Credit Scoring Model Parameters and Results Analysis
"Explore the credit scoring model parameters and summary results by segment, including quantitative ratios, weightings, histograms, percentages, and scores by different segments. Dive into the insights provided by Mark Ruane, Sr. Director, Settlements, Retail, and Credit at ERCOT, from the meeting held in February 2021."
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6. Credit Scoring Model Parameters Mark Ruane Sr. Director, Settlements, Retail and Credit CWG / MCWG ERCOT Public February 17, 2021
Credit Scoring Model Parameters The weightings below reflect changes suggested at the January CWG/MCWG meeting Quantitative Ratios Non-Public Quantitative Ratios Public Ratio Type Liquidity Liquidity Liquidity Liquidity Leverage Weight Ratio Weight EBITDA/Interest expense Cash Earnings/Debt Service Free Cash flow/Total Debt Quick Ratio Debt/Total Capitalization Short Term Debt/Total Debt Leverage Debt/Net Fixed Assets Debt/TNW Return on Sales Return on Assets Operating Margin Return on Equity 0% 0% 25% 0% 15% 0% 15% 5% 0% 0% 25% 15% 100% Days Cash/SGA+Interest Expense Debt Service Coverage Equity/Total Assets Times Interest Earned Cash/Current Liabilities CFFO/Total Debt Capex/Sales Total 0% 20% 30% 50% 0% 0% 0% 100% Leverage Leverage Performance Performance Performance Performance Total 2 ERCOT Public
Credit Scoring Model Parameters Summary results by segment Public Power Non-Public Power Model Load + Gen Load + Gen CRRAH All Load Trader Gen CRRAH All All CPs Count Average Median Max (worst) Min (best) Stdev. Skewness 9 8 18 32 130 2.99 2.93 6.80 1.00 1.51 0.11 24 33 25 244 3.33 3.49 6.80 1.00 1.41 -0.13 262 3.27 3.40 6.80 1.00 1.40 -0.06 2.43 2.25 3.68 1.52 0.65 0.47 2.50 1.66 5.03 1.22 1.44 1.26 2.57 2.25 5.03 1.22 1.16 1.03 4.09 3.94 6.33 1.63 1.21 -0.04 3.50 3.46 6.15 1.00 1.24 0.16 3.53 3.73 5.92 1.00 0.97 -0.39 3.63 3.73 5.10 1.00 1.18 -0.74 3 ERCOT Public
Credit Scoring Model Parameters Histograms Distribution of Results 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 Public Power Non-Public Power 4 ERCOT Public
Credit Scoring Model Parameters Percentage by Score 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1 2 3 4 5 6 7 Public Power Non-Public Power 5 ERCOT Public
Credit Scoring Model Parameters Scores by Segment 35 30 25 20 15 10 5 0 1 2 3 4 5 6 7 Load Trader Load + Gen Gen CRRAH 6 ERCOT Public
Credit Scoring Model Parameters Percentages by Segment 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1 2 3 4 5 6 7 Load Trader Load + Gen Gen CRRAH 7 ERCOT Public
Credit Scoring Model Parameters Mapping to agency ratings Agency Rating Numeric Mapping Mapping Model Scores to Agency Ratings AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ NR 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 NA 18 16 Agency Rating Equivalent 14 12 10 8 6 4 y = -1.4157x + 14.846 R = 0.2238 2 0 1 2 3 4 5 6 7 Model Score 8 ERCOT Public
Credit Scoring Model Parameters Mapping to agency ratings Agency Equivalent Score Distribution 100 90 80 70 60 50 40 30 20 10 0 9 ERCOT Public
