ICE Price Analysis for ERCOT Credit Risk Exposure
CWG/MCWG is exploring the use of ICE futures prices to assess ERCOT's credit risk exposure. This involves analyzing the relationship between ICE prices and actual RTM prices. The data inputs and transformations include calculations of daily average prices, logarithmic adjustments for linear regression, and predictions for future prices based on historical data. The analysis aims to provide insights into market-wide trends and the potential impact on ERCOT's operations.
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ICE Price Data Analysis CWG/MCWG Suresh Pabbisetty, CQF, ERP, CSQA. ERCOT Public January 20, 2016 1
ICE Price Analysis Background: CWG/MCWG is considering using ICE futures prices as an input to determine ERCOT s credit risk exposure ERCOT staff has been running a Capacity Forecast Model (CFM) since early 2015 to estimate Excess Reserves by Operating Hour CWG/MCWG has reviewed preliminary analysis results at their December 2015 meeting Additional analysis was requested to compare ICE prices to actual RTM prices to market-wide TPE Run descriptive statistics of relation between ICE prices to RTM prices 2 ERCOT Public
ICE Price Analysis Data Inputs and Transformations: ICE Futures prices pertaining to North HUB Settlement Point for Daily Peak (END) and Off-peak (NED) contracts ICE doesn t have new pricing information available on weekends and holidays. The most recent available price of the same contract is substituted if a price is missing ICE Prices from early January 2011 through mid-December 2015 Daily Average Price is calculated as (16 * Peak Price + 8 * Off-peak Price)/24 North HUB RTSPP from early January 2011 through mid- December 2015 Daily Average Price is calculated using simple average of all interval RTSPPs in an Operating Day 3 ERCOT Public
ICE Price Analysis Data Inputs and Transformations (continued): Capacity Forecast Model (CFM) Excess Reserves from mid- March 2015 through mid-December 2015 Prior tests of data indicated that relationship between CFM Excess Reserves and RTSPP is non-linear A logarithm is taken for both CFM Excess Reserves and RTSPP to allow linear regression. Regression is performed to the above mentioned to identify the linear relationship as; Log10(CFM Predicted Price) = (-0.6521)*Log10(CFM Excess Reserves) + 4.2027 A slope of -0.6521 indicates a negative correlation, so that 1 unit of increase in Log10(Excess Reserves) would result in a decrease of 0.6521 units to Log10(CFM Predicted Price). 4 ERCOT Public
ICE Price Analysis Data Inputs and Transformations (continued): CFM Predicted Prices are available only for 6 forward days. Most recently available (6th Day) Forward Price is used for 7th through 21st forward days Aggregated market-wide TPE from October 2012 through mid- December 2015 Forward Price Averages of 21 days, 15 days and 7 days are calculated and used for analysis purposes 5 ERCOT Public
ICE Price Analysis OFF1 P50 Excess Reserves to RTSPP regression by Hour: 6 ERCOT Public
ICE Price Analysis Price and TPE Comparison (2011 to 2015): 7 ERCOT Public
ICE Price Analysis Price Comparison (2011 to 2015): 8 ERCOT Public
ICE Price Analysis Price Comparison (2015): 9 ERCOT Public
ICE Price Analysis 21 Days Average Price Comparison (2015): 10 ERCOT Public
ICE Price Analysis 21 Days Average of ICE Price to RTSPP Correlation (2015): 11 ERCOT Public
ICE Price Analysis 21 Days Average of CFM Predicted Price to RTSPP Correlation (2015): 12 ERCOT Public
ICE Price Analysis 15 Days Average Price Comparison (2015): 13 ERCOT Public
ICE Price Analysis 15 Days Average of ICE Price to RTSPP Correlation (2015): 14 ERCOT Public
ICE Price Analysis 15 Days Average of CFM Predicted Price to RTSPP Correlation (2015): 15 ERCOT Public
ICE Price Analysis 7 Days Average Price Comparison (2015): 16 ERCOT Public
ICE Price Analysis 7 Days Average of ICE Price to RTSPP Correlation (2015): 17 ERCOT Public
ICE Price Analysis 7 Days Average of CFM Predicted Price to RTSPP Correlation (2015): 18 ERCOT Public
ICE Price Analysis Statistics of ICE Price Errors (Actual RTSPP ICE/CFM Price): 21 Days Average ICE Price Error 15 Days Average ICE Price Error 7 Days Average ICE Price Error Statistic Minimum Maximum Mean Standard Deviation -95.04 70.75 -1.47 11.65 -150.52 95.35 -1.49 14.18 -188.36 187.56 -2.03 19.17 19 ERCOT Public
ICE Price Analysis Statistics of CFM Predicted Price Errors (Actual RTSPP ICE/CFM Price) - continued: 21 Days Average CFM Price Error 15 Days Average CFM Price Error 7 Days Average CFM Price Error Statistic Minimum Maximum Mean Standard Deviation -8.54 14.34 1.70 3.79 -7.71 18.55 1.75 4.01 -67.08 11.03 -2.98 7.39 20 ERCOT Public
ICE Price Analysis R-Square Matrix: R-Square Matrix RTSPP (21 Days Average) RTSPP (15 Days Average) RTSPP (7 Days Average) Estimate ICE CFM 0.46 0.48 0.52 0.49 0.65 0.50 21 ERCOT Public
Questions 22 ERCOT Public
