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ERCOT Credit Management NPRRs Workshop

This workshop provides an overview of credit changes related to the implementation of NPRRs 519, 620, 660, and 741 in the Texas Nodal Market.

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ERCOT Credit Management NPRRs Workshop

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  1. Credit Management NPRRs 519, 620, 660, and 741 ERCOT Credit April 18, 2019

  2. Protocol Disclaimer Legal Disclaimers and Admonitions This presentation provides a general overview of the Texas Nodal Market and is not intended to be a substitute for the ERCOT Protocols, as amended from time to time. If any conflict exists between this presentation and the ERCOT Protocols, the ERCOT Protocols shall control in all respects. For more information, please visit: http://www.ercot.com/mktrules/nprotocols/

  3. Course Audience This training is intended for personnel responsible for meeting ERCOT creditworthiness requirements at their companies and who have completed the Credit Management Workshop. Includes companies registered as Qualified Scheduling Entities and CRR Account Holders

  4. Workshop Objectives Gain an understanding of…. • Credit changes related to implementation of Nodal Protocol Revision Requests (NPRRs): • NPRR519, Exemption of ERS-Only QSEs from Collateral and Capitalization Requirements • NPRR620, Collateral Requirements for Counter-Parties with No Load or Generation • NPRR660, Remove CRR State Change Adder • NPRR741, Clarification to TPE and EAL Credit Exposure Calculations (Calculation implemented in February 2018) • High-Level Credit Calculations: • NPRR620, Collateral Requirements for Counter-Parties with No Load or Generation • Credit Report Changes • NPRR620, Collateral Requirements for Counter-Parties with No Load or Generation • NPRR660, Remove CRR State Change Adder • NPRR741, Clarification to TPE and EAL Credit Exposure Calculations • Review Components of NPRR800, Revisions to Credit Exposure Calculations to Use Electricity Futures Market Prices

  5. Workshop Outline • Introduction • Credit exposure calculation changes related to: • Estimated Aggregate Liability (EAL) • MAX RTLE (Real-Time Liability Extrapolated) • MAX URTA (Unbilled Real-Time Amount) • Minimum Current Exposure (MCE) • NPRR Overview • 519, 620, 660, 741, and 800 • Credit Report Changes • Available Credit Limit (ACL) Summary Report • Total Potential Exposure (TPE) Summary Report • Estimated Aggregate Liability (EAL) Summary Report • Estimated Aggregate Liability (EAL) Detail Report • Minimum Current Exposure (MCE) Summary Report • Future Credit Exposure for CRR PTP Obligations (FCEOBL) Summary Report • Q & A

  6. Credit Exposure Calculation - TPE • Total Potential Exposure • The ERCOT credit calculation determines a minimum amount that a Counter-Party must post with ERCOT. The minimum amount is defined as Total Potential Exposure (TPE). • A Counter-Party must maintain posted Financial Security at or above Total Potential Exposure minus Unsecured Credit Limit (if any) • Total Potential Exposure Any • May be satisfied by Secured Collateral or Unsecured Credit • Total Potential Exposure Secured • Must be satisfied by Secured Collateral

  7. Credit Exposure Calculation – TPE

  8. Credit Exposure Calculation – MCE

  9. NPRR 519 - Overview • NPRR 519 Exemption of ERS-Only from Collateral and Capitalization • NPRR 519 exempts those Qualified Scheduling Entities (QSEs) that represent only Emergency Response Service (ERS) Resources and that do not participate in the Day-Ahead Market (DAM), Real-Time Market (RTM) and Congestion Revenue Right (CRR) market (“ERS-only QSEs”) from the collateral and financial statement reporting requirements in Section 16.11, Financial Security for Counter-Parties, and from each of the various requirements in Section 16.16, Additional Counter-Party Qualification Requirements, including those relating to capitalization, certification, and the verification of a risk management framework.

  10. NPRR 620 - Overview • NPRR 620 Collateral Requirements for Counter-Parties with No Load or Generation • NPRR 620 revises the calculation of credit exposure for Counter-Parties that represent neither Load nor generation by adjusting the M1 factor for forward exposure risk to reflect the fact that these Counter-Parties do not have Mass Transition risk, reducing the 40-day “look back” period for certain exposure components to 20 days and specifying a Minimum Current Exposure (MCE) for these Counter-Parties that is also used as the Initial Estimated Liability (IEL).

  11. NPRR 660 - Overview • NPRR 660 Remove CRR State Change Adder • NPRR 660 deletes references to the State Change Adder component of the Congestion Revenue Right (CRR) Obligation credit calculation. Removal of the State Change Adder is proposed since there is no benchmark by which eligible CRR Obligation paths could be identified or the value of the State Change adjustment quantified. The State Change Adder was originally included as part of NPRR484, Revisions to Congestion Revenue Rights Credit Calculations and Payments, however, the initial system implementation of NPRR484 did not include the State Change Adder.

