Direct Retailer Futures Offset Arrangements
Mon 16 Mar 2009
Submitted: March 2009. Explains how the futures market can be used to eliminate systemic risk and credit default contagion risk between the AEMO spot market and the OTC derivative market, while providing improved efficiency and competition benefits to NEM retailers.
Direct Retailer FOAS: Substantial efficiency gains for NEM Retailers
d-cyphaTrade has submitted a draft Rule Change to the AEMC to integrate Direct Retailer Futures Offsets within the National Electricity Rules. The proposed Rule would allow retailers and electricity consumers to integrate their d-cypha SFE Futures hedges with their NEMMCO spot market settlement obligations to yield substantial working capital cost reductions. This voluntary mechanism would open up the competitive supply of prudential offsets for NEM retailers to an internationally traded futures market while integrating the prudential safeguard of daily margining within the NEMMCO prudential arrangements to efficiently reduce credit default risk amongst NEM Participants. Once registered, the arrangement can only be terminated prior to expiry with NEMMCO's consent.
As an example of the efficiency gains available, a South Australian retailer incurring 5% bank guarantee fees could reduce its working capital costs by $3.27/MWh (after transaction costs) during Q2 2009.
A brief overview of the proposal and the draft rule is available for download below.
 | Direct Retailer FOAs Draft Rule | PDF, 226Kb |