Credit Management and the ERCOT Nodal Market

Transcription

1 Credit Management and the ERCOT Nodal Market

2 Legal Disclaimers and Admonitions PROTOCOL DISCLAIMER This presentation provides a general overview of the Texas Nodal Market Implementation and is not intended to be a substitute for the ERCOT Nodal Protocols (available at as amended from time to time. If any conflict exists between this presentation and the ERCOT Nodal Protocols, the ERCOT Nodal Protocols shall control in all respects. ANTITRUST ADMONITION ERCOT strictly tl prohibits market participants i t and their employees, who are participating in ERCOT activities, from using their participation in ERCOT activities as a forum for engaging in practices or communications that violate antitrust laws. The ERCOT Board has approved Guidelines for Members of ERCOT Committees, subcommittees, and working Groups to be reviewed and followed by each market participant attending ERCOT meetings. If you have not received a copy of these Guidelines, please take one now, review it at this time, and remember your ongoing obligation to comply with all applicable laws, including antitrust laws. 2

3 Credit Management and the ERCOT Nodal Market Workshop Outline Introduction of presenters Review workshop objectives and outline Session 1 Nodal Credit Operations Overview Session 2 Nodal Credit Monitoring and Reporting 3

4 Workshop objectives and outline Session 1 objective Gain an understanding of Changes brought by the Nodal market Nodal Credit Risk Management Processes High Level Credit Calculations Nodal Credit Timeline 4

5 Workshop objectives and outline Session 1 Outline - Nodal Credit Operations Overview 1. Introduction 2. Key Differences Between Zonal and Nodal Credit 3. Credit Exposure Calculations 4. CRR Bilateral Trades for Credit Exposure 5. Available Credit Limit (ACL) 6. Collateral Management 7. Late Payment and Breach Process 8. ERCOT Credit Timeline 9. Monitoring of Counter-Party Creditworthiness 10. Nodal Market Trials Phase 5 5

6 Workshop objectives and outline Session 2 objective Gain an understanding of Credit Exposure and ACL Calculations Credit Reports Session 2 Outline 1. Review ERCOT Credit Calculations and associated reports on a detailed level 2. Demonstration of key exposure and credit limit scenarios 6

7 Session 1 Nodal Credit Operations Overview

8 Key Differences between Zonal and Nodal Credit High Level Differences between Zonal and Nodal Zonal Market Credit Operations Nodal Market 8

9 High Level Differences between Zonal and Nodal ASPECT ZONAL NODAL MARKET ERCOT Contract Multiple contracts One contract that combines QSE and CRRAH Available Credit Limit & Collateral for real-time Collateral required to Collateral activity and TCRs posted separately cover CRR, DAM, and Real Time Exposure. Pooling of collateral for all activity. Day Ahead Market External bilateral market only Ancillary services only ERCOT DAM Energy Ancillary services Congestion Instruments Transmission Congestion Rights ( TCRs ) Congestion Revenue Rights ( CRRs ) Credit Operations Manually supported Credit Monitoring & Management system 9

10 Key Differences between Zonal and Nodal Credit One Contract Establishes financial i relationship between ERCOT and a Market Participant under one contract Gone are multiple contracts Combines QSE, Sub-QSE and CRR Account Holder Netting allowed across DAM and Real Time Markets Netting allowed in CRR Market with an executed First Priority Security Agreement Establishes the new concept of the Counter-Party 10

11 Key Differences between Zonal and Nodal Credit A Counter-Party is a legal entity contracting with ERCOT Counter- Party CRR Account Holder QSE A Includes QSE, Sub QSEs and CRR Account Holders by the same Entity Sub QSE A1 Sub QSE A2 11

12 Key Differences between Zonal and Nodal Credit A Counter-Party is a legal entity contracting with ERCOT QSE Qualified Scheduling Entity (QSE) Qualified in accordance with the protocols Represents Resource Entities and LSEs Responsible for financial settlement CRR CRR Account Holder (CRRAH) Account Qualified by ERCOT in accordance with the Holder protocols Owner of record of CRRs 12

13 Key Differences between Zonal and Nodal Credit Available Credit Limit (ACL) & Collateral Requires DAM and CRR auctions to work within a single credit limit. ERCOT credit staff must provide credit limit to Counter-Party on a daily basis. Each counter-party first apportions its ACL in the CRR system; any remaining ACL is automatically allocated to the DAM. 13

14 Key Differences between Zonal and Nodal Credit The ERCOT Day Ahead Market (DAM) Zonal: Day-Ahead Market - Ancillary Services only Nodal: Energy, ancillary services and certain CRRs Centralized energy market for QSEs Bids to buy and offers to sell DAM is a co-optimized market 14

