nodal credit monitoring and management – business requirements ercot credit department october 11,...
TRANSCRIPT
Nodal Credit Monitoring and Management – Business Requirements
ERCOT CREDIT DepartmentOctober 11, 2006
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Meeting Background
• ERCOT presented overview of business requirements to TPTF on 28th September 2006 along with a set of topics for discussion
• TPTF directed ERCOT to convene a separate meeting to address them– Purpose– Highlights of Nodal Protocols– Highlights of Requirements– Discussion Topics– Questions
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Purpose
• Requirements are drawn primarily from Nodal Protocols and ERCOT Credit Standards to deliver functionality through IT Systems and Business Processes.
• For those that have not been involved in the TPTF process before, the reason for meeting today is to ensure that all key business requirements are captured and are in line with the Nodal Protocols and Credit Standards.
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Highlights of Nodal Protocols
ZONAL• Separate Sections for QSE
and TCR– Sections 16.2.4 through
16.2.10 for QSE– Sections 16.8.4 through
16.8.8 for TCR – Separate collateral for
each type of activity
NODAL• Establishes entire financial
relationship between ERCOT and a Market Participant under one contract rather than multiple contracts– Combine QSE and CRR
activity under one contract– Section 16.11 references
Counter-Party– One collateral amount for
all activities
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Highlights of Nodal Protocols
ZONAL
QSE:•Initial Total Estimated Liability (TEL)•Estimated Aggregate Liability (EAL)•Net Load and Resource Imbalance Liability (NLRI)
TCR:•TCR Auction Liability Amount
NODAL•Allows “pooling” of exposure •Total Potential Exposure (TPE) is combination of Current Credit Exposure (CCE) and Future Credit Exposure (FCE)•CCE (historical activity)
•Initial Estimated Liability (IEL)•Estimated Aggregate Liability (EAL - Includes DAM activity)•Aggregate Incremental Liability (AIL) •All activity within CCE component is “netted”
•FCE (forward value of CRRs)
•CRR PTP Obligations (FCEOBL)•CRR PTP Options (FCEOPT)•CRR Flow Gate Rights (FCEFGR)•All activity within FCE component is “netted”
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CP Relations & Credit Qualification
Assess Creditworthiness &
Establish Initial Unsecured and Secured Credit
Limits
Acquire CP Certified Data
Acquire CP Data for Credit
Qualification for QSE and CRR
Account Holders
Credit Ratings & Limit Management
Obtain Financial Statements
Acquire Industry Standard Credit
Rating
Perform Credit Scoring and
Establish Unsecured Credit
Limit
Issue Late Pay, Breach and
Default Letters
Track CP Late Payments and Default Notices
Credit Analytics
Perform Back-cast Analysis
Perform Default Probability Analysis
Credit Reporting
Generate Canned Reports
Generate Ad Hoc Reports
Counter-Party Default AnalysisSegregate
Bankrupt CP Collateral and
Exposure
Collateral Management
Record and Track CP Collateral Instruments
Determine Collateral
Requirement
Issue Collateral Call Letter
Track Collateral Call Letters
Expiring Collateral Analysis
Process CP Refunds
Credit Exposure Monitoring
Calculate CP Credit Exposure
Calculate CP Available Credit
Limit
Transfer CP Available Credit
Limit
Monitor Key Market Indicators
and CP Credit Activity and
Provide Messages and Alerts
Highlights of Requirements - Business Processes/Sub-Processes
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Highlights of Requirements - Credit Exposure Monitoring
• Exposure calculations and evaluation of collateral adequacy performed on Business Days
• Available Credit Limit (ACL) = Unsecured Credit Limit + Collateral Posted – Total Potential Exposure
• Available Credit Limit to Day Ahead Market (DAM) & CRR provided on Business Days
• DAM and CRR auctions to work within the Available Credit Limit
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Highlights of Requirements – Timeline for Exposure Monitoring
Unified Schedule - One Month of Operating Days
9/25/2006Unified Operating Schedule Page 6 of 8
7/11/2006 7/12/2006 7/13/2006 7/14/2006 7/15/2006 7/16/2006 7/17/2006 7/18/2006 7/19/2006 7/20/2006 7/21/2006
7/11/2006 7/12/2006 7/13/2006 7/14/2006 7/15/2006 7/16/2006 7/17/2006 7/18/2006 7/19/2006 7/20/2006 7/21/2006
7/11/2006 7/12/2006 7/13/2006 7/14/2006 7/15/2006 7/16/2006 7/17/2006 7/18/2006 7/19/2006 7/20/2006 7/21/2006
7/11/2006 7/12/2006 7/13/2006 7/14/2006 7/15/2006 7/16/2006 7/17/2006 7/18/2006 7/19/2006 7/20/2006 7/21/2006
7/10/2006Start CMM Process - 2 AM
7/10/2006Initial Exposure Calculation - 7 AM
7/10/2006Exposure Updated for RTM – 1:30 PM
7/10/2006Collateral Postings by 3 PM
7/10/2006ACL published by 5 PM
CMM
CRR
DAM
RTM
7/11/2006 7/12/2006 7/13/2006 7/14/2006 7/15/2006 7/16/2006 7/17/2006 7/18/2006 7/19/2006 7/20/2006 7/21/2006
