|Quarter||Sector aggregate||Minimum||Lower quartile||Median||Upper quartile||Maximum|
The results for three measures of financial stress faced by firms participating in the wholesale market under two simulated stress scenarios are summarised in this report.
The spot price risk disclosure regime, commonly referred to as the stress testing regime, is described in Subpart 5A of Part 13 of the Code. Disclosing participants are required to apply a standard set of tests that assess aspects of a firm's financial position in response to changes in spot prices. Spot price risk disclosure statements are to be submitted on a quarterly basis to a person appointed by the Authority. That person then provides an anonymised summary of the disclosure statements to the Authority and it is these summaries that underlie this report.
The Authority makes no judgement about the different levels of risk tolerance exhibited in the stress testing results. Adopting risky positions is a legitimate strategy and the Authority hopes that the stress test regime will help ensure that these sorts of positions are being taken by decision-makers fully conversant with the potential consequences. Decision-makers are accountable for the impacts of their decisions even in the event that they lead to financial distress during times of scarce supply.
Three stress measures are defined: shareholder equity, cash flow and cover ratio. The cash flow measure is a ratio of the change in cash flow due to the nominated stress test over the last reported value for annual cash flow. The cover ratio measures the revenue received under the scenario relative to the costs incurred under the scenario. The shareholder equity measure is a ratio of the change in shareholder equity due to the nominated stress test over the last reported value for shareholder equity.
Two scenario types are defined: energy shortages and capacity shortfalls. Financial stress is assessed following exposure to:
The distribution of the anonymised stress testing results submitted by disclosing participants is summarised with a box and whisker plot for each quarter. The lower and upper horizontal edges of the boxes represent the 25th and 75th percentiles, respectively, or, alternatively, the first and third quartiles. Half of all results lie inside the box. The horizontal bold line dissecting the box denotes the 50th percentile or the median result. The horizontal bar at the end of the whiskers emanating from the boxes represents the minimum and maximum values, unless the designated bounds are exceeded in which case the whisker is truncated at the bound. Hovering the mouse over the results for any quarter will cause a tool tip to appear disclosing the values of the summary statistics. If the whiskers reach the designated bounds, the number of results beyond the bound is given. The value of outlier results is not revealed so as to guard against efforts at participant identification.
A guide has been prepared to assist with interpreting the stress test results.
Additional information about the stress testing regime can be found here. This information includes the purpose of the regime, what the stress test scenarios represent, and a set of answers to frequently asked questions.
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