15 Key Differences between Zonal and Nodal Credit Day Ahead Market (DAM) Energy Bids & Offers Energy Awards Ancillary Service Offers Ancillary Service Awards PTP Obligation Bids Co- Optimization Engine PTP Obligation Awards ERCOT will clear for energy and capacity at the same time 15

16 Key Differences between Zonal and Nodal Credit Hedging Instruments for Congestion Costs Zonal: TCRs are a hedge for congestion between congestion management zones Owner gets paid when there is zonal congestion 16

17 Key Differences between Zonal and Nodal Credit Hedging Instruments for Congestion Costs Nodal: Financial Instruments defined between Settlement Points Value based on Locational Marginal Price (LMP) difference between the injection point (source) and the withdrawal point (sink) Source A Sink B Sink C 17

18 Key Differences between Zonal and Nodal Credit A Congestion Revenue Right (CRR) is: A financial instrument that entitles the CRR Owner to be charged or to receive compensation for congestion rents that arise when the ERCOT Transmission Grid is congested in the DAM or in Real-Time. Not a right or obligation to receive or to deliver physical energy. Tradable (most CRRs) in the CRR Auction, in the DAM, or bilaterally CRRs trades / transfers must be approved by ERCOT credit 18

19 Key Differences between Zonal and Nodal Credit Congestion Revenue Rights (CRR): PTP Options: Provides a point-to-point congestion hedge that may result in payments from ERCOT to the CRR Owner of record. PTP Obligations: Provides a point-to-point congestion hedge that may result in either a payment or a charge to the CRR Owner of record. 19

20 Key Differences between Zonal and Nodal Credit Example CRR Holder owns 100 MW of PTP Options from Node X to Node Y. Node X: SOURCE / Generation $24 congestion Node Y: SINK / Load $36 Example CRR CRR owner would receive ($36 - $24 = $12) x 100 MW = $1,

21 Key Differences between Zonal and Nodal Credit ERCOT Operational Changes Automated t Credit Monitoring i & Management (CMM) system Counter-Party manages division of Credit Limit between CRR Auction and DAM Collateral posted before noon will be included in the current day s Available Credit Limit (ACL) 21

22 Credit Exposure Calculations at

23 Credit Exposure Calculations Overview 23

24 Credit Exposure Calculations TPE Total Potential Exposure If Counterparty has granted ERCOT a First Priority Security Interest in its receivables: TPE = CCE + FCE Otherwise, the formula for TPE is: TPE = max [0, CCE] + max [0,FCE] TPE = Total Potential Exposure CCE = Current Credit Exposure FCE = Future Credit Exposure 24

25 Credit Exposure Calculations CCE Current Credit Exposure CCE = Max [IEL for the first 60 days, EAL, AIL, (EAL+AIL)] CCE = Current Credit Exposure IEL = Initial Estimated Liability (old TEL) EAL = Estimated Aggregate Liability AIL = Aggregate Incremental Liability (old NLRI) 25

26 Credit Exposure Calculations IEL Initial Exposure Liability IEL = DEL x Max [0.2, RTEFL] x RTAEP x 40 IEL = DEG x Max [0.2, RTEFG] x RTAEP x 40 IEL = DEL x Max [0.1, RTEFL] x RTAEP x 40 + DEG x Max [0.1, RTEFG] x RTAEP x 40 IEL = Initial Exposure Liability DEL = Daily Estimated Load DEG = Daily Estimated Generation RTEFL = Real Time Energy Factor Load RTEFG = Real Time Energy Factor Generation RTAEP = Real Time Average Energy Price 26

27 Credit Exposure Calculations EAL Estimated Aggregated Liability EAL = Max [IEL during the first 60-day period, Max ADTE during the previous 60-day period] + OUT + PUL + DALE EAL ADTE Estimated Aggregate Liability Average daily transaction extrapolated = 40 days times average daily amount from (typically)14 most recent initial settlement statements 27

28 Credit Exposure Calculations EAL Estimated Aggregated Liability Continued EAL = Max [IEL during the first 60-day period, Max ADTE during the previous 60-day period] + OUT + PUL + DALE OUT Outstanding t unpaid transactionsti = all outstanding invoices for RT, DAM, CRR, etc. (OIA) + estimated final and true-up settlements (UFTA) + unbilled Day Ahead Market activity (UDAA) + ADR amounts + other PUL DALE Potential uplifts from short payments Average daily DAM liability extrapolated = 16 days times average daily amount from the seven most recent DAM settlement invoices 28

