Credit Exposure Analysis with ICE Prices Suggested Methodology Overview
Dive into the methodology of credit exposure analysis using ICE prices, including data inputs, assumptions, limitations, and forward adjustment factors. Learn how to calculate projected forward prices and apply adjustment factors to manage credit exposure effectively.
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Credit Exposure Analysis using ICE Prices Suresh Pabbisetty, FRM, ERP, CQF, CSQA. Lead Technical Analyst, Credit May 18, 2016
Agenda Suggested Methodology Options considered Credit Exposure Analysis Data Inputs & Transformations Assumptions & Limitations Results Forward Adjustment Factors Market-wide Exposure Summary Generation-Only Exposure Summary Load-Only Exposure Summary Load & Generation Exposure Summary Trader-Only Exposure Summary
Credit Exposure Analysis using ICE Prices Suggested Methodology 3 PUBLIC
Credit Exposure Analysis 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 4 PUBLIC
Credit Exposure Analysis 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 DASPP of 7 DAM settled operating days) apply DFAF to DALE 5 PUBLIC
Credit Exposure Analysis using ICE Prices Suggested Methodology Options considered: Option 1: PFDAP using 14 forward days ICE price average look back for finding Maximum RTLE Option 2: PFDAP using 21 forward days ICE price average look back for finding Maximum RTLE Option 3: PFDAP using 14 forward days ICE price average No look back for finding Maximum RTLE Option 4: PFDAP using 21 forward days ICE price average No look back for finding Maximum RTLE 6 PUBLIC
Credit Exposure Analysis using ICE Prices Assumptions & Limitations 7 PUBLIC
Credit Exposure Analysis using ICE Prices Assumptions & Limitations: North Hub Price is a representation of Market wide price movements Very minimal testing/validation has been performed due to time and resource constraints. Results shall be viewed as indicative only. 8 PUBLIC
Credit Exposure Analysis using ICE Prices Data Inputs & Transformations 9 PUBLIC
Credit Exposure Analysis using ICE Prices Data Inputs & 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 Nov 2012 through Mar 2016 Daily Average Price is calculated as (16 * Peak Price + 8 * Off-peak Price)/24 North Hub RTSPP and DASPP from early Nov 2012 through Mar 2016 Daily Average Price is calculated using simple average of all interval RTSPPs in an Operating Day Daily Average Price is calculated using simple average of all interval DASPPs in an Operating Day 1 0 PUBLIC
Credit Exposure Analysis using ICE Prices Data Inputs & Transformations : Counter-Parties participation and their representation of QSEs and or CRR Account Holders could change from time to time A snapshot Counter-Parties information is taken as of March 24th, 2016 and used for the overall analysis MCE was implemented in Nov 2012 As the suggested methodology includes applying RFAF to MCE also, the period used for analysis starts from Nov 2012 Other Exposure Components Suggested methodology has changes to only MCE, RTLE and DALE, hence all the other exposure components used were as calculated/adjusted with respect to corresponding historical business date 1 1 PUBLIC
Credit Exposure Analysis using ICE Prices Results Forward Adjustment Factors 1 2 PUBLIC
Credit Exposure Analysis using ICE Prices Results Forward Adjustment Factors: 1 3 PUBLIC
Credit Exposure Analysis using ICE Prices Results RFAF (RTM Forward Adjustment Factor): 1 4 PUBLIC
Credit Exposure Analysis using ICE Prices Results DFAF (DAM Forward Adjustment Factor): 1 5 PUBLIC
Credit Exposure Analysis using ICE Prices Results Forward Adjustment Factor Summary: Average Forward Adjustment Factors are less than 1 This implies a reduction in aggregate market exposure Forward Adjustment Factors Summary RFAF_14 Days RFAF_21 Days DFAF_14 Days DFAF_21 Days Statistic Average Std. Dev Relative Variability (Std Dev / Mean) 0.984137 0.950477 0.940126 0.907914 0.262653 0.230988 0.225186 0.196228 27% 24% 24% 22% 1 6 PUBLIC
Credit Exposure Analysis using ICE Prices Results Market-wide Exposure Summary 1 7 PUBLIC
Credit Exposure Analysis using ICE Prices Results Exposure Summary: 1 8 PUBLIC
Credit Exposure Analysis using ICE Prices Results Monthly Average Exposure: 1 9 PUBLIC
Credit Exposure Analysis using ICE Prices Results Market-wide Exposure options descriptive statistics: Average exposure under all proposed options is significantly lower There is high correlation between exposure under proposed options to exposure under current protocols Relative Variability is similar across all options Statistic TPE per prtocols TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Correlation with TPE per protocols Mean Std Dev Relative Variability (Std Dev / Mean) 87% $383 $126 88% $378 $125 86% $342 $116 87% $338 $115 $409 $143 35% 33% 33% 34% 34% 2 0 PUBLIC
Credit Exposure Analysis using ICE Prices Results Average Market-wide Aggregate Exposure by Category: Average Market-wide Aggregate Exposure (in millions) by Category Category TPE per prtocols TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Load-Only Generation-Only Load & Generation Trader Only All Categories Combined $31 $22 $255 $100 $27 $22 $239 $96 $26 $22 $235 $95 $24 $20 $215 $83 $23 $20 $212 $83 $409 $383 $378 $342 $338 2 1 PUBLIC
Credit Exposure Analysis using ICE Prices Results Change in Average Market-wide Aggregate Exposure by Category: Change in Average Market-wide Aggregate Exposure (in millions) by Category Category TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Load-Only Generation-Only Load & Generation Trader Only All Categories Combined -$4 -$1 -$16 -$5 -$5 -$1 -$20 -$5 -$7 -$2 -$41 -$17 -$8 -$2 -$44 -$17 -$26 -$31 -$67 -$71 2 2 PUBLIC
