Market Credit Working Group
update to the Wholesale Market
Subcommittee
04/06/2015
1
MCWG update to WMS
• Joint meeting of MCWG and CWG on Tuesday, March
10th
• 4 NPRRs reviewed for credit impacts by email vote
– 3 NPRRs were operational and had no credit impact
– 1 NPRR, NPRR683, impacts credit
• NPRR683 changes the Available Credit Limit calculation
– 90% buffer applied to ACL which penalizes entities that
‘overcollateralize’
– NPRR683 applies the 90% to gross up TPE instead of
decreasing ACL
– Improves the incentives to provide additional collateral
above credit exposure
2
MCWG update to WMS
• Seasonal Adjustment Factor for summer of 2015
– ERCOT has proposed a methodology to calculate SAFs
using the ratio of historical prices to the previous month
– ERCOT provided additional analysis requested by
MCWG/CWG members at the Feb meeting
– CWG/MCWG voted to endorse the SAF values below for
summer of 2015
2015
Month
June
July
August
September
2014 Value
100%
200%
300%
150%
ERCOT
Calculation
115%
101%
224%
100%
CWG/MCWG
Recommendation
115%
125%
200%
100%
3
MCWG update to WMS
• Mitigation of credit tail risk exposure
– Formation of the Credit Risk Impacts and Modeling
(CRIM) sub group to develop tail risk scenarios and
assist ERCOT modeling
– Initial meeting on March 10th established scope and
objectives
– CRIM will meet after the regularly scheduled
CWG/MCWG meetings
• Capacity forecast report
– Daily posting commenced week of February 24rd
– http://www.ercot.com/services/rq/credit/index.html
– CWG/MCWG reviewed initial results
4
MCWG update to WMS
• Consolidation of Other Binding Documents related to
credit
– Creditworthiness Standards (NPRR690 submitted)
– Credit Application (NPRR pending)
• ERCOT Credit and Legal will jointly draft NPRR
– Procedures for Setting Nodal Day Ahead Market (DAM)
Credit Requirement Parameters and Credit Formulas
(NPRR671)
• Draft NPRR formalizing prepay account procedures
– Targeting April PRS
• Audited financials and Standard Form Agreement
Attachment A required by April 30th for CounterParties with December 31, 2014 FYE.
5
Update on NPRR638
• NPRR638 is currently tabled at PRS
• Technical issues under consideration
– Gas price adjustment using a FIP ratio (gas price
normalization)
• To be considered at PRS (estimated May PRS)
– Apply a minimum and maximum heat rate to limit
application of gas price adjustment
• To be considered at PRS (estimated May PRS)
– ERCOT analysis on NPRR638 & Lookback parameters
• ERCOT published detailed analysis on gas price adjustments
and lookback parameter impacts on April 2nd
• PLEASE REVIEW THIS ANALYSIS PRIOR TO APRIL 22
CWG/MCWG MEETING AND BE PREPARED TO VOTE ON
LOOKBACK PARAMETER
6
Update on NPRR638
• Policy issues under consideration
– Process to update the Market Adjustment Factor (MAF)
• History of the MAF in NPRR638
– July 2014: ERCOT submits NPRR638, ERCOT has sole discretion to use MAF
based on price increases due to market rule changes, 14 day notice
– Oct 2014: ERCOT submits comments to increase MAF notice period to 45 days
– Jan 22, 2015: CWG/MCWG submits comments endorsing process where TAC
recommends MAF change and Board approves
– Jan 30, 2015: ERCOT submits comments removing TAC/Board approval,
reinstates sole discretion with 45 day notice, corrects greybox section
– Feb 9, 2015: F&A Committee discusses MAF process and requests stakeholder
feedback
– Feb 24, 2015: Reliant submits comments supporting CWG/MCWG endorsed
version of MAF process
– March 9, 2015: ERCOT submits comments expanding use of MAF to changes in
market conditions; maintains sole discretion and 45 day notice
• ERCOT & Stakeholders are negotiating a compromise. An update will be
discussed at April 22 CWG/MCWG
– Targeting vote at May PRS
7