29 Credit Exposure Calculations AIL Aggregate Incremental Liability AIL = RTL Max [0, (ADTE / 40 N 0.9)] AIL = Aggregate Incremental Liability RTL = RTLCS + RTLCNS + RTLNC Where: RTLCS = Real Time Liability for completed and settled but not invoiced RTLCNS = Real Time Liability for completed and not settled operating days RTLNC = Real Time Liability for not completed operating days (7 future days) 29

30 Credit Exposure Calculations FCE Future Credit Exposure FCE = FCEOBL + FCEOPT FCE = Future Credit Exposure FCEOBL = FCE of PTP Obligations FCEOPT = FCE of PTP Options 30

31 Credit Exposure Calculations FCEOBL Future Credit Exposure FCEOBL = Max (ACPEOBL, - FMMOBL) FCEOBL = Future Credit Exposure for PTP Obligations ACPEOBL = Auction Clearing Price Exposure of PTP Obligations FMMOBL = Forward Mark to Market exposure for all obligations owned 31

32 Credit Exposure Calculations FCEOBL Future Credit Exposure continued.. ACPE is calculated as follows: If PTP Obligation Auction Clearing Price is Greater than $1 per MW Between $0 and $1 per MW Negative Then.. ($1.5 / PTP Obligation Auction Clearing Price) $1.5 per MW $1.5 per MW, plus the absolute value of the PTP Obligation Auction Price per MW 32

33 Credit Exposure Calculations FCEOBL Future Credit Exposure continued FMMOBL = Forward Mark to Market exposure for all obligations owned where price is determined based on a weighted average of: 1. Auction clearing price 2. Td Today s most recent tptp obligation value 3. Most recent five day s average PTP obligation value 4. Previous month s average PTP obligation value 33

34 Credit Exposure Calculations FCEOPT Future Credit Exposure for PTP Options FCEOPT = (- FMMOPT) FCEOPT = Future Credit Exposure for PTP Options FMMOPT = Forward Mark-to-Market exposure for all options owned; price is determined based on a weighted average of: 1. Auction clearing price 2. Today s most recent PTP option value 3. Most recent five day s average PTP option value 4. Previous month s average PTP option value 34

35 CRR Bilateral Trades for Credit Approval

36 CRR Bilateral Trades Credit Approval Evaluation CRR Bilateral Trades Exposure Calculated based on FCE Calculations as defined in Nodal Protocols Uses the following attributes of CRR Bilateral Trade Request Start Date End Date MWh Uses the following attributes of original CRR ACP Time of Use CRR Type (obligation/option) Source Sink 36

37 CRR Bilateral Trades Credit Approval Evaluation CRR Bilateral Trades Credit Approval: Approved Additional exposure + TPE < Total Credit Limit Condition fulfilled for both Buyer and Seller Disapproved Additional exposure + TPE > Total Credit Limit Condition not fulfilled for either Buyer or Seller Trade may be partially approved ERCOT credit staff will coordinate with Buyer and/or Seller Counter-Parties 37

38 Available Credit Limit (ACL)

39 Available Credit Limit (ACL) Workflow Available Credit Limit 39

40 Available Credit Limit (ACL) Available Credit Limit Calculation Total Credit Limit (TCL) Collateral Available Credit Limitit Approved Bilateral Trades Unsecured Total Credit Potential Limit Exposure 90% of ACL Available for CRR Auctions and DAM ACL = Unsecured Credit Limit + Collateral Total Potential Exposure Approved Bilateral Trades 40

41 Available Credit Limit (ACL) Available Credit Limit Calculation continued Available Credit ditlimit it(acl) calculated l each hbusiness Day for each Counter-Party 90% of ACL available for monthly CRR Auction and DAM Credit Limits are provided to CRR and DAM systems on Business Days 41

42 Available Credit Limit (ACL) ACL distribution between CRR and DAM CRR Auction Lock Period From 3 days before the Bid Window closes (known as Lock date) until Auction invoices generated During the CRR Auction Lock Period, the CRR Auction Amount cannot increase or decrease DAM $1,600 CRR Auction $2,000 42

43 Available Credit Limit (ACL) ACL distribution between CRR and DAM Example: Total Credit Limit (TCL) TCL = $10,000 Total Potential ti Exposure (TPE) TPE = $6,000 Available Credit Limit (ACL) ACL = TCL TPE = $4,000 90% of ACL = $3,600 CRR Auction Lockdown = $2,000 90% of ACL = $3,600 DAM $1,600 DAM CRR $1,600 Auction $2,000 CRR Auction $2,000 CRR Auction (allocated amount) CRR DAM Auctio (remaining n credit after CRR $2,000 rolls into DAM) 43