Credit Scoring Model Parameters Approx. Model Score Equivalent Translating agency ratings to model scores Agency Rating Numeric Mapping AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ NR 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 NA 2.36 2.52 2.68 2.84 3.00 3.16 3.31 3.47 3.63 3.79 3.95 4.10 4.26 4.42 4.58 4.74 4.89 NA 1 0 ERCOT Public
Credit Scoring Model Parameters Appendices 1 1 ERCOT Public
Credit Scoring Model Parameters MISO-based financial scoring model 1 2 ERCOT Public
Credit Scoring Model Parameters Financial Scoring Models Updated using 2019 Counter-Party financial data For both testing models, revised data reduced the fit of the model score to the agency rating for rated entities. Changes to weightings and sector results follow. 1 3 ERCOT Public
Credit Scoring Model Parameters MISO-based model score results by ERCOT-defined segment: 2018 financial data (both classes). Public Power Non-Public Power Model Load + Gen Load + Gen CRRAH All Load Trader Gen CRRAH All All CPs Count Average Median Max (worst) Min (best) Stdev. Skewness 9 8 17 33 128 3.14 2.69 6.98 1.00 1.78 0.52 21 32 22 236 3.43 3.31 6.98 1.00 1.64 0.31 253 3.35 3.27 6.98 1.00 1.63 0.39 2.41 2.42 3.49 1.84 0.55 0.61 1.97 1.54 4.27 1.27 0.94 2.10 2.20 1.90 4.27 1.27 0.79 1.14 4.23 3.73 6.91 1.34 1.68 0.10 3.87 3.86 6.30 1.31 1.28 -0.04 3.51 3.69 6.34 1.00 0.97 0.11 3.35 3.44 5.25 1.00 1.32 -0.04 Note that lower scores indicate higher credit quality. Scores can be duplicated when different CPs have same guarantor. 1 4 ERCOT Public
Credit Scoring Model Parameters MISO-based model score results by segment: 2019 financial data, calibrated using 2018 financial data Public Power Non-Public Power Model Load + Gen Load + Gen CRRAH All Load Trader Gen CRRAH All All CPs Count Average Median Max (worst) Min (best) Stdev. Skewness 9 8 18 32 130 3.01 2.75 6.99 1.00 1.59 0.23 24 33 25 244 3.31 3.34 6.99 1.00 1.48 0.07 262 3.25 3.26 6.99 1.00 1.47 0.13 2.37 2.44 3.20 1.82 0.48 0.40 2.29 1.52 4.69 1.25 1.33 1.31 2.48 2.05 4.94 1.25 1.12 1.14 4.03 3.87 6.91 1.34 1.44 0.25 3.29 3.12 6.19 1.00 1.25 0.56 3.53 3.42 5.78 1.00 0.92 -0.15 3.66 3.96 5.58 1.00 1.22 -0.64 Note that lower scores indicate higher credit quality. Scores can be duplicated when different CPs have same guarantor. 1 5 ERCOT Public
Credit Scoring Model Parameters MISO-based model score results by segment: 2019 financial data, calibrated using 2019 financial data (both classes). Public Power Non-Public Power Model Load + Gen Load + Gen CRRAH All Load Trader Gen CRRAH All All CPs Count Average Median Max (worst) Min (best) Stdev. Skewness 9 8 18 32 130 2.68 2.55 5.67 1.00 1.38 0.21 24 33 25 244 3.00 3.22 5.72 1.00 1.32 -0.06 262 2.93 3.15 6.99 1.00 1.39 0.15 1.40 1.27 2.08 1.00 0.39 0.51 2.50 1.00 6.99 1.00 2.59 1.44 2.00 1.06 6.99 1.00 1.86 2.28 3.65 3.53 5.72 1.77 0.94 0.09 3.29 3.20 5.26 1.00 1.34 -0.07 3.28 3.53 5.60 1.00 1.07 -0.20 3.18 3.52 5.26 1.00 1.21 -0.28 Note that lower scores indicate higher credit quality. Scores can be duplicated when different CPs have same guarantor. 1 6 ERCOT Public
