ERCOT Summer Preparedness Update
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RMS
April 3, 2018
ERCOT Public
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Impact of NPRR 800, Revisions to Credit Exposure
Calculations to Use Electricity Futures Market Prices
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Potential impact of Letter of Credit issuer limits
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Recap of default / Mass Transition processes
Note that ERCOT anticipates holding a Summer preparedness communications
workshop on Thursday, May 17, 2018. ERCOT expects to issue additional
communications informational material for Market Participants prior to that time.
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Impact of NPRR 800, Revisions to Credit Exposure
Calculations to Use Electricity Futures Market Prices
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Potential impact of Letter of Credit issuer limits
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Recap of default / Mass Transition processes
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NPRR 800, Revisions to Credit Exposure Calculations to Use Electricity
Futures Market Prices, was implemented along with three other NPRRs on
February 7, 2018. NPRR 800 represents a fundamental revision in ERCOT
credit exposure calculations.
•
Real-Time and Day-Ahead components of the credit exposure calculation are
adjusted by the ratio of ICE forward ERCOT North Hub prices to lagging
actual settled prices.
•
Therefore, a large increase in ICE prices will be reflected in increased credit
requirements.
•
Forward prices are incorporated on a rolling forward 21-day horizon.
Market Participants should be aware that credit requirements may increase
rapidly in high forward price environments and maintain appropriate collateral
accordingly.
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Day-Ahead Forward Adjustment Factor (DFAF)
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DFAF is calculated using 21 days of ICE future prices and 7 days of ERCOT
Day Ahead Settled Prices for HB_NORTH settlement point
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Real-Time Forward Adjustment Factor (RFAF)
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RFAF is calculated using 21 days of ICE future prices and 14 days of
ERCOT Real Time Settled Prices for HB_NORTH settlement point
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August ICE forward price evolution for weekdays and weekends.
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Impact of NPRR 800, Revisions to Credit Exposure
Calculations to Use Electricity Futures Market Prices
•
Potential impact of Letter of Credit issuer limits
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Recap of default / Mass Transition processes
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Protocol Section 16.11.2, Requirements for Setting a Counter-
Party’s Unsecured Credit Limit, incorporates letter of credit (LC)
issuer limits determined by the long-term issuer rating and the
Tangible Net Worth of the issuer.
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LC issuer limits are determined based on the issuing bank’s credit
rating and tangible net worth, with an overall cap of $750m.
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Per Protocol Section 16.11.3(1)(b)(iii), if an issuer limit is breached
ERCOT will notify affected Counter-Parties and no new letters of
credit from the issuer will be accepted. After four months of the limit
in breach, ERCOT will no longer accept either new letters of credit
or amendments to existing letters of credit from the issuer.
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ERCOT encourages Counter-Parties to ensure that they have
sufficient collateral funding in the event of materially higher credit
exposures during the summer.
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Outstanding Letter of
Credit Issuer Limits as
of March 26, 2018
Report available at:
http://mis.ercot.com/misapp/GetReports.do?reportTypeId=13218&reportTitle=The%20Letter%20of%20Credit%20Concentrati
on%20Limits%20Report&showHTMLView=&mimicKey
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Impact of NPRR 800, Revisions to Credit Exposure
Calculations to Use Electricity Futures Market Prices
•
Potential impact of Letter of Credit issuer limits
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Recap of default / Mass Transition processes
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If an invoice is not paid ERCOT will look first to available cash collateral
and withhold payments to the QSE before short-paying the market
(§9.19).
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Payment Breach is a default under the Standard Form Agreement unless
cured within one Bank Business Day after notification from ERCOT
(§16.11.6). Note that liquidation of non-cash collateral may require more
than one Bank Business Day.
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Collateral calls are due by:
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15:00 on the second Bank Business Day from Notice if ERCOT delivered Notice before
1500
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17:00 on the second Bank Business Day from Notice if ERCOT delivered Notice
between 15:00 and 17:00 (§16.11.5(6)).
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Upon Breach ERCOT issues a Breach Notice allowing one Bank
Business Day to cure (SFA §8.A(1))
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If applicable, a Mass Transition begins at this point.
Default timeline
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Notification Day (pre-Launch stage) has historically followed immediately
upon termination of the REP’s SFA. This is a collaboration between
PUCT Staff and ERCOT.
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Mass Transition processes are addressed in Retail Market Guide §7.11.1,
Retail Market Guide Section 9 Appendices F1-F3, Protocol Section
15.1.3.1, and PUCT Rules.
•
Note that Protocol Section 1.3.1.1, Items Considered Protected
Information, includes
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(h)
Raw and Adjusted Metered Load (AML) data (demand and energy)
identifiable to:
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(i)
A specific QSE or Load Serving Entity (LSE). The Protected Information status of this information
shall expire 180 days after the applicable Operating Day; or
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(ii)
A specific Customer or Electric Service Identifier (ESI ID);
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(k)
Number of ESI IDs identifiable to a specific LSE. The Protected Information
status of this information shall expire 365 days after the applicable Operating Day;
Default timeline
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Sample Mass Transition timeline
CR = Competitive Retailer
TDSP = Transmission and/or Distribution Service Provider
POLR = Provider of Last Resort
ESI ID = Electric Service Identifier
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As part of summer preparations, ERCOT is planning to conduct a
default / Mass Transition drill prior to the summer. As feasible
ERCOT staff may be reaching out to selected Market Participants
to participate. The date and scope for a potential drill have not yet
been finalized.
