Meeting payment deadlines for cleared funds

Background

The Electricity Industry Participation Code 2010 (Code) requires participants to make payments to the clearing manager by specified deadlines. Strict compliance with this obligation is required. When payments arrive in the clearing manager’s account after the deadline, this places an additional administrative burden on the clearing manager at an already busy time.

When a payment misses the deadline, this is a settlement default. When a settlement default occurs (or looks likely to occur), the clearing manager may arrange for prudential cash transfers. This will be done before the clearing manager’s own payment deadline of 4.00pm, as required by clause 14.34 of the Code.

Code provisions

Cleared funds, in relation to a business day, means funds that are immediately available for disbursement on that day.

14.31 Deadlines for payments

(1) Subject to subclauses (3) and (4), each participant must pay the clearing manager the amount advised to the participant under subpart 4 as payable by the participant to the clearing manager by—

(a) 1300 hours on the 20th day of the month following the billing period in respect of which the amount was advised;

14.32 Methods of payment

(1) Subject to subclause (2), each participant must pay the clearing manager in cleared funds into the operating account.

Participants are required to keep the participant register up to date

Section 9 of the Electricity Industry Act 2010 (Act) requires industry participants to register their business details, including contact details, and comply with the Code.

Section 29(2) of the Act requires a participant to supply updated information as soon as practicable if its details change. A failure to do this may result in the participant being subject to enforcement measures and liable to conviction for an offence under section 31, with a potential fine of up to $20,000.

Circumstances

At 11.30am on the relevant business day, a participant made a payment to the clearing manager. The payment arrived in the clearing manager’s operations account at 1.36pm on the same day, so it was 36 minutes late according to participant’s obligations in the Code.

The clearing manager attempted to contact the participant several times to discuss the payment process but received no response. They notified the Authority of an alleged breach of clause 14.31(1)(a) of the Code.

The Authority sent a fact-finding letter to the participant but received no response. A follow-up email was sent to five email addresses for the participant, as found in the participant register and on its website, but no response was received for a number of months.

The participant’s response asked that correspondence should be addressed to a further email address, which was not listed in the participant register.

The Authority appointed an investigator for the case and one other participant joined the investigation.

As part of the proposed settlement, the participant declined to agree to make payments using the ‘same day cleared payment’ method, which generally results in almost immediate transfer of funds. However, the parties agreed that the clearing manager would use the participant’s prudential funds to meet the payment, until the participant improved compliance with clause 14.31(1)(a).

The parties reached a settlement and this was approved by the Authority.

The participant advised the Authority that it had made changes to its processes.

Analysis

When considering an alleged breach, the Authority investigates the case and considers a participant’s breach history.

For this case, there were the following considerations:

• There was no identified delay in the usual bank transfer process
• The participant had a history of similar breaches, making late payments and disclosures
• The participant had a history of failing to respond to attempts to contact it
• The contact details provided in the participant register were not effective.

Summary of learnings

When a participant does not comply with Code obligations to ensure payments meet Code deadlines, it affects other participants. Late payments also place an unnecessary administrative burden on the clearing manager.

It is the participant’s responsibility to make sure payments meet the payment deadlines and allow for any potential delays in bank processes. A ‘same day cleared payment’ transfer ensures the transfer is made on the same business day and is usually completed within minutes.

Participants are required under the Act to keep their contact details up to date in the Authority’s Participant register and the Authority regularly reminds participants to do so in its Market Brief newsletter. Participants can edit and update their own details in the participant register. Individual contact details are not made publicly available.

Participants should also keep contact details up to date in the Authority’s Compliance portal, which the Authority and participants use to correspond on compliance matters.

When a participant does not respond to contact attempts about an alleged breach, it suggests that compliance requirements are either not understood or not prioritised. This was one of the reasons for this case being formally investigated.

It is vital that participants have a good compliance framework that sets out their regulatory obligations and how they will be met. A member of staff needs to be allocated responsibility for an organisation’s compliance and be responsible for updating contact details in the Authority’s participant register and compliance portal.

A participant that repeatedly fails to comply with its obligations may find itself subject to enforcement action and a potential financial penalty.