New procedures for reporting trade operations and what they mean for market participants

On March 27, 2024, the NEURC adopted Resolution No. 618, which approved the Procedure for submitting information on business and trade transactions involving wholesale energy products (hereinafter referred to as the Procedure). This Procedure enters into force on July 2, 2024.

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In this article, we will break down the changes awaiting market participants due to the adoption of this Procedure, specifically what and when market participants will be required to report to the Regulator, and when these requirements will be implemented.

It is worth noting that the introduction of this Procedure is an implementation of European REMIT legislation, and similar procedures are in effect in every European Union country.

1.       Scope of the Procedure and definitions.

According to the text of the Procedure, it applies to:

1) Wholesale energy market participants;

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2) Data reporting agents (DRAs);

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3) Persons professionally arranging transactions in wholesale energy products (PPATs).

The term "wholesale energy market participants" is clear—these are individuals and legal entities authorized to conduct transactions involving wholesale energy products.

A Data Reporting Agent (DRA) is a wholesale energy market participant or a legal entity that, based on a data reporting agreement with a wholesale energy market participant, is responsible for collecting, aggregating, and submitting information to the Regulator regarding the business and trading operations conducted by the wholesale energy market participant in relation to wholesale energy products.

In other words, a DRA is an entity that collects data on trading operations from other market participants under contract and centrally reports it to the NEURC.

In the European Union, it is common practice for the functions of a DRA to be performed by an exchange platform or a Transmission System Operator. For example, DRA functions in the EU are performed by the HUPX exchange platform, the Hungarian TSO MAVIR, the Bulgarian gas transmission system operator Bulgartransgaz, and others.

In our view, it is highly likely that in Ukraine, DRA functions will be performed by the Market Operator, NPC Ukrenergo, the Gas Transmission System Operator of Ukraine, and possibly other entities.

Persons professionally arranging transactions in wholesale energy products (PPATs) include administrators of exchange platforms (such as the Ukrainian Energy Exchange) and administrators who facilitate transactions on organized market segments (JSC Market Operator).

The Procedure also defines the following terms:

· Fundamental data;

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· Standard contract;

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· Non-standard contract.

Fundamental data refers to information regarding capacity, storage, extraction, production, consumption, and other information actually held and operated by the Transmission System Operator, distribution system operators, the Gas Transmission System Operator, and distribution network operators.

A standard contract is a wholesale energy product admitted to trading on an OCM (Organised Market Place), as well as contracts concluded outside an OCM that share similar characteristics. These characteristics include the type of energy, load profile, and supply zone. The procedure stipulates that the NEURC must publish a list of standard contracts on its official website.

The procedure also states that market participants, when concluding contracts outside of trading platforms, must determine which type of standard contract they fall under. We believe this classification will effectively become a mandatory requirement for bilateral electricity purchase and sale agreements.

A non-standard contract is any wholesale energy product that does not qualify as a standard contract. While this definition is quite concise, we believe the Regulator intends for all contracts not included in the NEURC’s published list of standard contracts to be classified as non-standard.

2.       Transactions that must be reported.

Wholesale energy products for which transaction data must be reported on an ongoing basis include, in particular:

1) electricity or natural gas purchase and sale agreements, namely:

· bilateral electricity purchase and sale agreements;

· electricity purchase and sale agreements on the day-ahead market;

· electricity purchase and sale agreements on the intraday market;

· natural gas purchase and sale agreements;

2) derivative contracts relating to electricity or natural gas, namely options, futures, swaps, and other derivative contracts;

3) electricity transmission or natural gas transportation service agreements, including access to capacity/distribution, specifically:

· agreements for participation in capacity/natural gas transportation distribution related to the allocation of capacity at cross-border interconnectors of the transmission system operator/gas transmission system operator, which define physical or financial rights or obligations regarding the allocation of capacity at cross-border interconnectors, concluded through explicit auctions, as well as such agreements concluded between other wholesale energy market participants, including the resale and transfer of such rights (on secondary markets).

4) derivative contracts for electricity transmission or natural gas transportation, or access to capacity/distribution, namely options, futures, swaps, and other

derivative contracts related to access to cross-border interconnector capacity or natural gas transportation across/to the borders of Ukraine;

5) electricity or natural gas supply agreements for end consumers with a total nominal consumption capacity of the consumer's installations, providing the technical capability for electricity or gas consumption, of 600 GWh per year or more.