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Questions
This update covers the impact of NPRR 800 on credit exposure calculations, adjustments to use electricity futures market prices, and potential impacts on credit requirements. ERCOT has also announced a workshop on May 17, 2018, for market participants to discuss summer preparedness. Learn about Day-Ahead Forward Adjustment Factors, Real-Time Forward Adjustment Factors, ICE Forward Curves, and more.
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Presentation Transcript
Summer Preparedness RMS April 3, 2018 ERCOT Public
Summer Preparedness Impact of NPRR 800, Revisions to Credit Exposure Calculations to Use Electricity Futures Market Prices Potential impact of Letter of Credit issuer limits Recap of default / Mass Transition processes Note that ERCOT anticipates holding a Summer preparedness communications workshop on Thursday, May 17, 2018. ERCOT expects to issue additional communications informational material for Market Participants prior to that time. ERCOT Public 2
Summer Preparedness Impact of NPRR 800, Revisions to Credit Exposure Calculations to Use Electricity Futures Market Prices Potential impact of Letter of Credit issuer limits Recap of default / Mass Transition processes ERCOT Public 3
Impact of NPRR 800 NPRR 800, Revisions to Credit Exposure Calculations to Use Electricity Futures Market Prices, was implemented along with three other NPRRs on February 7, 2018. NPRR 800 represents a fundamental revision in ERCOT credit exposure calculations. Real-Time and Day-Ahead components of the credit exposure calculation are adjusted by the ratio of ICE forward ERCOT North Hub prices to lagging actual settled prices. Therefore, a large increase in ICE prices will be reflected in increased credit requirements. Forward prices are incorporated on a rolling forward 21-day horizon. Market Participants should be aware that credit requirements may increase rapidly in high forward price environments and maintain appropriate collateral accordingly. ERCOT Public 4
Impact of NPRR 800 Day-Ahead Forward Adjustment Factor (DFAF) DFAF is calculated using 21 days of ICE future prices and 7 days of ERCOT Day Ahead Settled Prices for HB_NORTH settlement point ERCOT Public 5
Impact of NPRR 800 Real-Time Forward Adjustment Factor (RFAF) RFAF is calculated using 21 days of ICE future prices and 14 days of ERCOT Real Time Settled Prices for HB_NORTH settlement point ERCOT Public 6
ICE Forward Curves April August 2018 ERCOT Public 7
ICE Forward Curves April August 2018 August ICE forward price evolution for weekdays and weekends. ERCOT Public 8
Summer Preparedness Impact of NPRR 800, Revisions to Credit Exposure Calculations to Use Electricity Futures Market Prices Potential impact of Letter of Credit issuer limits Recap of default / Mass Transition processes ERCOT Public 9
Letter of Credit Issuer Limits Protocol Section 16.11.2, Requirements for Setting a Counter- Party s Unsecured Credit Limit, incorporates letter of credit (LC) issuer limits determined by the long-term issuer rating and the Tangible Net Worth of the issuer. LC issuer limits are determined based on the issuing bank s credit rating and tangible net worth, with an overall cap of $750m. Per Protocol Section 16.11.3(1)(b)(iii), if an issuer limit is breached ERCOT will notify affected Counter-Parties and no new letters of credit from the issuer will be accepted. After four months of the limit in breach, ERCOT will no longer accept either new letters of credit or amendments to existing letters of credit from the issuer. ERCOT encourages Counter-Parties to ensure that they have sufficient collateral funding in the event of materially higher credit exposures during the summer. 1 0 ERCOT Public
Letter of Credit Issuer Limits Unused Capacity basedon TangibleNet Worth ($m) IssuerLimits basedon TangibleNet Worth ($m) Outstanding Letter of Credit Issuer Limits as of March 26, 2018 TotalLC AmountsPer Issuer ($m) %Unused / Total Issuer Limit Issuer_Name Barclays Bank PLC $556.31 $161.00 $395.31 71% DNB Bank ASA $162.15 $150.00 $12.15 7% Bank of Tokyo-Mitsubishi UFJ, Ltd. New York Branch Societe Generale $750.00 $147.22 $602.78 80% $440.61 $97.00 $343.61 78% Natixis $122.54 $96.50 $26.03 21% Lloyds Bank PLC $472.13 $85.80 $386.33 82% BNP Paribas $735.85 $66.15 $669.70 91% Bank of America NA $750.00 $65.90 $684.10 91% Mizuho Corporate Bank Ltd. $462.01 $51.05 $410.96 89% Wells Fargo $750.00 $47.80 $702.20 94% PNC Bank NA $211.59 $41.00 $170.59 81% CoBank ACB $72.88 $35.00 $37.88 52% Credit Suisse AG $268.73 $30.60 $238.12 89% Bank of Nova Scotia $263.25 $22.55 $240.70 91% Citibank NA $750.00 $20.00 $730.00 97% Canadian Imperial Bank $130.89 $17.64 $113.26 87% KeyBank National Association(FI) $86.93 $15.00 $71.93 83% Toronto-Dominion Bank, The (FI) $365.34 $10.00 $355.34 97% MUFG Union Bank N.A. $100.15 $8.00 $92.15 92% Comerica Bank $50.96 $2.00 $48.96 96% Sumitomo Mitsui Banking Corporation. $516.72 $1.90 $514.82 100% Morgan Stanley Bank, N.A.