Update on Credit Finance Sub-Group Activities
The Credit Finance Sub-Group (CFSG) provided updates on recent meetings, voting matters, and NPRR reviews. Changes to the CFSG charter and discussion on letter of credit concentration limits were highlighted. The CFSG also voted to amend the group charter regarding TAC review requirements. Details on letter of credit discussions from November were shared, including issuer limits and unused capacity based on tangible net worth.
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Credit Finance Sub Group Update to the Technical Advisory Committee Brenden Sager, Austin Energy, Chair Loretto Martin, NRG, Vice Chair 24 January 2023 1
General Update General Update 19 January CFSG meeting Voting matters Operational NPRR s without credit impacts Change to CFSG charter Endorsement of NPRR 1205 Officers (same as 2023): Chair: Brenden Sager // Austin Energy Vice Chair: Loretto Martin // NRG-Reliant Discussion items EAL Change Proposals Letter of Credit Concentration limits Regular credit exposure updates
NPRR Reviewed NPRR Reviewed NPRR1170, Capturing Natural Gas Delivery Information for Natural Gas Generation Resources NPRR1179, Fuel Purchase Requirements for Resources Submitting RUC Fuel Costs NPRR1195, Resource Entity Metering Facilities Maintenance NPRR1206, Revisions to QSE Operations and Termination Requirements, and Elimination of Providing Certain Market Participant Principal Information NPRR1208, Creation of Invoice Report (initiated at CFSG from Vice Chair Loretto Martin, NRG/Reliant; endorsed by PRS on today s TAC ballot) NPRR1211, Move OBD to Section 22 Methodology for Setting Maximum Shadow Prices for Network and Power Balance Constraints NPRR1207, Incidental Disclosure of Protected Information and ECEII During ERCOT Control Room Tours NPRR1213, Allow DGRs and DESRs on Circuits Subject to Load Shed to Provide ECRS NPRR1210, Next Start Resource Test and Load-Carrying Test Frequency CFSG Review as operational without credit impacts
CFSG Change to Group Charter CFSG Change to Group Charter CFSG voted to remove the TAC annual review requirement of the CFSG charter. Going forward, TAC will approve any changes to the CFSG charter but is no longer required to review it each year. TAC is expected to vote on this change at the February meeting. 4
Letter of Credit Discussion from November Letter of Credit Discussion from November Issuer Limits based on Tangible Net Worth(US$) 228,846,942 $ 336,159,380 $ 86,909,848 $ 207,264,000 $ 480,291,951 $ 750,000,000 $ 559,046,851 $ 327,642,875 $ 750,000,000 $ 362,438,985 $ 13,159,965,524 $ Unused Capacity based on Tangible Net Worth(US$) (219,062,458) $ (63,840,621) $ 2,209,848 $ 21,163,998 $ 117,632,388 $ 186,437,989 $ 180,046,851 $ 117,171,736 $ 359,699,224 $ 202,437,978 $ 8,612,965,887 $ Total LC Amounts Per Issuer(US$) 447,909,400 $ 400,000,000 $ 84,700,000 $ 186,100,002 $ 362,659,563 $ 563,562,011 $ 379,000,000 $ 210,471,139 $ 390,300,776 $ 160,001,007 $ 4,546,999,637 $ Tangible Net Worth(US$) 28,605,867,700 $ 48,022,768,500 $ 10,224,688,000 $ 24,384,000,000 $ 64,038,926,800 $ 120,721,538,800 $ 65,770,217,758 $ 40,955,359,400 $ 128,401,000,000 $ 48,325,197,960 $ 1,854,928,001,308 $ Issuer Name Credit Agricole Corporate & Investment Bank SA (FI) BBVA(FI) CoBank ACB (FI) DNB Bank ASA (FI) Societe Generale (FI) BNP Paribas (FI) Royal Bank of Canada (FI) Lloyds Bank Corporate Markets PLC (FI) Wells Fargo (FI) Credit Suisse AG (FI) Totals Over CL 196% 119% 97% 90% 76% 75% 68% 64% 52% 44% 65%
