Market Operator Services Ltd (MOSL), the private company owned by market participants set up to faciltate the opening of the retail market for non-household competition in 2017, has outlined its proposals for the Shadow Market which is due to go live next year.

A position paper setting out MOSL’s current position in relation to the Shadow Market, was discussed at a workshop with Trading Parties yesterday to explore what implementation challenges and issues could be raised by MOSL’s proposed approach. The outcomes of the workshop will be used to develop its approach to the Shadow Market in the Market & Company Readiness Plan to be published on 16th December 2015.

The purpose of the shadow market is to enhance the prospect that all parties will be ready for the live market, to reduce the risk that live operation will go wrong and to enable a smooth cut-over into live operation.

MOSL’s current thinking is that the Shadow Market should:

• Run on market production systems from October 2016
• Exercise all market processes possible
• Require all updates to market data during the shadow market to be via market transactions
• Put arrangements in place for one-off data uploads in limited circumstances Link participation to entry criteria including completion of Market Entry Assurance Certification and,
• for wholesalers and incumbent retailers, successful initial data upload
• Allow for partial participation in the Shadow Market. Further analysis is needed to identify how this can be accommodated technically where one or more retailers or wholesalers cannot participate
• Include trialling of operational processes, organised by TPs

The current plan shows that the shadow market is assumed to run from 3rd October 2016 for a period of 6 months to allow all parties, including MOSL, a chance to rehearse new business processes with realistic transaction volumes and datasets in expected live timescales. It will enables problems to be identified and rectified in a safe environment with no commercial consequences, in particular by allowing for the identification of data issues relating to supply points that affect settlement values and resolving customer or address discrepancies.

The Shadow Market arrangements will mimic the market that will be legal from 1st April 2017 but commence before that date. The new arrangements enabled by new legislation, regulation and market codes will come into effect on 1st April 2017

The Position Paper sets out the following principles for the design of the shadow market:

• The shadow market should exercise as many market transactions as possible to maximise the extent to which risk is mitigated,
• The shadow market should operate for long enough to enable one or more settlement and business improvement cycles to be run, at least four months.
• The shadow market should involve as many participants as possible
• The shadow market should facilitate the switch-over to the live market
• The additional cost should be commensurate with the risks that it manages
• The operation of the shadow market should not create unwarranted liabilities and risks

MOSL is also proposing that there should be entry criteria for Trading Parties to enter the shadow market - the overall programme plan assumes that both MO and the TPs will need to demonstrate readiness to enter the shadow market. Key questions MOSL is seeking to address include:

• What should the criteria for entry to the shadow market be?
• What should happen if one or more TPs don’t meet the criteria?

One of the key questions MOSL is seeking to address is how many wholesalers or retailers need to have met the criteria for shadow market operation for shadow market operations to commence. MOSL’s current view is that the shadow market should be capable of starting without the participation of one or more TPs.

Potential Plan B to allow for later start for shadow operation if "concerns about overall TP readiness emerge"

MOSL’s target start date is 1st October 2016 - but the shadow market arrangements could start later than October 2016. MOSL’s position is that at this stage there is not sufficient evidence to support a shortening of the period of shadow market, which would be a major programme change. However, MOSL said it also intends to evaluate a Plan B which could allow for a later start to shadow operation should “concerns about overall TP readiness emerge as market implementation progresses.”

The Position Paper says that the period up to and immediately after market opening will be crucial for market success and presents some specific risks, in particular:

• high level of switching transactions initiated soon after go live
• need to process several simultaneous retail exit transactions (bulk transfers) immediately following go live
• unknown demand for retailer entry leading to the need to undertake market entry assurance processes

MOSL will use the outcomes of yesterday’s participant workshop to develop its approach to the Shadow Market in its Market and Company Readiness Plan which will be published on 16th December 2015. It will then undertake Participant Engagement on the MCR Plan during January 2016.

Click here to download MOSL’s Position Paper on the Shadow Market in full