Frequently Asked Questions

Users of this website should read the FAQ disclaimer at the foot of this page. Please click here to access the FAQ disclaimer

What is a collateral default notice?

In accordance with Regulation 25(3) of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 (as amended by Regulation 30 of the Electricity Supplier Obligation (Amendment and Excluded Electricity) Regulations 2015), where LCCC determines that an electricity supplier has not complied with the requirement to provide collateral under Regulation 19(2), it may issue a notice to that supplier setting out the amount of collateral which the supplier would have to provide to meet that supplier’s collateral requirement for the day on which the notice is issued. This notice is a collateral default notice.  Where LCCC has issued a collateral default notice to a supplier, the supplier is required to pay the amount specified in the notice to LCCC in cash by the end of the next working day after the notice has been issued.

What is the collateral requirement payable to suppliers by the CFD regime?

In accordance with Regulation 19 of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 (as amended by Regulation 27 of the Electricity Supplier Obligation (Amendment and Excluded Electricity) Regulations 2015, electricity suppliers who make an electricity supply in a quarterly obligation period in respect of which it is required to make an interim rate payment, must ensure that, on any day, LCCC holds sufficient collateral from the supplier to meet the supplier’s collateral requirement for that day.

The amount of collateral required is determined on a daily basis and is equal to a Supplier’s metered volumes for a 21 day reference period multiplied by the current Interim Levy Rate (the rate applicable at point 1, below). The reference period is determined by the availability of Balancing and Settlement Code Company (BSCCo) metered data, and therefore is based on the 21 calendar days available to EMRS prior to the calculation taking place. EMR Settlement Services Provider will calculate the minimum amount of collateral that a supplier needs.

For any given reference period this will include metered data from both Interim Information (II) and Settlement Final (SF) settlement runs. An example of the data used in a typical reference period is shown in Figure 1 below.

 

What information will be published in the event of non-payment?

A copy of the collateral default notice will be published on the LCCC’s website in the form of a PDF document. A copy of the default notice will also be sent to Ofgem. LCCC has taken the view that for operational transparency all collateral default notices will be published.

Why is the default notice and collateral default notice sent to Ofgem?

In accordance with Regulation 25(7) of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, where LCCC issues a default notice under Regulation 25(2) or a collateral default notice under Regulation 25(3) to a supplier it must also provide a copy of that notice to Ofgem

What criteria are used to assess whether a collateral default notice should be issued?

When it has been determined that a Supplier has not met its collateral requirement, they will enter a two day cure period, to allow the Supplier to correct their position prior to escalation. If the Supplier

has met their collateral requirement on the second day of the cure period (the ‘cure day’) by the end of the cure day, no further action is taken. This will be met if a Supplier has either:

1. A positive position on the cure day’s collateral Report; or

2. Lodged enough collateral by the end of the cure day to meet the requirement detailed on the

cure day’s collateral Report

However, if the Supplier has not met either of the above criteria by the end of the cure day and shortfall is greater than £500 at the time of issuing the collateral default notice then a collateral default notice is issued.

 

I have been issued a collateral default notice, how long will it remain published for?

A notice will remain on the LCCC website for twelve (12) months from the date of issue unless there is a dispute over the collateral requirement that is the subject of the notice which has been determined in favour of the supplier, in which case, the collateral default notice will be removed from the LCCC website as soon as practicable after the determination.

How is the dispute notice dealt with?

Upon receipt of a disputes notice LCCC will review the disputes notice.  Once LCCC has reviewed all the information it will make a determination and notify the disputing supplier of its decision notice by the 28th day after the date on which LCCC has received the dispute notice.

Please see Regulation 26 and 27 of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 (as amended by Regulation 31 and 32 of the Electricity Supplier Obligation (Amendment and Excluded Electricity) Regulations 2015) for more information on disputes process.

Will the default notice or collateral default notice remain published during the disputes process?

While a dispute determination is ongoing, the relevant default notice or collateral default notice will be marked as being ‘under dispute’. If the outcome of the determination is that the payment or collateral was not due, the default notice or collateral default notice will be removed from the LCCC website. If the outcome of the determination is that the relevant payment should have been made by the supplier, then the default notice or collateral default notice will no longer be marked as ‘under dispute’ and will remain on the LCCC website for twelve (12) months from the original issue date.

What if a supplier still does not make the collateral adjustment after a notice is issued?

LCCC (through its settlement agent, EMRS) will endeavour to contact the supplier and remind them of their obligation to lodge collateral to the required level.

In the event of continued failure to meet collateral obligations LCCC will escalate the matter with Ofgem, who will undertake appropriate action as they see fit.