Invoice Exposures Definitions and Current EAL Formula Analysis
This detailed analysis covers invoice exposures definitions, scenarios related to EAL formulas, and comparisons between current formulas and various scenarios. Explore the complexities of calculating invoice gaps, net liabilities, forward liabilities, and more in ERCOT markets.
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EAL Change Proposals Scenario #5B Sanchir Dashnyam ERCOT Market Credit Manager ERCOT Public August 21, 2024
Invoice Exposures Definitions Invoice exposures New M1 days forward invoices + 7 days look back actual invoices M1 days could range from 10 to 21 days depending on weekends/holidays, MP activity Invoices exclude M&N securitization invoices, CRR auction invoices, miscellaneous invoices relating to $2B distributed to market for Sec N on 6/21/22 Data is for a period covering 11/21/2021 through 4/30/2024 Excluded CARD invoices TPEA excludes Uri invoices, PUL uplift Excluded CARD credits from OUT TPEA Invoice exposures = Gap Negative gap is when invoice exposures exceed TPEA (less than -$10,000) Positive gap is when TPEA exceeds invoice exposures (more than $10,000) Independent amounts posted as a result of NPRR1165 are not included in these calculations. IA s are part of TPES. 2 ERCOT Public
Current EAL Formula vs. Scenarios #1, #1a and 1b Current: EAL q = Max [IEL during the first 40-day period only beginning on the date that the Counter-Party commences activity in ERCOT markets, RFAF * Max {RTLE during the previous lrq days}, RTLF] + DFAF * DALE + Max [RTLCNS, Max {URTA during the previous lrq days}] + OUT q + ILEq OUT q = OIA q + UDAA q + UFA q + UTA q + CARD* Scenario #1: EAL t = Max [RFAF * Max { RTNLE during the previous lrt days}, FAF*RTNLF] + DFAF * DALE + Max [RTLCNS NLCD, Max {ULERTA during the previous lrq days}] + OUT (included UDAA) Use same RTM ODs for DAM as well NLF = net liability forward = 1.5 * NLCD NLCD = (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 ULE = unbilled liability extrapolated (Last 14 days RTM Initial Statement Average + Last 14 days DAM Initial Statement Average based on RTM Initial OD)*M2 - use same RTM ODs for DAM as well NLE = Total net liability extrapolated (Last 14 days RTM Initial Statement Average + Last 14 days DAM Initial Statement Average based on RTM Initial OD)*M1. Scenario #1a: EAL = Max [RFAF * Max { RTNLE during the previous lrt days}, FAF*RTNLF] + DFAF * DALE + Max [RTLCNS (RTLCNS + UDAA), Max {ULERTA during the previous lrq days}] + OUT Scenario #1b EAL t = Max [RFAF * Max { RTNLE during the previous lrt days}, FAF*RTNLF] + DFAF * DALE + Max [RTLCNS NLCD, Max {ULERTA during the previous lrq days}] + OUT OUTt = OIA + UFA + UTA + CARD* (S1a and S1b excludes UDAA) * CARD not included in OUT/TPEA for this presentation 3 ERCOT Public
Scenarios #2, #3 and #4 Scenario #2*: EAL q = Max [IEL during the first 40-day period only beginning on the date that the Counter- Party commences activity in ERCOT markets, Max{(RFAF * Max {RTLE) during the previous lrq days}, RTLF] + DFAF * DALE + Max [RTLCNS, Max {URTA during the previous lrq days}] + OUT q + ILE q Scenario #3*: EAL q = Max [IEL during the first 40-day period only beginning on the date that the Counter- Party commences activity in ERCOT markets, RFAF * Max {RTLE during the previous lrq days}, RTLF] + DFAF * DALE + Max [RTLCNS, Max {URTA during the previous lrq days}] + OUT