32Risk management framework—the Act, s 51(8)

32 Risk management framework—the Act, s 51(8)

32 Risk management framework—the Act, s 51(8)

(1) A risk management framework must mitigate the following risks—

(a) the risk that the cash balance of the Fund will not be sufficient to make the payments specified in the Act, section 55(b),

(b) the risk to the financial interests of NSW electricity customers of unexpected or significant increases in liabilities for payments by the scheme financial vehicle under LTES agreements from year to year,

(c) the risk of a reduction in the liquidity of the wholesale electricity market, excluding the spot market within the meaning of the National Electricity Rules, if options under LTES agreements are exercised,

(d) the risk that significant increases to contribution determinations under the Act, section 56 will be required to maintain a prudent cash balance for the Fund,

(e) the basis risk to the scheme financial vehicle.

(2) A risk management framework must also—

(a) include information about how the consumer trustee will implement the framework, including details of policies and guidelines to be developed by the consumer trustee, and

(b) provide for a cap on the basis risk to the scheme financial vehicle aggregated across all risk management contracts, and

(c) provide for the scheme financial vehicle to enter into risk management contracts to mitigate the risks specified in the framework, and

(d) require the scheme financial vehicle to demonstrate to the consumer trustee how the basis risk arising from a risk management contract that is a derivative arrangement will be managed, and

(e) set out the requirements for the scheme financial vehicle to report to the consumer trustee about—

(i) the overall performance of the framework, and

(ii) breaches of the framework and risk management contracts.

(3) If a risk management contract provided for by the risk management framework is a derivative arrangement, the scheme financial vehicle must not enter into the contract unless satisfied that entering into the contract—