MIG 6 – What is actually changing?
10.06.2018 |Author: Ilse Melotte
The whole Belgian market is alerted. MIG 6 is coming along and will drastically change the Belgian energy industry. Atrias is building a central market system (CMS) which will facilitate cooperation between the DGOs and simplify administration for the other energy market players and for the customer.
Besides the technical changes (the XML format will replace the EDIEL format), quite some business changes are in scope:
1°Another unique identifierin the data model: from 1 single access point (EAN) to 1 head point (HP), with multiple service delivery points (SDP) (e.g. off-take, injection) to allow for more services to be offered;
2° Switching processes are re-designedwith the introduction of the Service Delivery Point, pre-switching and consolidation process modules;
- new load profiles (RLP per time of use);
- allocation and reconciliation at the lowest level;
- the UTIL-FEE message provides a link between the grid fee and metering process;
- Metering data exchange provides new functionalities and new measuring regimes: ready for smart meter and local production enabled.
MIG 6 – What does this mean for the finance department and settlement office ?
Certainly, MIG 6 will also impact the controlling and settlement functions. It will bring along opportunities, improvements but unfortunately also threats.
Opportunity: Customer-level accounting
Given the really competitive environment, it’s important for suppliers to understand actual customer profitability. Two important changes under MIG 6 are opening the gate:
1°So far the individual customer’s cost of commodity could only be calculated based on a set of assumptions as allocation and reconciliation don’t run at the EAN level. With MIG 6 market reconciliation will allow to identify the real cost of energy per customer and therefore deliver more accurate market insights.
2°Another important contribution is coming from the RLPs (Real Load Profiles) which will replace the SLPs (Synthetic Load Profiles) which will correct for erroneous time of use absorption of costs.
While the whole business is undergoing a transformative journey, the advantages of recognizing revenue and costs at a customer level become clear:
- Gross margins are fully supportable at customer level, reducing audit risk and financial uncertainty;
- Imbalances between volumes settled and billed can be analyzed at a customer level;
- Restoring the connection between the financial and operational views of the business: Sourcing and Pricing departments define the prices ‘Ex-Ante’ and the finance team monitors the target margins ‘Ex-Post’;
- Customer-level imbalance analysis can be used to correct customer billing and settlement errors, with a subsequent benefit to cash flow and customer experience;
- Enhanced capability to understand profitability by product or segment leading to more informed business decisions.
Improvement: Easier grid fee pass through check
Suppliers are not allowed to make any profit on the transportation and distribution of energy to the customer’s premise. Reconciliation between individual electronic invoices and aggregated paper invoices stays a challenge due to the massive amount of messages, but as of MIG 6 there will be a direct link between the metering message and the grid fee message. This will allow suppliers to do an easy set-up of the so called ‘Grid Fee Pass Through Check’. Operational excellence means no impact of imperfect grid fee billing.
Threat: Jumping over the hub of MIG 6
Different energy streams (i.e. revenues, commodity, reconciliation, grid fee, certificates) follow different processes leading to different energy balances over time. Market processes facilitate full financial settlement only two to three years after the month of delivery.
The biggest threat is therefore to determine and review gross margins in a moving 36 months window, where all rectifications and settlements need to be processed in due time under the right MIG protocol, before during and after transition between MIG 4 and MIG 6.
Financial Reconciliation and Settlement under MIG 4.1 was already complex but will become even more difficult to grasp under MIG 6 due to the reconciliation ofTime of Use (ToU) and reconciliation of compensation. Solid systems, processes and energy balance reporting are required here.
Our guess on what the next two challenges are:
Cash Flow:Can you imagine a world where revenues and costs of goods sold can be correctly estimated, allowing the finance team to have a correct gross margin view at all times. Well, the next step is to link all this know-how with individual customer payment patterns and have an accurate Cash Forecaster, right ?
Net Margins:Now that we get gross margins right at the lowest level, we can combine all this customer intelligence with the customer’s behavior (calling, complaining and payment behavior) and understand what the individual cost to serve is. Indeed, all suppliers want to keep and service the well behaving customers that don’t trigger extra cost to serve and as such create more company value.