44 Available Credit Limit (ACL) ACL distribution between CRR and DAM Example: Scenario where TPE increases during lock period Total Credit Limit (TCL) TCL = $10, Total Potential Exposure (TPE) TPE = $8,000 DAM $1,600 DAM CRR $1,600 Auction $2 000 CRR CRR Auction CRR Auction $2,000 Auctio (allocated n amount) $2,000 Available Credit ditlimit it(acl) ACL = TCL TPE = $2,000 90% of ACL = $1,800 CRR Auction Lockdown = $2,000 DAM = $0 90% ACL - $1,800 If TPE goes up during the lockdown period: CRR Auction $2,000 CRR Collateral l Call will take place (for the minimum of $200 in this example) Nothing available for DAM 44

45 Available Credit Limit (ACL) ACL distribution between CRR and DAM Example: Scenario outside of CRR Auction Lock Period Total Credit Limit (TCL) TCL = $10,000 Total Potential ti Exposure (TPE) TPE = $6,000 90% ACL - $3,600 Available Credit Limit (ACL) ACL = TCL TPE = $4,000 90% of ACL = $3,600 CRR Auction Lockdown = $2,000 DAM $1,600 DAM CRR $1,600 Auction $2,000 CRR Auction $2,000 DAM CRR (all credit goes to DAM) Auctio n $2,000 45

46 Available Credit Limit (ACL) DAM Auction Constraints against DAM ACL Some facts about NPRR 206 (Nodal Market Day-Ahead Market Credit Requirements) NPRR 206 does not impact the calculation of TPE and ACL (Nodal Protocols Section 16) NPRR 206 does impact how Bids and Offers are evaluated against available DAM ACL (Nodal Protocols Section 4) 46

47 Available Credit Limit (ACL) DAM Auction Constraints against DAM ACL More facts about NPRR 206 The credit limit within the DAM Auction is affected by a number of factors, but at a high level, NPRR 206: Allows for offsets to credit exposure from Bids by some proportion of Offers in the current DAM DAM Offers can reduce credit exposure in the DAM The amount of the credit exposure that can be offset is adjusted by way of e factors, which are determined by ERCOT, using historical activity along with other factors and will be periodically adjusted. 47

48 Collateral Management

49 Collateral Management Overview ERCOT will send collateral calls on Business Days If TPE reaches 90% TCL, a notification will be sent Required Collateral = TPE TCL TPE = Total Potential Exposure TCL = Total Credit Limiti If a Collateral Call is outstanding, Counter-Party will not be able to bid in CRR Auction or DAM the following morning 49

50 Collateral Management Overview Additional Collateral can be voluntarily posted by Counter-Party to increase the ACL Collateral is due on the 2 nd Bank Business Day from the date on which it was issued: If collateral call is issued before 3pm, collateral is due by 3pm on the 2 nd Bank Business Day If collateral call is issued between 3pm and 5pm, collateral is due by 5pm on the 2 nd Bank Business Day To get posted and reflected in the current day s ACL which will be used for next day auctions, Collateral or Invoice payments must be received before 12 noon on the current day 50

51 Collateral Management Overview Forms of Collateral: Guarantee Agreement (standard ERCOT form) Letter of Credit (standard ERCOT form) Surety Bond (standard ERCOT form) Cash Notes: Cash (in addition to collateral) can be held to pre-pay invoices with Counter-Party approval Excess cash collateral may be used to pay invoices 51

52 Collateral Request Management 52

53 Late Payment and Breach Process

54 Late Payment and Breach Process Overview Payment Breach: Any amount due (collateral or invoice) not paid in full to ERCOT by the due date and time ERCOT will send a Breach Notice Market Participant (MP) required to cure the breach within two (2) Bank Business Days ERCOT may waive the payment breach If it receives payment within (2) Bank Business days 54

55 Late Payment and Breach Process Overview Payment Breach (continued): If full payment is subsequently received after the due date and time, it is considered a Late Payment If payment is not received, within the 2 Bank Business Days of the Breach and notice being issued, the MP will be in default of their Market Participant Agreement 55

56 Late Payment and Breach Process Enforcement Late Payments and their Enforcements 1 st Late Payment: No Enforcement or Level 1 Enforcement 2 nd Late Payment:Level 1 or Level 2 Enforcement 3 rd Late Payment: Level 2 or Level 3 Enforcement 4 th Late Payment: Level 3 Enforcement Level - 3 Level - 2 Level