q + ILE q Two RFAF s: CP specific RFAF and Global RFAF CP specific RFAF = Projected Real-Time ICE Forward Average Price / Max RTLE date Historic Real-Time Settled Average Price Global RFAF is calculated based on existing methodology. Global RFAF is used in MCE calculations. Scenario #4*: Take Scenario #1a as a basis: EAL = Max [RFAF * Max { RTNLE*FAF during the previous lrt days}, FAF*RTNLF] + DFAF * DALE + Max [RTLCNS (RTLCNS + UDAA), Max {ULERTA during the previous lrq days}] + OUT Apply FAF against NLE, then take the Max and compare against FAF*NLF. Essentially combine Scenario #2 and Scenario #1 Establish a floor for FAF at 1 Increase MCE for load entities (2 days from 1 day) - FAF Revised * CARD not included in OUT/TPEA for this presentation 4 ERCOT Public
Scenario #5B Final proposal Scenario #5A: Take Scenario #4 as a basis: EAL = Max [RFAF * Max { RTNLE*RFAF during the previous lrq days}, FAF*RTNLF] + DFAF * DALE + Max [RTLCNS (RTLCNS + UDAA), Max {ULERTA during the previous lrq days}] + OUT* 1. RFAFi = 21-day future prices / 14 days RTM Prices corresponding to the 14 days in NLEi. Cap RFAF at 1.5. RFAF is applied against NLE. There is a floor for RFAF at 1.00. For each RFAF, we are using the corresponding Operating Day (and not Invoice Business Day) RTM settled prices, which match the respective operating Days in the NLE. 2. Apply FAF against NLF. FAF = 21-day future prices / 7 most recent days RTM Prices corresponding to the 7 days in NLF. Set a floor of 1 for FAF. 3. Strip out impact of CARD invoices from both invoice exposures and TPEA 4. For MCE use RFAF (No floor Or Cap) for a minimum of 2 days for load. Scenario #5B: The same as #5 above, except the look back period for NLE and ULE changes depending on a season (except for traders): summer months: 40 days from May 16 through Sep 15, non summer months: 20 day lookback from Sep 16 through May 15. Current: EAL q = Max [IEL during the first 40-day period only beginning on the date that the Counter-Party commences activity in ERCOT markets, RFAF * Max {RTLE during the previous lrq days}, RTLF] + DFAF * DALE + Max [RTLCNS, Max {URTA during the previous lrq days}] + OUT q + ILEq OUT q = OIA q + UDAA q + UFA q + UTA q + CARD* * CARD not included in OUT/TPEA for this presentation 5 ERCOT Public
EAL and TPEA for Scenarios 5A & 5B vs. Current EAL 6 ERCOT Public
Negative and Positive Gaps for the entire period: Market Market Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (22,013,195,356) $ (15,229,695,664) $ (16,271,289,231) $ Sum total Compared to Current # of occurences 988,991,265,830 $ 1,182,363,786,079 $ 1,061,355,980,838 $ Compared to Current Average Compared to Current (1,516,269) (1,287,597) (1,301,079) Average Compared to Current 3,508,069 4,150,290 3,743,536 14,518 11,828 12,506 -30.8% -26.1% -18.5% -13.9% -15.1% -14.2% Compared to Current 281,919 284,887 283,517 19.6% 7.3% 1.1% 0.6% 18.3% 6.7% Load & Gen Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (15,330,339,917) $ (10,741,218,546) $ (11,674,551,705) $ Sum total Compared to Current # of occurences 646,536,707,300 $ 798,363,542,006 $ 702,864,825,558 $ Compared to Current Average Compared to Current (4,606,472) (5,083,397) (4,919,744) Average Compared to Current 19,933,918 4.1% 23,648,209 2.9% 21,065,301 3,328 2,113 2,373 -29.9% -23.8% -36.5% -28.7% 10.4% 6.8% Compared to Current 32,434 33,760 33,366 23.5% 8.7% 18.6% 