Presentation to
ERCOT Technical Advisory Committee
November 3, 2011
A Central Counter Party Discussion:
Options Available For ERCOT
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Central Counter Party (CCP) - Background
• CFTC is requiring ERCOT to substantially comply with the credit reforms
being implemented within the other organized wholesale electric
markets to obtain an exemption from Dodd-Frank regulations.
• One requirement is better bankruptcy protection for the netting of
transactions “within” the ISO markets
- Today ERCOT and the ISO’s/RTO’s are only market administrators; they do not
take title to power – they are not a counterparty to the transactions.
- “Mutuality” (counterparty relationship) between the parties must be
established to NET a market participant’s exposure should it file bankruptcy.
• CFTC considers a Central Counter Party (CCP) as the preferred netting
solution for ISO markets
- A CCP takes title by being the Buyer to every Seller and Seller to every Buyer
in the ISO market.
© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved.
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NASDAQ OMX-ERCOT Management Discussions:
• Two Options
- ERCOT becomes its own CCP
- ERCOT retains a third party CCP
• CFTC Process
- ERCOT’s stated intent to become its own CCP in the CFTC exemption
filing does not preclude ERCOT from subsequently implementing the
third party CCP option.
• Allow Stakeholder process to fully compare and vet both
options
© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved.
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ERCOT 3rd Party Option by NASDAQ OMX
• NASDAQ OMX would be the CCP for all transactions in the
ERCOT markets:
- NASDAQ OMX takes title to the commodity as the
Buyer to every Seller and the Seller to every Buyer.
- NASDAQ OMX provides a similar service in the OTC
market today.
• ERCOT is still the market operator.
• ERCOT will continue to provide the same back office
functions, but as agent for NASDAQ OMX.
© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved.
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ERCOT will continue to:
• Administer its protocols and operating agreements
• Administer all of its markets
• Operate the Grid and be responsible for Maintaining
Reliability
• Conduct all of its transmission planning and
generation interconnections services and activities
© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved.
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NASDAQ OMX will not:
• Take on market or price risk
• Maintain open positions
• Provide offers to sell or bids to buy energy or other
products
• Have the discretion regarding which transactions clear
the markets or the prices at which they clear
© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved.
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Potential 3rd Party CCP Benefits in ERCOT Market
• Meets CFTC CCP requirements
• No major changes in ERCOT processes
• No impact on unsecured credit in ERCOT market
• Incremental benefits that are not available to Market
Participants should ERCOT become its own CCP
- The Option to Maximize Collateral Efficiency in the ISO and OTC
markets.
- The Option to use and net NASDAQ OMX monthly settlements and/or
ERCOT weekly settlements
- Potential to reduce risk in the ERCOT markets
• Costs
- No charge for the base CCP service
- Fees charged only to those using the optional services.
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NASDAQ OMX Contacts:
General: Richard Gutierrez -- 713-302-3205
richard.gutierrez@nasdaqomx.com
ISO CCP Technical: Phil Gootee – 317-473-9281
© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved.
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