57 Late Payment and Breach Process Enforcement Level 1 Enforcement MP is required to post collateral in an amount at or above 110% of TPE less unsecured credit limit Level 2 Enforcement MP is required to post cash or a letter of credit in an amount at or above 110% of TPE less unsecured credit limitit Level 3 Enforcement Advise the Authorized Representative and Credit Contact that another Late Payment could result in termination of the MP s right to participate in the ERCOT Region; or Revocation of a MP s Rights and Termination of Agreements 57

58 Late Payment and Breach Process Remedies When a Payment Breach or Default has occurred and is on-going going, ERCOT may: Withhold any refunds or payments owed to a Counter-Party, including Invoices, CRR Revenues, CRR Credits, and reimbursements for short payments; Draw, hold or distribute collateral; Repossess Owned CRRs and declare awarded CRRs forfeit Aggregate all amounts owed and make all amounts outstanding immediately due and payable; and/or Revoke Market Participant rights and terminate agreements 58

59 ERCOT Credit Timeline

60 ERCOT General Credit Timeline 60

61 Monitoring of Counter-Party Creditworthiness

62 Monitoring of Counter-Party Creditworthiness No changes to these provisions (from Zonal market): Financial Statement Requirements Ratings 62

63 Monitoring of Counter-Party Creditworthiness Financial Statement Requirements Each Counter-Party shall provide its own or its guarantor s: Quarterly unaudited financial statement not later than 60 days after the close of each fiscal quarter Annual audited financial statement not later than 120 days after the close of each fiscal year Notes: If an issuer s financial i statements t t are publicly l available electronically ll and the issuer provides to ERCOT sufficient information to access those financial statements, then the issuer is considered to have met this requirement. ERCOT may extend the period for providing interim unaudited or annual audited statements on a case-by-case basis. 63

64 Monitoring of Counter-Party Creditworthiness Ratings 64

65 Nodal Market Trials Phase 5

66 Nodal Market Trials Phase 5 Credit Management Objective Include Counter-Party (CP) Credit and Treasury departments and consider typical transactions 1. Invoice Payment from CP to ERCOT (assume that payments made) 2. Collateral l Payment from CP to ERCOT (either in response to a collateral request or ad hoc submission) 3. Invoice Refunds from ERCOT to CP (assume that refunds made) 4. Collateral Reduction/Refund Request by CP to ERCOT(cash only) 5. Collateral Reduction/Refund Payment from ERCOT to CP 66

67 Nodal Market Trials Phase 5 Simulation: ERCOT will use templates to simulate cash Templates: 1. Collateral Payment 2. Collateral Refund Request 67

68 Nodal Market Trials Phase 5 Simulation continued Collateral Payments from Counter-Party to ERCOT Counter-Party making a Collateral Payment to ERCOT will send an to markettrials@ercot.com to indicate that payment is made Counter-Party will provide the details mentioned in Collateral Payment template Note: Collateral Payments (cash) received by ERCOT by noon will be processed same day and will be reflected in the ACL for the following morning after noon will be processed same day but will not be reflected in ACL for the following morning 68

69 Nodal Market Trials Phase 5 Simulation continued Collateral Reduction/Refund Requests by Counter- Party to ERCOT Counter-Party making a Collateral Reduction/Refund Request to ERCOT will send an to markettrials@ercot.com Counter-Party will provide the details mentioned in Collateral Refund Request template 69

70 Nodal Market Trials Phase 5 Simulation continued Collateral Refund from ERCOT to Counter-Parties: ERCOT will send an to the Counter-Party Contact provided to ERCOT to indicate that the collateral refund was made Counter-Parties are expected to provide ERCOT with a Contact (Treasury or Credit) to be notified for payments made for Nodal Market Trials. If no contact is provided to ERCOT, ERCOT will send an to a Nodal PM with which it works currently 70

71 Nodal Market Trials Phase 5 Simulation continued Collateral Payment template: Subject: Credit Nodal Collateral Payment to ERCOT (Cash) Body: Counter-Party ID: #########9999 Counter-Party Name: xxxxxxxxxxxxxxxxxxxxxx Collateral Payment Amount: ##########.## Treasury or credit contact (Name, phone number, address) 71

72 Nodal Market Trials Phase 5 Simulation continued Collateral Refund Request template: Subject: Credit Nodal Collateral Refund Request (Cash) Body: Counter-Party ID: #########9999 Counter-Party Name: xxxxxxxxxxxxxxxxxxxxxx Collateral Refund Request Amount: ##########.## Treasury or credit contact (Name, phone number, address) 72