5.7% Load Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (3,847,398,869) $ (2,280,062,237) $ (2,368,965,755) $ Sum total Compared to Current # of occurences 68,245,026,735 $ 110,832,283,873 $ 88,410,707,524 $ Compared to Current Average Compared to Current (1,101,460) (1,107,364) (998,721) Average Compared to Current 2,280,459 3,505,132 2,863,968 3,493 2,059 2,372 -40.7% -38.4% -41.1% -32.1% 0.5% -9.3% Compared to Current 29,926 31,620 30,870 62.4% 29.5% 5.7% 3.2% 53.7% 25.6% Traders Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (2,348,085,692) $ (1,752,317,866) $ (1,754,811,645) $ Sum total Compared to Current # of occurences 123,475,898,551 $ 119,865,124,495 $ 119,588,814,551 $ Compared to Current Average Compared to Current (428,561) (315,165) (314,877) Average Compared to Current 843,225 819,579 818,059 5,479 5,560 5,573 -25.4% -25.3% 1.5% 1.7% -26.5% -26.5% Compared to Current 146,433 146,252 146,186 -2.9% -3.1% -0.1% -0.2% -2.8% -3.0% 7 ERCOT Public
Negative and Positive Gaps during Elliott Market Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (1,849,594,396) $ (1,420,384,636) $ (1,478,639,189) $ Sum total Compared to Current # of occurences 57,616,731,192 $ 64,205,946,205 $ 59,693,900,902 $ Compared to Current Average Compared to Current (2,003,894) (1,851,870) (1,790,120) Average Compared to Current 2,950,921 3,264,986 3,046,384 923 767 826 -23.2% -20.1% -16.9% -10.5% -7.6% -10.7% Compared to Current 19,525 19,665 19,595 11.4% 3.6% 0.7% 0.4% 10.6% 3.2% Load & Gen Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (1,378,375,368) $ (1,015,746,982) $ (1,056,369,863) $ Sum total Compared to Current # of occurences 38,159,820,539 $ 45,127,220,789 $ 41,469,443,770 $ Compared to Current Average Compared to Current (6,891,877) (8,756,439) (7,491,985) Average Compared to Current 16,997,693 3.3% 19,468,171 1.7% 18,156,499 200 116 141 -26.3% -23.4% -42.0% -29.5% 27.1% 8.7% Compared to Current 2,245 2,318 2,284 18.3% 8.7% 14.5% 6.8% Load Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (347,657,590) $ (258,415,089) $ (275,417,008) $ Sum total Compared to Current # of occurences 6,583,364,875 $ 7,106,034,072 $ 6,503,409,955 $ Compared to Current Average Compared to Current (1,010,633) (1,094,979) (1,035,402) Average Compared to Current 3,432,411 3,486,768 3,232,311 344 236 266 -25.7% -20.8% -31.4% -22.7% 8.3% 2.5% Compared to Current 1,918 2,038 2,012 7.9% -1.2% 6.3% 4.9% 1.6% -5.8% Traders Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (92,348,575) $ (125,746,143) $ (126,062,829) $ Sum total Compared to Current # of occurences 8,888,013,706 $ 7,673,782,905 $ 7,669,338,404 $ Compared to Current Average Compared to Current (360,737) (401,745) (401,474) Average Compared to Current 876,876 762,726 762,815 256 313 314 36.2% 36.5% 22.3% 22.7% 11.4% 11.3% Compared to Current 10,136 10,061 10,054 -13.7% -13.7% -0.7% -0.8% -13.0% -13.0% 8 ERCOT Public
Negative and Positive Gaps during Summer 2022 Market Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (3,983,510,674) $ (2,345,313,690) $ (2,346,936,537) $ Sum total Compared to Current # of occurences 251,782,599,447 $ 289,010,879,420 $ 283,381,425,508 $ Compared to Current Average Compared to Current (2,339,114) (1,645,834) (1,645,818) Average Compared to Current 5,479,491 6,268,945 6,150,304 1,703 1,425 1,426 -41.1% -41.1% -16.3% -16.3% -29.6% -29.6% Compared to Current 45,950 46,102 46,076 14.8% 12.6% 0.3% 