1

Draft NPRR – Revisions to Certain Price Components of EAL

CWG/MCWGERCOT PublicJanuary 22, 2014

2

Settlement Point Exposure

• Goal is to better shape exposure calculations to price risk.

• Focus of adjustments should be not just seasonality but:

– Forward-looking to the extent feasible (increase exposure headed into summer, reduce heading into autumn)

– Price adjustments specific to Counter-Party’s risk

– Transparent and replicable by Counter-Parties

– Parameterize constants to allow revisions without NPRRs

As reviewed in earlier CWG/MCWG meetings, ERCOT staff have been working to address market concerns over seasonality of prices.

The methodology included in the Settlement Point Exposure White Paper circulated to CWG/MCWG has been incorporated into a draft NPRR.

ERCOT Public

3

• Disaggregate RTLE and DALE exposure factors into energy and ancillary services components based on billing determinants.

• Disaggregate energy exposures into price and volume components.

• Energy volume components computed based on billing component values / applicable settlement point prices.

• Price components based on daily average historical prices for the settlement points at which the Counter-Party has exposure.

• For each settlement point, price based on historical prices looking back up to three years (consistent with NPRR484 approach).

• Compute prices as the P84 (~1 standard deviation) of average daily settlement point prices, measured over historic calendars three weeks forward and one week back from current date (weights for forward prices).

Draft NPRR methodology:

ERCOT Public

Settlement Point Exposure

4

• Replace existing 14-day averaging period in RTLE and URTA with M2 (10 days) to reflect RT settlement cycle.

• Redefines RTLF as FRTEU (Forward Real-Time Exposure Uninvoiced).

– Average estimated RTL for the most recent M2 days * M1

• Renames RTLE to FRTEI (Forward Real-Time Exposure Invoiced).

• Changes lookback periods to parameters to allow future revisions without an NPRR.

• Includes lookback period in DALE for Counter-Parties with no load or generation to parallel Real-Time calculation.

• Simplifies EAL calculation for clarity.

• Eliminates RTLEa , RTLCNSa and URTAa for CRRAHs. As these variables are defined they do not capture any values.

Draft NPRR methodology:

ERCOT Public

Settlement Point Exposure

5

TPEA and TPES

ERCOT Public

6

FRTEI

ERCOT Public

RTEE = Σ h Σ p [MAXRTNETEVA cp, p, cd, h

* RTSPPEST p, cd, h]

FRTEI = [RTEE cp, cd + RTASCOE cp, cd ]

* M1

FRTEI Calculation Summary

For CPs with no load and no gen,RTASCOE = cp, p, cd, h = Max of RTASCOESTA cp, p, cd, h over Lt daysFor CPs with either load or gen, RTASCOE = cp, p, cd, h = Max of RTASCOESTA cp, p, cd, h over Lq days

RTEE = Real Time Energy ExposureRTASCOE = Real Time Ancillary Services, CRR, and other exposureRTSPPEST = Real Time Settlement Point Price EstimateRTNETEVA = Real Time Net Energy Volume AverageRTEIDV = Real Time Energy Imbalance Derived VolumeRTDCTIEV = Real Time DC Tie Volume

RTSPPEST p, cd, h = Percentile prp of { (RTSPP p, od, i inclusive of RTRPA p, od, i) at Settlement Point p for the 15-minute interval i in an hour h of the Operating Day od, with the replacement of prices equal to the SWCAP as of od with the SWCAP as of cd for all od in ods}

For CPs with no load and no gen,MAXRTNETEVA cp, p, cd, h = Max of RTNETEVA cp, p, cd, h over Lt daysFor CPs with either load or gen, MAXRTNETEVA cp, p, cd, h = Max of RTNETEVA cp, p, cd, h over Lq days

RTNETEVA cp, p, cd, h = Arithmetic

average of RTNETEV cp, p, od, h over most recent M2 Operating Days with respect to Calculation Date cd

RTEIDV cp, p, od, h = Σ q Σ i [RTEIAMT q, p, od, h, i / RTSPP p, od, h, i]

RTDCTIEV cp, p, od, h = Σ q [RTDCEXP q, p, h - RTDCIMP q, p, h]

RTASCOESTA cp, p, od, h = Arithmetic average of RTASCOEST cp, p, od, h over most recent M2 Operating Days with respect to with respect to calculation date cd

od = Operating Datecp = Counter-Partyq = QSEh = operating hourI = 15 minute intervalK = Settlement Point / Sink Settlement PointJ = Source Settlement PointLq = lookback days Lt = lookback days for CPs with no load and no gen

RTNETEV cp, p, od, h = RTEIDV cp, p, od, h + RTDCTIEV cp, p, od, h

RTASCOEST cp, p, od, h = Σ q [RTM Statement Amount q, od] - Σ i Σ p [RTNETEV cp, p, od, i * RTSPP p, od, i]

RTM Statement

7

DALE

ERCOT Public

DAEE = Σ h Σ p [MAXDANETEVA cp, p, cd, h

* DASPPEST p, cd, h]

DALE = [DAEE cp, cd + DAASCOE cp, cd

] * M1

DALE Calculation Summary

For CPs with no load and no gen,DAASCOE = cp, p, cd, h = Max of DAASCOESTA cp, p, cd, h over Lt daysFor CPs with either load or gen, DAASCOE = cp, p, cd, h = DAASCOESTA cp, p, cd, h

DAEE = Day Ahead Energy ExposureDAASCOE = Day Ahead Ancillary Services, CRR, and other exposureDASPPEST = Day Ahead Settlement Point Price EstimateDANETEVA = Day Ahead Net Energy Volume Average

DASPPEST p, cd, h = Percentile prp of { (DASPP p, od, h)} at Settlement Point p for the hour h of the Operating Day for all od in ods}

For CPs with no load and no gen,MAXDANETEVA cp, p, cd, h = Max of DANETEVA cp, p, cd, h over Lt daysFor CPs with either load or gen, MAXDANETEVA cp, p, cd, h = DANETEVA cp, p, cd, h

DANETEVA cp, p, cd, h = Arithmetic

average of DANETEV cp, p, od, h over most recent M2 Operating Days with respect to Calculation Date cd

DAASCOESTA cp, p, od, h = Arithmetic average of DAASCOEST cp, p, od, h over most recent M2 Operating Days with respect to with respect to calculation date cd

od = Operating Datecp = Counter-PaDAyq = QSEh = operating hourK = Settlement Point / Sink Settlement PointJ = Source Settlement PointLq = lookback days Lt = lookback days for CPs with no load and no gen

DANETEV cp, p, od, h = DAEP q, p, od, h - DAES q, p, od, h + DADCIMP q, p, h - DADCEXP q, p, h

DAASCOEST cp, p, od, h = Σ q [DAM Statement Amount q, od] - Σ i Σ p [DANETEV cp, p, od, i * DASPP p, od, i]

DAM Statement

8ERCOT Public

Settlement Point Exposure

Questions