The Procedure also contains a list of information on wholesale energy products to be provided upon request by the NEURC, which includes:

1) Regarding those concluded outside of OMPP systems:

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· electricity purchase and sale agreements for electricity produced by a single production unit with a capacity equal to or less than 10 MW, or by production units with a total capacity equal to or less than 10 MW, if the owner of such production units is a party to such purchase and sale agreement;

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· natural gas purchase and sale agreements for gas extracted (produced) by a single gas production enterprise with a production capacity equal to or less than 1,880 cubic meters/hour (20 MW), if the gas production enterprise is a party to such purchase and sale agreement; agreements for the provision of balancing services to the gas transmission system operator;

2) agreements for the provision of ancillary services in the electricity market;

3) balancing market participation agreements;

4) electricity imbalance settlement agreements;

5) transactions involving energy products subject to settlement;

6) daily imbalances based on a natural gas transmission agreement concluded with the GTS Operator;

7) demand response service agreements;

8) electricity and/or natural gas distribution service agreements for end consumers with a total nominal consumption capacity of consumer installations that provides the technical capability for consuming electricity or gas at a volume of 600 GWh per year or more.

The Procedure contains an interesting provision stating that any NEURC request for information regarding the aforementioned transactions must be justified and include the deadlines, procedure, and format for providing such information.

Detailed information on wholesale energy products must be provided in accordance with the forms set out in the Procedure (on pages 18-39) (link to the Procedure: https://www.nerc.gov.ua/storage/app/uploads/public/660/6ca/e10/6606cae1002f3217699177.pdf).

In our view, RRM will allow market participants to enter electronic data into the RRM software, with reporting taking place almost automatically, as is currently implemented in European Union energy markets.

In this article, we will not provide a detailed list of fundamental data, as the collection, analysis, processing, and submission of this data to the NEURC is the sole responsibility of the Transmission System Operator and the Gas Transmission System Operator. A complete list can be found on pages 5–15 of the Procedure, linked above.

As previously mentioned, information regarding wholesale energy product trading transactions is submitted via an RRM based on a signed agreement. These agreements are typically fee-based, with the average cost of such reporting services ranging from 500 to 1,000 EUR per year among European RRMs.

In this context, a wholesale energy market participant is considered to have fulfilled their reporting obligations from the moment the data is transmitted to the RRM, rather than from the moment it is received by the Regulator.

3.       Reporting deadlines.

In accordance with Clause 2 of NEURC Resolution No. 618 dated March 27, 2024, which approved the Procedure, wholesale energy market participants (OIOEMPs) are required to submit information regarding the following trading transactions within 180 days from the date the resolution entered into force (effective date: July 2, 2024):

·         transactions executed before July 2, 2023, and not yet completed as of July 2, 2023;

·         transactions executed between July 2, 2023, and the date the Procedure entered into force.

Furthermore, OIOEMPs must begin submitting reports to the NEURC within 60 calendar days from the date the Resolution (Procedure) entered into force.

Once the aforementioned deadlines have passed, information regarding trading transactions carried out by wholesale energy market participants, including executed/accepted orders (bids) for wholesale energy products, as well as any amendments to or terminations of contracts, must be submitted within the following timeframes:

1) information on standard contracts – no later than the next business day following the date of the transaction.

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 2) information on non-standard contracts – no later than one month after the date of the transaction.

Information regarding contracts related to the allocation of natural gas transmission capacity/transportation, including capacity allocation at cross-border interconnection points, etc., is provided exclusively to the TSO/GTSO as soon as possible, but no later than the next business day after the allocation results become available.

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In summary, while the introduction of such stringent reporting rules may at first glance seem to significantly complicate operations in the electricity and natural gas markets, we believe it is best to wait until the reporting systems are implemented and operational before drawing conclusions based on actual practice. Similar reporting systems have been in place in European countries for years without causing significant issues for market participants. In our view, this reporting procedure brings us closer to European markets and will allow the Regulator to monitor market behavior more effectively and respond more promptly to unfair practices, which should ideally lead to well-functioning and transparent markets.

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