0.3% 14.4% 12.2% Load & Gen Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (3,415,357,023) $ (1,916,900,571) $ (1,917,175,007) $ Sum total Compared to Current # of occurences 181,086,380,817 $ 214,810,975,060 $ 209,873,391,962 $ Compared to Current Average Compared to Current (8,894,159) -50.8% (10,142,331) -50.8% (10,143,783) Compared to Current Average Compared to Current 31,881,405 2.8% 36,801,606 2.8% 35,955,695 384 189 189 -43.9% -43.9% 14.0% 14.0% 5,680 5,837 5,837 18.6% 15.9% 15.4% 12.8% Load Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (157,057,103) $ (86,978,573) $ (88,226,362) $ Sum total Compared to Current # of occurences 16,726,507,189 $ 20,446,443,567 $ 19,982,239,922 $ Compared to Current Average Compared to Current (470,231) (366,998) (372,263) Average Compared to Current 3,448,053 4,143,989 4,063,083 334 237 237 -44.6% -43.8% -29.0% -29.0% -22.0% -20.8% Compared to Current 4,851 4,934 4,918 22.2% 19.5% 1.7% 1.4% 20.2% 17.8% Traders Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (342,020,085) $ (278,113,632) $ (278,113,632) $ Sum total Compared to Current # of occurences 32,093,581,376 $ 30,949,321,094 $ 30,932,813,203 $ Compared to Current Average Compared to Current (529,443) (408,390) (408,390) Average Compared to Current 1,405,394 1,360,470 1,360,103 646 681 681 -18.7% -18.7% 5.4% 5.4% -22.9% -22.9% Compared to Current 22,836 22,749 22,743 -3.6% -3.6% -0.4% -0.4% -3.2% -3.2% 9 ERCOT Public
Negative and Positive Gaps during Summer 2023 Market Negative Gap Sum total Compared to Current # of occurences Current (8,124,628,084) $ S5A (5,168,503,243) $ S5B (5,172,798,988) $ Positive Gap Sum total Compared to Current # of occurences Current 257,521,311,638 $ S5A 309,226,446,697 $ S5B 299,920,061,026 $ Compared to Current Average Compared to Current (2,668,187) (2,415,188) (2,393,706) Average Compared to Current 5,120,115 6,017,718 5,842,295 3,045 2,140 2,161 -36.4% -36.3% -29.7% -29.0% -9.5% -10.3% Compared to Current 50,296 51,386 51,336 20.1% 16.5% 2.2% 2.1% 17.5% 14.1% Load & Gen Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (4,636,750,017) $ (3,416,497,409) $ (3,418,481,698) $ Sum total Compared to Current # of occurences 192,086,022,534 $ 224,485,728,103 $ 216,671,999,814 $ Compared to Current Average Compared to Current (6,941,243) (7,363,141) (7,335,798) Average Compared to Current 34,088,025 3.8% 38,386,752 3.7% 37,075,975 668 464 466 -26.3% -26.3% -30.5% -30.2% 6.1% 5.7% Compared to Current 5,635 5,848 5,844 16.9% 12.8% 12.6% 8.8% Load Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (2,390,500,515) $ (1,220,266,923) $ (1,221,179,840) $ Sum total Compared to Current # of occurences 16,405,413,941 $ 35,168,334,974 $ 33,823,690,700 $ Compared to Current Average Compared to Current (2,305,208) (2,230,835) (2,180,678) Average Compared to Current 3,017,920 5,848,717 5,652,355 1,037 547 560 -49.0% -48.9% -47.3% -46.0% -3.2% -5.4% Compared to Current 5,436 6,013 5,984 114.4% 106.2% 10.6% 10.1% 93.8% 87.3% Traders Negative Gap Current S5A S5B Positive Gap Current S5A S5B Sum total Compared to Current # of occurences (1,003,297,359) $ (433,179,431) $ (433,179,431) $ Sum total Compared to Current # of occurences 27,415,680,774 $ 28,291,462,783 $ 28,289,881,711 $ Compared to Current Average Compared to Current (1,021,688) (538,780) (538,780) Average Compared to Current 1,023,317 1,047,289 1,047,269 982 804 804 -56.8% -56.8% -18.1% -18.1% -47.3% -47.3% Compared to Current 26,791 27,014 27,013 3.2% 3.2% 0.8% 0.8% 2.3% 2.3% 10 ERCOT Public