Credit Scoring Model Parameters MISO Model Results Comparison 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 2018 data 2019 data calibrated on 2018 2019 data calibrated on 2019 1 7 ERCOT Public
Credit Scoring Model Parameters MISO-based model weightings, calibrated using 2018 financial data. Non-Public Power Public Power Ratio Category Liquidity Liquidity Liquidity Liquidity Weight Ratio Weight EBITDA/Interest expense Cash Earnings/Debt Service Free Cash flow/Total Debt Quick Ratio 0% 0% 24% 0% Days Cash/SGA+Interest Expense Debt Service Coverage Equity/Total Assets Times Interest Earned Cash/Current Liabilities CFFO/Total Debt Capex/Sales Total 0% 0% 49% 51% 0% 0% 0% 100% Debt/Total Capitalization Short Term Debt/Total Debt Leverage Debt/Net Fixed Assets Debt/TNW Leverage 1% 0% 29% 0% Leverage Leverage Return on Sales Return on Assets Operating Margin Return on Equity Performance Performance Performance Performance 1% 0% 14% 31% Total 100% 1 8 ERCOT Public
Credit Scoring Model Parameters MISO-based model weightings, calibrated using 2019 financial data. Quantitative Ratios Non-Public Quantitative Ratios Public Ratio Type Liquidity Liquidity Liquidity Liquidity Leverage Weight Ratio Weight EBITDA/Interest expense Cash Earnings/Debt Service Free Cash flow/Total Debt Quick Ratio Debt/Total Capitalization Short Term Debt/Total Debt Leverage Debt/Net Fixed Assets Debt/TNW Return on Sales Return on Assets Operating Margin Return on Equity 0% 0% 28% 0% 32% 0% 0% 6% 3% 0% 31% 0% 100% Days Cash/SGA+Interest Expense Debt Service Coverage Equity/Total Assets Times Interest Earned Cash/Current Liabilities CFFO/Total Debt Capex/Sales Total 0% 0% 47% 53% 0% 0% 0% 100% Leverage Leverage Performance Performance Performance Performance Total 1 9 ERCOT Public
Credit Scoring Model Parameters MISO-based model ratio bounds. Non-Public Power Public Power Ratio Category Liquidity Liquidity Liquidity Liquidity Min Max Ratio Min Min EBITDA/Interest expense Cash Earnings/Debt Service Free Cash flow/Total Debt Quick Ratio - - - - 9.00 8.00 0.50 1.25 Days Cash/SGA+Interest Expense Debt Service Coverage Equity/Total Assets Times Interest Earned Cash/Current Liabilities CFFO/Total Debt Capex/Sales - 143.89 0.03 2.05 677 1.80 0.83 2.00 0.01 0.01 0.66 0.01 0.01 0.01 Debt/Total Capitalization Short Term Debt/Total Debt Leverage Debt/Net Fixed Assets Debt/TNW Leverage 0.01 0.01 0.01 0.01 0.70 1.00 2.00 12.99 Leverage Leverage Return on Sales Return on Assets Operating Margin Return on Equity Performance Performance Performance Performance NA 0.01 0.01 0.01 16.00 6.00 30.00 15.00 2 0 ERCOT Public
Credit Scoring Model Parameters ERCOT financial scoring model 2 1 ERCOT Public
Credit Scoring Model Parameters ERCOT model score results by segment: 2018 financial data Load + Gen Load Trader Gen CRRAH All Count Average Median Min (worst) Max (best) Stdev. Skewness 33 128 3.69 3.30 0.61 6.86 1.95 0.26 30 32 30 253 3.14 2.44 0.05 6.86 1.71 0.83 2.42 2.20 0.93 5.79 1.15 1.70 2.26 2.20 1.17 5.00 0.75 2.29 2.49 2.58 0.05 5.48 1.03 0.53 3.18 2.46 1.43 6.60 1.51 1.04 Note that higher scores indicate higher credit quality. Scores can be duplicated when different CPs have same guarantor. 2 2 ERCOT Public
