September 5/6, 2019 – Ljubljana, Slovenia
This is the first time that I have attended ACER’s Energy Market Integrity and Transparency (EMIT) Forum. I was attending as managing director of my own firm, rather than as Head of Ethics & Compliance for Centrica’s Energy Marketing & Trading business, which has been my role for the last eight years.
What follows is my personal assessment of, and reflection on, the two days of discussion and is not intended to reflect any official pronouncements by ACER or any of the stakeholder interventions by the industry associations present. ACER’s official statement of the matters discussed, and any conclusions, will follow in due course I expect.
The introductory address noted that ACER, from a data reporting perspective, is handling some 3 million records per day and that data quality is continually improving. Incidences of market abuse are now being investigated, including enforcement action where necessary, with benefits for consumers and establishing a level playing field for market participants. As in prior years, I understand, ACER reflected on its capabilities in the light of budgetary constraints. With further possible budgetary cuts in 2021, ACER’s funding model is being reviewed, with consideration of a fee-based model under evaluation – see below.
Applying REMIT in an evolving regulatory landscape
A significant portion of this section was devoted to “inside information” and the lack of systematic use of centralised inside information platforms (IIP) and the possible negative impact on wholesale energy markets. ACER will continue to promote IIPs including an update to chapter 7 of the ACER guidance on using IIPs (see also ACER document PC_2019_R_05 - Public consultation on definition of inside information - https://acer.europa.eu/Official_documents/Public_consultations/Pages/PC_2019_R_05.aspx)
In terms of feedback to ACER, there were several similar themes about the development of REMIT, including:
1. Don’t cut and paste from financial legislation, in areas like algorithmic trading. REMIT is seen to be effective because it is a sector-specific regulation that meets the needs of wholesale energy markets
2. Consider the introduction of a unified EU threshold for inside information, principally to allow for more efficient reporting processes and because markets are increasingly inter-connected e.g. XBID. I am perhaps a little doubtful of proposals for thresholds, often touted at levels of 100Mw and 10mcm/day, given the level one REMIT text. However, I can certainly sympathise as a former Head of Compliance trying to mitigate operational and regulatory risk or safeguarding staff when performing subjective assessments of what is “significant” during an unplanned outage at 3am, where engineering or health and safety concerns are paramount.
It also seems to me that market participants have followed one of two approaches when it comes to the publishing of inside information:
a. High degree of assessment goes into what “would be likely to significantly affect the prices of … wholesale energy products”
b. High degree of automation is used, generally with reference to thresholds
Whether such approaches can be harmonised remains an open question for me, but it does strike me that an un-level playing field, perhaps unintentionally, has been created
3. It was noted that compliance by transmission system operators (TSO) could be strengthened in relation to the publication of inside information, as TSOs are increasingly seen as active market participants
4. A general request was made for heightened accessibility to published inside information (centrally and/or regionally) through standardised APIs
There followed a preview of the potential introduction of fees in order to address ACER’s budgetary challenges. This was not a discussion centred around what would be covered by those fees and, in the event this proposal moved forward, I understand that fee levels would be set by the EU Commission. I would observe, with reference to some of the language used, that ACER considers itself still to be in “survival” mode and would consider that it is doing the bare minimum to meet its REMIT obligations. I expect that there will need to be a public consultation on this matter and an assessment of possible impact on market participants. From a personal perspective, if ACER is not to be properly funded for its role then it seems to me to be possible that the wholesale energy markets will end up with a regulatory framework, akin say to a financial services environment, that may be disproportionate and, possibly, not fit for purpose. I would caution resisting a fee structure, which more often than not represents the commercial funding model for regulatory organisations, as a starting position but let’s see what happens as and when this matter comes up for consultation.
My next articles will cover my thoughts on the following sections of the EMIT Forum:
1. Enforcing REMIT
2. Market conduct including price spikes in wholesale power markets
3. Market surveillance
4. Data collection and data quality
5. REMIT beyond
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