Negative and Positive Gaps during Winter Storm Heather (Jan 2024) Market Negative Gap Sum total Compared to Current # of occurences Compared to Current Current (390,690,579) $ S5A (334,224,717) $ -14.5% S5B (340,164,239) $ -12.9% Positive Gap Sum total Compared to Current # of occurences Compared to Current Current 32,091,101,289 $ 10,492 S5A 28,237,794,697 $ -12.0% 10,528 S5B 27,371,311,474 $ -14.7% 10,507 Average (474,139) (415,702) (415,341) Average 3,058,626 2,682,161 2,605,055 Compared to Current 824 804 819 -2.4% -0.6% -12.3% -12.4% Compared to Current 0.3% 0.1% -12.3% -14.8% Load & Gen Negative Gap Sum total Current S5A S5B Positive Gap Current S5A S5B Compared to Current # of occurences Compared to Current 93 70 74 # of occurences Compared to Current 1,172 1,207 1,203 Average (941,212) (1,102,964) (1,080,786) Average 18,481,429 Compared to Current (87,532,714) $ (77,207,482) $ (79,978,149) $ Sum total 21,660,234,241 $ 19,318,789,793 $ 18,654,767,424 $ -11.8% -8.6% -24.7% -20.4% 17.2% 14.8% Compared to Current Compared to Current -10.8% -13.9% 3.0% 16,005,625 2.6% 15,506,872 -13.4% -16.1% Load Negative Gap Sum total Current S5A S5B Positive Gap Current S5A S5B Compared to Current # of occurences Compared to Current 284 226 233 # of occurences Compared to Current 1,082 1,150 1,138 Average (562,666) (532,436) (525,895) Average 2,035,426 2,236,587 2,107,663 Compared to Current (159,797,095) $ (120,330,627) $ (122,533,629) $ Sum total 2,202,331,181 $ 2,572,075,495 $ 2,398,520,833 $ -24.7% -23.3% -20.4% -18.0% -5.4% -6.5% Compared to Current Compared to Current 16.8% 8.9% 6.3% 5.2% 9.9% 3.5% Traders Negative Gap Sum total Current S5A S5B Positive Gap Current S5A S5B Compared to Current # of occurences Compared to Current 288 345 345 # of occurences Compared to Current 5,841 5,772 5,772 Average (368,355) (285,946) (285,946) Average 1,125,008 838,996 838,996 Compared to Current (106,086,115) $ (98,651,537) $ (98,651,537) $ Sum total 6,571,169,963 $ 4,842,686,793 $ 4,842,686,793 $ -7.0% -7.0% 19.8% 19.8% -22.4% -22.4% Compared to Current Compared to Current -26.3% -26.3% -1.2% -1.2% -25.4% -25.4% 11 ERCOT Public
Sample CP TPEA comparison 12 ERCOT Public
Historical TPEA comparison 13 ERCOT Public
Historical average price comparison 14 ERCOT Public
Sample CP gap events 15 ERCOT Public
IMCE (Initial Minimum Current Exposure) Traders only IMCE (Initial Minimum Current Exposure) is a component of the MCE and is applicable only for Counter- Parties that are trade-only 96 ? 96 ? [L i, od, p * RTSPP i, od, p]/n}, { ? [[[L i, od, p * T2- ?=1 MCE = Max[RFAF * MAF * Max[{ ?=1 ? 96 ? G i, od, p * (1-NUCADJ) * T3] * RTSPP i, od, p] + [RTQQNET i, od, p* T5]]/n}, { ? * T1 * RTSPP i, od, p]/n}, { ? [G i, od, p * NUCADJ ?=1 96 ? ?=1 DARTNETi, od, p * T4/n}], MAF * IMCE] IMCE was formulated under NPRR 620 Collateral Requirements for Counter-Parties with No Load or Generation which was approved in August 2014 and implemented in June 2019 Trade-Only Activity (TOA) System-Wide Offer Cap (SWCAP) Notional Multiplier (nm) Cap Interval Factor (cif): Represents the historic largest percentage of System-Wide Offer Cap (SWCAP) intervals during a calendar day 1 * ($5,000 * 50 mwh * 9%) = $22,500 * * Originally $40,500 when SWCAP was $9,000 16 16 ERCOT Public