CFSG January Discussion CFSG January Discussion Issuer Limits based on Tangible Net Worth(US$) 125,246,401 $ 327,642,875 $ 228,846,942 $ 336,159,380 $ 480,291,951 $ 750,000,000 $ 86,909,848 $ 607,291,592 $ 307,697,520 $ 362,438,985 $ 13,341,080,141 $ Unused Capacity based on Tangible Net Worth(US$) (132,583,863) $ (342,828,264) $ (158,062,458) $ (63,840,621) $ (90,667,612) $ (81,562,009) $ 1,509,848 $ 43,291,592 $ 28,697,520 $ 59,437,980 $ 5,648,591,982 $ Total LC Amounts Per Issuer(US$) 257,830,264 $ 670,471,139 $ 386,909,400 $ 400,000,000 $ 570,959,563 $ 831,562,009 $ 85,400,000 $ 564,000,000 $ 279,000,000 $ 303,001,005 $ 7,692,488,159 $ Tangible Net Worth(US$) 16,699,520,100 $ 40,955,359,400 $ 28,605,867,700 $ 48,022,768,500 $ 64,038,926,800 $ 120,721,538,800 $ 10,224,688,000 $ 71,446,069,601 $ 36,199,708,200 $ 48,325,197,960 $ 1,876,466,667,282 $ Issuer Name Natixis (FI) Lloyds Bank Corporate Markets PLC (FI) Credit Agricole Corporate & Investment Bank SA (FI) BBVA(FI) Societe Generale (FI) BNP Paribas (FI) CoBank ACB (FI) Royal Bank of Canada (FI) National Australia Bank Limited (FI) Credit Suisse AG (FI) Totals Over CL 206% 205% 169% 119% 119% 111% 98% 93% 91% 84% 42% ERCOT LC concentration limit report is published daily https://www.ercot.com/services/rq/credit As of 1/17/23, ERCOT has six banks currently in breach of Bank Issuer Credit Limits. BBVA hit the 120 day mark on 11/17/23. Overall, there are 38 banks with $13.3B total issuer limit, of which ERCOT received 321 LC s with aggregate total amount of $7.7B. This leaves 42% of aggregate issuer limit available.
CFSG Endorses NPRR 1205 // LCs CFSG Endorses NPRR 1205 // LC s Revisions to Credit Qualification Requirements of Banks and Insurance Companies submitted by ERCOT Credit in Oct 2023 Letters of credit must be issued by a bank or other financial institution that is acceptable to ERCOT, with a minimum rating of A- with S&P andor Fitch andor A3 with Moody s. No letters of credit will be accepted from banks which are rated below A- /A3 by one or more rating agencies. If there are split ratings amongst rating agencies, ERCOT will use the lowest of different ratings within the same rating agency and amongst different rating agencies. The ratings are defined as follows (if available): Long term issuer rating, Long term Senior Unsecured rating or Long Term Counterparty Risk Assessment (for Moody s). For U.S. offices of foreign banks, U.S. branch/office must have an acceptable rating on its own by at least one of the rating agencies. 7
CFSG Endorses NPRR 1205 // CFSG Endorses NPRR 1205 // Luminant Comments Luminant Comments If the issuing entity has Long-Term or Issuer Rating Then Maximum letter of credit issuer limit as a percentage of Tangible Net Worth of issuer S&P or Fitch Moody s AAA AA+ AA AA- A+ A A- Aaa Aa1 Aa2 Aa3 A1 A2 A3 1.002.00% 0.951.90% 0.901.80% 0.851.70% 0.801.60% 0.751.50% 0.701.40% Not accepted Below A- Below A3 8
CFSG Endorses NPRR 1205 // CFSG Endorses NPRR 1205 // Surety Bonds Surety Bonds Includes same A-/A3 requirement for bond issuers as LC s along with lower of language for split ratings Surety bonds are subject to a limit of $10 million per Counter-Party per insurer and an overall limit of $100 million per insurer for all ERCOT Counter-Parties. This overall limit is aggregated for the entire corporate family in case of multiple insurance companies belonging to the same corporate family. The surety bond must be issued by an insurance company with a minimum financial size category of XII as determined by AM Best. 9