Credit Exposure Analysis using ICE Prices Results Percentage Change in Average Market-wide Aggregate Exposure by Category: Exposure under any of the proposed scenarios is significantly lower Percentage change in Average Market-wide Aggregate Exposure by Category TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Load-Only Generation-Only Load & Generation Trader Only All Categories Combined -13% -2% -6% -5% -15% -3% -8% -5% -23% -9% -16% -17% -24% -10% -17% -17% -6% -8% -16% -17% 2 3 PUBLIC
Credit Exposure Analysis using ICE Prices Results Generation-Only Exposure Summary 2 4 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Generation-Only Exposure Summary 2 5 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Generation-Only Exposure options descriptive statistics: Average exposure under all proposed options is significantly lower There is high correlation between exposure under proposed options to exposure under current protocols Relative Variability is similar across all options Comparison of Generation-Only Aggregate Exposure (in millions) Statistic TPE per prtocols TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Correlation with TPE per protocols Mean Std Dev Relative Variability (Std Dev / Mean) 99% $22 $14 99% $22 $14 98% $20 $13 98% $20 $13 $22 $15 65% 65% 65% 64% 65% 2 6 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Generation-Only Exposure options descriptive statistics: On average there is a reduction of $1 million to $2 million in Generation-Only aggregate exposure Change in Generation-Only Aggregate Exposure (in millions) Statistic TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Average -$1 -$1 -$2 -$2 2 7 PUBLIC
Credit Exposure Analysis using ICE Prices Results Load-Only Exposure Summary 2 8 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Load-Only Exposure Summary 2 9 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Load-Only Exposure options descriptive statistics: Average exposure under all proposed options is significantly lower There is high correlation between exposure under proposed options to exposure under current protocols Relative Variability is similar across all options Comparison of Load-Only Aggregate Exposure (in millions) Statistic TPE per prtocols TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Correlation with TPE per protocols Mean Std Dev Relative Variability (Std Dev / Mean) 72% $27 $12 74% $26 $12 71% $24 $11 73% $23 $11 $31 $17 55% 44% 44% 46% 46% 3 0 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Load-Only Exposure options descriptive statistics: On average there is a reduction of $4 million to $8 million in Load- Only aggregate exposure Change in Load-Only Aggregate Exposure (in millions) Statistic TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Average -$4 -$5 -$7 -$8 3 1 PUBLIC
Credit Exposure Analysis using ICE Prices Results Load & Generation Exposure Summary 3 2 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Load & Generation Exposure Summary 3 3 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Load & Generation Exposure options descriptive statistics: Average exposure under all proposed options is significantly lower There is high correlation between exposure under proposed options to exposure under current protocols Relative Variability is similar across all options Comparison of Load & Generation Aggregate Exposure (in millions) Statistic TPE per prtocols TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Correlation with TPE per protocols Mean Std Dev Relative Variability (Std Dev / Mean) 84% $239 $80 85% $235 $80 83% $215 $76 85% $212 $75 $255 $89 35% 34% 34% 35% 36% 3 4 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Load & Generation Exposure options descriptive statistics: On average there is a reduction of $16 million to $44 million in Load & Generation aggregate exposure Change in Load & Generation Aggregate Exposure (in millions) Statistic TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Average -$16 -$20 -$41 -$44 3 5 PUBLIC
Credit Exposure Analysis using ICE Prices Results Trader-Only Exposure Summary 3 6 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Trader-Only Exposure Summary 3 7 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Trader-Only Exposure options descriptive statistics: Average exposure under all proposed options is significantly lower There is high correlation between exposure under proposed options to exposure under current protocols Relative Variability is similar across all options Comparison of Trader-Only Aggregate Exposure (in millions) Statistic TPE per prtocols TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Correlation with TPE per protocols Mean Std Dev Relative Variability (Std Dev / Mean) 95% $96 $31 95% $95 $31 93% $83 $26 93% $83 $26 $100 $34 34% 32% 32% 31% 31% 3 8 PUBLIC
Credit Exposure Analysis using ICE Prices Results: Trader-Only Exposure options descriptive statistics: On average there is a reduction of $5 million to $17 million in Load- Only aggregate exposure Change inTrader-Only Aggregate Exposure (in millions) Statistic TPE with RTLE lookback and 14 days average TPE with RTLE lookback and 21 days average TPE without RTLE lookback and 14 days average TPE without RTLE lookback and 21 days average Average -$5 -$5 -$17 -$17 3 9 PUBLIC
Credit Exposure Analysis using ICE Prices Questions 4 0 PUBLIC