  12. NPRR 741 - Overview • NPRR 741 Clarification to TPE and EAL Credit Exposure Calculations NPRR 741: • Simplifies equations for Estimated Aggregate Liability (EAL) and moves Potential Uplift (PUL) to Total Potential Exposure Any (TPEA); • Removes contradictory language for when Initial Estimated Liability (IEL) is to be used; • Applies consistent variable subscripts across applicable Protocol sections; • Corrects defined terms and subscripts; • Eliminates the Congestion Revenue Rights Activity (CRRA) flag to simplify the Total Potential Exposure (TPE) equation. This flag was used to set inclusion of EAL for all the CRR Account Holders represented by the Counter-Party (EALa) in either TPEA or Total Potential Exposure Secured (TPES); • Groups additional parameters to utilize standard change control process; • Clarifies components of Real-Time Liability (RTL) and Outstanding Unpaid Transactions (OUT); and • Revises Minimum Current Exposure (MCE) formula to reduce the amount of collateral required to be posted by a Counter-Party when the Counter-Party is credit positive in the Day-Ahead Market (DAM).

  13. NPRR 800 - Overview • NPRR 800 Revisions to Credit Exposure Calculations to Use Electricity Futures Market Prices • NPRR 800 revises the Real-Time Liability Extrapolated (RTLE) and Day-Ahead Liability Extrapolated (DALE) factors used in the Counter-Party Estimated Aggregate Liability (EAL) and Minimum Current Exposure (MCE) calculations to use electricity futures mark-to-market prices for estimating forward risk. • The Real-Time Forward Adjustment Factor (RFAF) and Day-Ahead Forward Adjustment Factor (DFAF) for Real-Time Market (RTM) exposure and Day-Ahead Market (DAM) exposure are calculated using a ratio of futures average price to historic average price of a reference hub.

  14. NPRR800, Revisions to Credit Exposure Calculations to Use Electricity Futures Market Prices • NPRR800 revises the Real-Time Liability Extrapolated (RTLE) and Day-Ahead Liability Extrapolated (DALE) factors used in the Counter-Party Estimated Aggregate Liability (EAL) and Minimum Current Exposure (MCE) calculations to use electricity futures mark-to-market prices for estimating forward risk.

  15. Credit Reports Changes Available Credit Limit (ACL) Summary Report (EMIL ID FNC-470-SG, Report Id 11173): • Changed column title of “CPIA” to “Independent Amount” for clarity • Changed reference to “Pre-payment” to “Flexible Account” in Pre-payment Transactions Summary section Total Potential Exposure (TPE) Summary Report (EMIL ID NP16-664-SG, Report Id 11174): • Removed CRRA flag and EALA columns in TPES Summary section • Changed column title of “CPIA” to “Independent Amount” for clarity • Added the following columns in TPEA Summary section: 1) Trader Only Activity; 2) EALT; and 3) PUL • Removed CRRA flag column in TPEA Summary section Estimated Aggregate Liability (EAL) Summary Report (EMIL ID NP16-665-SG, Report Id 13003): • Added summary section EALT (EAL for Counter-Party not representing either Load or Generation) • Changed EAL component headings to reference entity type (added “Q” to EAL component names for Counter-Party representing either Load or Generation; and “T” for Counter-Party not representing either Load or Generation) • Changed presentation of MAXRTLEQ and DALE in the EAL summary section to display the product of 1) RFAF and MAXRTLEQ and 2) DFAF and DALE instead of presenting separately • Removed EAL components not applicable to CRRAHs in the EALA (EAL for CRRAHs) summary section

  16. Credit Reports Changes Estimated Aggregate Liability (EAL) Detail Report (EMIL ID NP16-669-SG, Report Id 11179): • Added summary section EALT (EAL for Counter-Party not representing either Load or Generation) • Changed EAL component headings to reference entity type (added “Q” to EAL component names for Counter-Party representing either Load or Generation; and “T” for Counter-Party not representing either Load or Generation) • Changed presentation of MAXRTLEQ and DALE in the EAL summary section to display the product of 1) RFAF and MAXRTLEQ and 2) DFAF and DALE instead of presenting separately • Added RFAF and DFAF columns in the RTLE section to display historical RFAF and DFAF factors used for each day during the look-back period • Removed EAL components not applicable to CRRAHs in the EALA (EAL for CRRAHs) summary section • Removed RTLE, URTA, DALE Details for all CRRAHs, RTLCNS Details for all CRRAHs, RTM Initial Statements Average Amount Details for all CRRAHs, RTM Final Statements Average Amount Details for all CRRAHs, RTM True-Up Statements Average Amount Details for all CRRAHs sections not applicable to CRRAHs • Removed unadjusted RT liability amount in RTLCNS section to display marked-up or marked-down effective amount Minimum Current Exposure (MCE) Summary Report (EMIL ID NP16-678-SG, Report Id 13092): • Moved the summary row from bottom to above details of Operating Date data • Added IMCE column Future Credit Exposure for CRR PTP Obligations (FCEOBL) Summary Report (EMIL ID NP16-681-SG, Report Id 13106): • Removed State Change Adder Exposure column

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