Credit Scoring Model Parameters ERCOT model score results by segment: 2019 financial data, calibrated using 2018 financial data Load + Gen Load Trader Gen CRRAH All Count Average Median Min (worst) Max (best) Stdev. Skewness 32 130 6.08 6.01 1.18 10.00 2.12 0.13 33 34 33 262 5.22 4.44 1.02 10.00 1.93 0.81 4.24 4.05 1.39 8.06 1.26 0.94 4.40 4.25 3.59 5.69 0.55 0.83 4.13 4.15 1.02 6.81 1.00 -0.20 4.70 4.00 2.48 10.00 1.73 1.51 Note that higher scores indicate higher credit quality. Scores can be duplicated when different CPs have same guarantor. 2 3 ERCOT Public
Credit Scoring Model Parameters ERCOT model score results by segment: 2019 financial data, calibrated using 2019 financial data Load + Gen Load Trader Gen CRRAH All Count Average Median Min (worst) Max (best) Stdev. Skewness 32 130 5.53 6.59 0.31 10.00 3.44 -0.12 33 34 33 262 4.00 2.21 0.31 10.00 3.24 0.73 2.85 1.48 0.41 10.00 2.62 1.70 1.83 1.48 0.89 4.77 0.85 1.57 2.05 1.59 0.89 5.91 1.29 1.73 3.32 1.80 0.98 10.00 2.83 1.33 Note that higher scores indicate higher credit quality. Scores can be duplicated when different CPs have same guarantor. 2 4 ERCOT Public
Credit Scoring Model Parameters ERCOT Model Results Comparison 120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 2018 data 2019 data calibrated on 2018 2019 data calibrated on 2019 2 5 ERCOT Public
Credit Scoring Model Parameters ERCOT model weightings calibrated using 2018 financial data. Ratio Working Capital/Sales Cash/Assets Current Ratio EBITDA/Interest expense Debt Service CFO/Sales FCF/Debt Total Debt/Total Capital Leverage Equity/Assets EBITDA/Sales Net Income/Assets Total Assets Tangible Net Worth Sales/Assets Alternative Metric 1 Alternative Metric 2 Category Liquidity Liquidity Liquidity Weight 0% 0% 40% 8% 0% 0% 16% 6% 20% 10% 0% 0% 0% 0% 0% 100% Debt Service Debt Service Leverage Profitability Profitability Size Size Activity Total 2 6 ERCOT Public
Credit Scoring Model Parameters ERCOT model weightings calibrated using 2019 financial data. Ratio Working Capital/Sales Cash/Assets Current Ratio EBITDA/Interest expense Debt Service CFO/Sales FCF/Debt Total Debt/Total Capital Leverage Equity/Assets EBITDA/Sales Net Income/Assets Total Assets Tangible Net Worth Sales/Assets Alternative Metric 1 Alternative Metric 2 Category Liquidity Liquidity Liquidity Weight 8% 19% 58% 0% 0% 0% 0% 12% 4% 0% 0% 0% 0% 0% 0% 100% Debt Service Debt Service Leverage Profitability Profitability Size Size Activity Total 2 7 ERCOT Public
Credit Scoring Model Parameters ERCOT model ratio bounds Ratio Working Capital/Sales Cash/Assets Current Ratio EBITDA/Interest expense Debt Service CFO/Sales FCF/Debt Total Debt/Total Capital Leverage Equity/Assets EBITDA/Sales Net Income/Assets Total Assets Tangible Net Worth Sales/Assets Category Liquidity Liquidity Liquidity Min Max (5.00) 5.00 (10.00) (5.00) - 10.00 10.00 5.00 Debt Service Debt Service Leverage Profitability Profitability Size Size Activity (1.00) NA NA NA NA 2.00 2 8 ERCOT Public
Credit Scoring Model Parameters Discussion / next steps 2 9 ERCOT Public
