a period of 55-60 days.
The clearing manager may take lodged hedge settlement agreements into account in the prudential requirements calculation.
Parties with an acceptable credit rating (Standard & Poors A- or equivalent) do not need to provide prudential security.
What types of prudential security are there?
The standard forms of prudential security are presented in Schedules 14.1 to 14.5 of the Code, they are:
- Cash deposit
- Bank guarantee
- Third party guarantee from a party with an acceptable credit rating
- Bond from a surety with an acceptable credit rating and/or a hedge contract lodged with and settled by the clearing manager.
The alternative forms of bank guarantee and Swift letter of credit variation have also been approved, as per the following documents.
How much prudential security is required?
The amount of prudential security the clearing manager requires from a participant depends in part on the duration of the participant’s post-default exit period.
Clause 14A.22(4) of the Code specifies the duration of the post-default exit period for different participants, but also allows the Electricity Authority to approve a shorter post-default exit period than specified.
When is additional security required?
If the clearing manager determines that its exposure to an industry participant is more than the amount of security the industry participant has already provided, the clearing manager will issue a call for additional security.
The call must be satisfied within three business days or the industry participant is in default of its obligations under the Code and the matter may be investigated by our compliance team.
Can you have a shorter post-default exit period?
Yes, industry participants seeking a shorter post-default exit period than specified in clause 14A.22(4) can apply for a shorter post-default exit period. To do this:
- Read the Requests for a shortened post-default exit period. Each application is assessed against the criteria in this policy document.
- Complete and submit this application form.
For further information, email firstname.lastname@example.org.