EAL Changes and Analysis EAL Changes and Analysis DC and Rainbow requested changes to the Estimated Aggregate Liability report that represents parameters defining the CP s collateral obligation to ERCOT Members expressed desire to have settlement from RT and DA combined in the calculation Current forward adjustment factors apply separately to DA and RT Evaluating lookback period designed to protect against default mass transition Varies but can reflect up to 40 days of invoices and financial market activity Evaluating Forward Adjustment Factors (FAFs), ratios of future and past prices scaling invoices CFSG will continue to review EAL calculation methodology ERCOT Credit team is evaluating four scenarios and presenting these to CFSG in detail. Scenario 2 involves applying Forward Adjustment Factors against Real Time Liability and removing the Max function from the 40 day lookback period; Scenario 3 involves CP-level customized Forward Adjustment Factors based on a ratio of forward and settled prices Reviewed Scenario 1 at Jan 19 meeting 10
EAL Changes and Analysis // S1 EAL Changes and Analysis // S1 Applying single Forward Adjustment Factor to Net Forward Liability NLF = 1.5 x 7 most recent Operating days Real time estimates + 7 most recent DAM ODs day-ahead If settled data is available use settled, else estimates (no price cap) FAF = 21 future / most recent days 7 RTM Prices Denominator reduced from 14 days ULE = unbilled liability extrapolated (Last 14 days RTM Initial Statement Average + Last 14 days DAM Initial Statement Average based on RTM Initial OD) x M2 Use same RTM ODs for DAM as well
EAL Changes and Analysis // S1 EAL Changes and Analysis // S1 TPEA is driven mostly by Max NLE. Scenario #1 avoids the double top and provides a gradual increase in TPE in both coming into the high volatility period as well as coming out. The shape of the TPE graph is more gradual and does not have up & down feature of the current TPE formula. FAF is generally not as volatile as the existing RFAF. Thus, when applied against NLF it doesn t overtake Max NLE. ERCOT credit staff will continue to investigate and CFSG will review and discuss
M M- -A122123 A122123- -01 Payment Processing System 01 Payment Processing System On January 26, 2024, ERCOT will implement an automated payment processing system. Invoice Payment: Add the full invoice ID, alpha and numeric, in the remark/details of the wire. Invoice Payment: Must be received by 10:00AM on the day after the invoice was issued in order for the outstanding invoice amount to be excluded from the intra-day TPEA that is calculated in the afternoon. Do not pay WAN and ERO invoices into the Market Bank Account. Follow the instructions included on the WAN and ERO invoices. Cash Collateral Deposit: Add the Counter-Party number in the remark/details of the wire. Collateral Deposit for CRR auctions: Must be received by 3:00PM on the CRR lock date in order to be included in ACL for the CRR auction being initiated the same day. ERCOT will be making the following changes to its procedures: Reminder emails for non-payment will be sent earlier in the day, and again in the afternoon, if required. As a reminder, per Protocol Section 9.7.1, any payment not received by 5:00PM on its due date will be considered late. 13
Monthly Highlights November 2023 December 2023 Market-wide average Total Potential Exposure (TPE) increased from $1.29 billion in November 2023 to $1.33 billion in December 2023 TPE increased due to the higher forward adjustment factors in December Discretionary Collateral is defined as Secured Collateral in excess of TPE,CRR Locked ACL and DAM Exposure Average Discretionary Collateral decreased from $4.24 billion in November 2023 to $4.13 billion in December 2023 No unusual collateral call activity
Available Credit by Type Compared to Total Available Credit by Type Compared to Total Potential Exposure (TPE) YTD Dec 2023 Potential Exposure (TPE) YTD Dec 2023
