We welcome the opportunity to provide comments to the JAO public survey on credit limit and bid prioritization in the process of designing the future long-term flow-based auction setup in the Core region.
First, we would like to share our concerns regarding the use of a simple poll for such an important topic. Such a practice for a topic that has such a strong impact on the forward market must be avoided. In addition, this issue should have been discussed during the ENTSO-E workshop on LTFBA on 24 May. Moreover, the audience of the consultation’s announcement appeared to be quite narrow as many market participants did not see it, further reducing the initial time to answer.
- Having reviewed the presentation with the proposals, which of the options would you like to see implemented for the long term flow-based allocation?
None of the options proposed.
- Do you have any comments or suggestions?
We would like to raise our strong concerns regarding this consultation. JAO is warning on very serious issues regarding the impact on collateral’s requirements that this centralized FB auction will have.
At the light of this identified issue, we call for an updated analysis of the benefits of LTFBA, considering this issue of collateral raised by JAO to assess the impact on the auction results depending on different options.
In terms of content, we consider that none of the options proposed (i.e., priority as bid component, priority as a parameter, priority as a bid flag) is satisfactory as the common concept behind those is not acceptable.
New rules of bid rejection that would be detrimental to market participants w.r.t. to the current situation should be avoided.
Neither the random nor the prioritized bid rejection criteria are satisfactory. Bids are submitted because they are the results of a bidding strategy. Rejecting them on a random manner is just ignoring this. Also, asking market participants to prioritize bids would suppose that market participants can prioritize them. A bidding strategy has to be considered as a whole and bids resulting from it cannot be split up in priority groups as the consistency within a bidding exercise would be consequently torn apart.
While we acknowledge the issue raised by JAO, we ask alternative solutions other than « bid rejection for credit limit » to be considered, such as different collateral management. Therefore, we call for an urgent meeting with ACER, ENTSO-E and JAO in order to discuss it with market participants.
Also, this is an opportunity to review the way the collaterals are computed by JAO as of today (which would mitigate the impact on the amount of collaterals with one auction). We understand that the amount of collateral is currently estimated depending on a worst-case scenario that could happen in terms of default / credit risk. However, other solutions could be based on the volumes actually involved while using fine-tuned parameters for the JAO collateral computation method.