(FI) $106.04 $0.50 $105.54 100% Cooperatieve Rabobank U.A. $385.04 $0.20 $384.84 100% BOKF NA(FI) $17.47 $0.20 $17.27 99% Report available at: http://mis.ercot.com/misapp/GetReports.do?reportTypeId=13218&reportTitle=The%20Letter%20of%20Credit%20Concentrati on%20Limits%20Report&showHTMLView=&mimicKey 1 1 ERCOT Public
Summer Preparedness Impact of NPRR 800, Revisions to Credit Exposure Calculations to Use Electricity Futures Market Prices Potential impact of Letter of Credit issuer limits Recap of default / Mass Transition processes 1 2 ERCOT Public
Default and Mass Transition Default timeline If an invoice is not paid ERCOT will look first to available cash collateral and withhold payments to the QSE before short-paying the market ( 9.19). Payment Breach is a default under the Standard Form Agreement unless cured within one Bank Business Day after notification from ERCOT ( 16.11.6). Note that liquidation of non-cash collateral may require more than one Bank Business Day. Collateral calls are due by: 15:00 on the second Bank Business Day from Notice if ERCOT delivered Notice before 1500 17:00 on the second Bank Business Day from Notice if ERCOT delivered Notice between 15:00 and 17:00 ( 16.11.5(6)). Upon Breach ERCOT issues a Breach Notice allowing one Bank Business Day to cure (SFA 8.A(1)) If applicable, a Mass Transition begins at this point. 1 3 ERCOT Public
Default and Mass Transition Default timeline Notification Day (pre-Launch stage) has historically followed immediately upon termination of the REP s SFA. This is a collaboration between PUCT Staff and ERCOT. Mass Transition processes are addressed in Retail Market Guide 7.11.1, Retail Market Guide Section 9 Appendices F1-F3, Protocol Section 15.1.3.1, and PUCT Rules. Note that Protocol Section 1.3.1.1, Items Considered Protected Information, includes (h) Raw and Adjusted Metered Load (AML) data (demand and energy) identifiable to: (i) A specific QSE or Load Serving Entity (LSE). The Protected Information status of this information shall expire 180 days after the applicable Operating Day; or (ii) A specific Customer or Electric Service Identifier (ESI ID); (k) Number of ESI IDs identifiable to a specific LSE. The Protected Information status of this information shall expire 365 days after the applicable Operating Day; 1 4 ERCOT Public
Default and Mass Transition Sample Mass Transition timeline CR = Competitive Retailer TDSP = Transmission and/or Distribution Service Provider POLR = Provider of Last Resort ESI ID = Electric Service Identifier Initial Notification E-mail Sent Before 1500 Default confirmed by ERCOT legal Initial Notification e-mail sent before 1500 Initial Market Call will be scheduled no later than 1800 on Day 0 Mass Transition process: ESI ID allocation 814_03s flow requesting second calendar day. ESI ID lists for POLRs and/or Designated CRs and affected TDSPs are generated. ERCOT requests Customer billing Contact Information. Market Status Call 867_02s from TDSP to ERCOT. 814_04s from TDSP to ERCOT. 814_11s from ERCOT to Losing CR. 814_14s from ERCOT to POLR and/or Designated CRs. Customer billing information sent by ERCOT to POLR and/or Designated CRs and affected TDSP(s). Market Status Call TDSP sends to ERCOT Final 867_03s (for calendar day 2) and ERCOT forwards to Losing CR. TDSP sends 867_04s (for calendar day 2) to ERCOT and ERCOT forwards to POLR and/or Designated CRs. ESI ID(s) - Mass Transition completes at ERCOT. Transition Date Market Status Call TDSP performs meter reads (actuals or estimates) for Self-Selected Switch requested date. 1 2 3 4 5 Day 0 Customer transition should be completed in no more than five calendar days. 1 5 ERCOT Public
Default and Mass Transition As part of summer preparations, ERCOT is planning to conduct a default / Mass Transition drill prior to the summer. As feasible ERCOT staff may be reaching out to selected Market Participants to participate. The date and scope for a potential drill have not yet been finalized. 1 6 ERCOT Public
Summer Preparedness Questions 1 7 ERCOT Public
