Credit Exposure Analysis Plan using ICE Prices - Hub Price Correlations
Explore the credit exposure analysis plan using ICE prices, focusing on hub price correlations to understand market-wide price movements. ERCOT has conducted correlations among hubs at hourly and daily average granularity from December 1st, 2010, to March 3rd, 2016. Results show high correlations, with slightly better outcomes at daily granularity due to averaging effects.
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Presentation Transcript
Credit Exposure Analysis Plan using ICE Prices Suresh Pabbisetty, FRM, ERP, CQF, CSQA. Lead Technical Analyst, Credit March 16, 2016
Agenda ERCOT Hub Price Correlations Suggested Methodology Further Analysis Plan
Credit Exposure Analysis Plan using ICE Prices Hub Price Correlations 3 PUBLIC
Credit Exposure Analysis Plan using ICE Prices Does North Hub Price indicate Market wide price movements? ERCOT has run correlations of RTSPP among hubs. Correlations are run at hourly and daily average granularity Prices from December 1st, 2010 through March 3rd, 2016 are used Correlations are presented in next slide Result Summary: Hourly average correlation range is 95% to 99% Daily average correlations range is 96% to 99% Correlations at daily granularity are slightly better due to dampening affect of averaging 4 PUBLIC
Credit Exposure Analysis Plan using ICE Prices Hourly Average Hub Price (RTSPP) Correlations: Hourly Correlation HB_BUSAVG HB_HUBAVG HB_WEST HB_SOUTH HB_HOUSTON HB_NORTH HB_BUSAVG HB_HUBAVG HB_WEST HB_SOUTH HB_HOUSTON HB_NORTH 100% 100% 100% 99% 99% 100% 99% 99% 97% 98% 98% 95% 100% 99% 99% 100% 98% 98% 100% 96% 100% Daily Average Hub Price (RTSPP) Correlations: Daily Correlations HB_BUSAVG HB_HUBAVG HB_WEST HB_SOUTH HB_HOUSTON HB_NORTH HB_BUSAVG HB_HUBAVG HB_WEST HB_SOUTH HB_HOUSTON HB_NORTH 100% 100% 100% 98% 99% 100% 99% 99% 97% 98% 99% 96% 100% 99% 98% 100% 98% 98% 100% 97% 100% 5 PUBLIC
Credit Exposure Analysis Plan using ICE Prices Suggested Methodology 6 PUBLIC
Credit Exposure Analysis Plan using ICE Prices Suggested methodology by CRIM to use ICE Futures prices: Utilize Daily Peak futures (END) and Daily Off-Peak futures (NED) contract prices from ICE for determining projected forward price Calculate daily average futures price as (16 * Peak price + 8* Off- peak price) / 24 with substitution of most recent price for missing prices Apply forward adjustment factors to MCE, RTLE and DALE Use weight factors for 3 forward weeks to determine the numerator of forward adjustment factor for MCE, RTLE and DALE Use 14 RTM settled operating days in the current calculation to determine denominator of forward adjustment factor for MCE and RTLE Use 7 DAM settled operating days in the current calculation to determine denominator of forward adjustment factor for DALE 7 PUBLIC
Credit Exposure Analysis Plan using ICE Prices Suggested Forward Adjustment Factor Calculations: Calculate PFDAP (Projected Forward Daily Average Price) as [FW1 * (ICE Average Price of Forward Week 1) + FW2 * (ICE Average Price of Forward Week 2) + FW3 * (ICE Average Price of Forward Week 3)] Calculate RFAF (Real Time Forward Adjustment Factor) as PFDAP / (North Hub RTSPP Average of 14 RTM settled operating days); apply RFAF to MCE and RTLE or MAXRTLE Calculate DFAF (Day Ahead Forward Adjustment Factor) as PFDAP / (North Hub DASP of 7 RTM settled operating days) apply DFAF to DALE 8 PUBLIC
Credit Exposure Analysis Plan using ICE Prices Further Analysis Plan 9 PUBLIC
Credit Exposure Analysis Plan using ICE Prices Further Analysis Plan: Compare aggregated market wide exposure of existing credit calculations to the following scenarios using ICE Futures prices: How many forward days should be used for averaging? Scenario 1: 14 days Scenario 2: 21 days Should RTLE look-back be continued? Scenario 1: with current look-back for RTLE to determine Maximum RTLE Scenario 2: without any look-back for RTLE 1 0 PUBLIC
Credit Exposure Analysis Plan using ICE Prices Questions 1 1 PUBLIC