IMCE (Initial Minimum Current Exposure) Traders only The original IMCE amount was an arbitrarily agreed upon amount to establish a base amount of collateral to be required from new trade-only Counter-Parties and/or if the EAL was negative Prior to the formulation of the IMCE, the amount required was only $5,000 which was deemed too minimal and had no Protocol basis The cif and notional multipliers were arbitrarily determined in order for the IMCE to result to the agreed upon value of $40,000 The cif was initially set to 9% (roughly 9 intervals with prices at the SWCAP or 9/96) even though in February 2011 there were 12 intervals of prices at the cap (around 12%) We reviewed historical interval prices through the years (excluding during URI) and determined that on July 13, 2022 there were actually 14 intervals wherein prices reached the cap; this translates to a cif of 15% (14/96 or 14.58%) Using this cif results in an IMCE of $35,000 or $12,500 more than the current IMCE 17 17 ERCOT Public
IMCE (Initial Minimum Current Exposure) Traders only Proposal: Adjust the IMCE such that negative gap (during Elliot) remains at current level Adjust the cif to 15% and the notional multiplier to 100 resulting in an IMCE of $75,000 as part of the EAL change proposal (S5a) 1 * ($5,000 * 100 mwh * 15%) = $75,000 An IMCE of $75,000 brings the negative gaps in S5a to roughly the same level as the negative gap in the current calculations ERCOT recommends implementing the above flat increase in IMCE (for traders only) and notes the following: EAL framework captures the historical activity and projects the future obligations based on the historical pattern. There is an existing constraint for Traders in DAM once collateral call is issued. Also, since there is no mass transition risk, traders can be terminated on a much shorter timeframe than the others. Trader s activity can be highly volatile and tying MCE to the historical activity could lead to high volatility in MCE. The proposed methodology directly addresses negative gaps when EAL is net credit since this is the root of the problem. There is a built-in constraint in DAM in that ACL captures the bid exposures. 18 18 ERCOT Public
Conclusion: Scenario 5B ERCOT recommends Scenario 5B as outlined above. Scenario 5B Reduces negative gaps by capturing DAM exposures and having a look back period for DAM, similar to treatment of RTM exposures under the current framework. Under the current framework, DAM exposures are captured in DALE, but there is no look back period. Solves the double top or higher 2nd top problem. As it was brought up by multiple market participants, the Double top or Higher 2ndtop could occur when a volatility event is followed up by another volatility event after a short period of stable/lower prices. This could lead to unreasonably high TPEA s, which under certain circumstances could place an exceptional strain on the market. Reduces overcollateralization and excessive volatility. As can be seen from the graphs presented above, the proposed framework will trim excessive overcollateralization and reduce overall volatility driven by RFAF*MaxRTLE function. It provides relatively more stable or less volatile measurement of exposures tracking actual invoices more closely. RFAF in the existing framework is more volatile and is applied against MaxRTLE, while the proposed Scenario S5B is applying RFAF against NLE with a floor. 19 ERCOT Public