Settlement
7/11/2006CRR Bidding Window Opens - Midnight
7/11/2006DAM Bidding Closes 10 AM for operating day 7/12/06
7/11/2006DAM Bidding starts 6 AM for operating day 7/12/06
7/22/2006RTM Initial Statement for operating day 7/12/06
7/11/06Day Ahead
7/12/06Operating Day
7/11/06Day Ahead
7/12/06Operating Day
7/11/06Day Ahead
7/12/06Operating Day
7/11/06Day Ahead
7/12/06Operating Day
7/19/2006DAM Payment due for operating day 7/12/06
7/20/2006CRR Auction Invoices complete for operating day 7/12/06
7/13/2006Certified SPP available for OPD 7/12/06 @ 1600
7/11/2006CRR trading cut-off for operating day 7/12/06 7/13/2006
Certified SPP available for operating day 7/12/06 @ 2200
7/14/2006CRR Bidding Window Closes
7/15/2006DAM for operating day 7/12/06 Invoicing Complete
7/19/2006Optimization Complete
7/11/06 – 7/14/06CRR Bidding Window
7/11/06 – 7/19/06CRR Optimization
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Highlights of Requirements – Activity Map for Credit Exposure Monitoring
Credit Exposure Monitoring (Page 1 of 2)
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EAL
Calculate Available Credit
Limit: ACL = (Credit Limit +
Collateral – Total Exposure)
Calculate Current Credit Exposure:
CCE = (IEL + EAL + AIL)
Calculate Future Credit Exposure:
FCE = (FCEOBL + FCEOPT + FCEFGR)
FCEOPT
Initiate Exposure Process
AIL
FCEOBL
Calculate CP Credit Exposure
1
IEL
Sub-Process :
CP Previously Invoiced?
Calculate Total Potential
Exposure: TPE = (Current +
Future Credit Exposure)
FCEFGR
Calculate the CP Available Credit Limit
Avialable Credit Limit
Allocation
Credit Exposure Monitoring (Page 2 of 2)
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Monitor Key Market Indicators & CP Credit Activity and Provide Messages and Alerts
Sub-Process :
Generate Exposure Reports
1
Review Exposure Reports
Transfer the CP Available Credit Limit
Key Market Activity Indicators
Limit Breach Activity in DAM
Receive Exposure ExceptionWarnings
Receive Key Market Activity
Indicators
Exposure Exceptions?
Determine Collateral
Requirements
Yes
Alloc.CRR / DAM
ACL
Alloc Sub-QSE ACL
ACL AllocPct.
CRR ACL
DAM ACL
Validate CRR Bilateral Transactions
CRR Biltateral
Trade Request
CRR MTM Value
Calc.Exposure
Validate ACL
Notify CP
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Highlights of Requirements – Timeline for Available Credit Limit (ACL)
• ERCOT credit staff receives updated initial calculations from Credit Monitoring system (around 7:00 am)– Data updated for
• Payments made through prior day• New invoices or settlement statements issued through prior
day• Estimated AIL data through prior day minus one or prior day
• ERCOT credit staff reviews and approves calculations, issues collateral calls, etc
• Calculations updated for intra-day activity (TBD based on system/interface capabilities, etc)– For payments made same day through noon– For updates for AIL through prior day– For updates on same day DAM results
• By 5:00 pm, ERCOT credit staff provide Available Credit Limit (ACL) to DAM and/or CRR auctions for following day auctions
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Discussion Topics
#1 - Allocation of Available Credit Limit (ACL) to DAM & CRR
#2 - Allocation of Available Credit Limit (ACL) to multiple entities under one Counter-Party
#3 - ERCOT’s assumption on Real Time Liability (RTL)
#4 - Formula for Aggregate Incremental Liability (AIL)
#5 - Future Credit Exposure – Weighting Factors
#6 - ERCOT’s assumption on TOBLV, TOPTV, and TCRRV
#7 - Protocol Language for FCEFGR
#8 - Transfer of bilateral CRRs and credit requirements
NOTE:
Based on the outcome of the discussions, Nodal Protocol Revision may be required
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Discussion Topic #1 - Allocation of Available Credit Limit (ACL) to DAM & CRR
• DAM auction begins at 6:00 am, CRR auction (submission of bids/offers) begins at 12:01 (just after midnight)– When limits must be set for both DAM and CRR on the same
day, how will ERCOT determine how much to go to DAM and how much to CRR?
Option 1: Default # or % predefined?
Option 2: $ assigned to CRR at time of auction and remainder of the credit limit sent to DAM
ERCOT’s Proposal: Option 2 - $ assigned to CRR at time of auction and remainder of the credit limit sent to DAM
1313
Discussion Topic #1 - Allocation of Available Credit Limit (ACL) to DAM & CRR
CMM_DAM_CRR
10/10/2006Unified Operating Schedule Page 1 of 4
REGISTRATION
CMM
PORTAL
CRR
DAM
Option 1
1. Default Allocation Percentages for CRR & DAM are provided as part of Registration
2. CMM uses the allocation percentages and assigns the credit limit to CRR & DAM
3. CMM sends the credit limits to CRR & DAM
Option 2
1. Counter-Party specifies CRR auction credit limit dollar amount for each CRR auction in the Portal
2. Portal sends the CRR Auction credit amount to CMM
3. CMM verifies CRR credit amount is less than or equal to ACL.
4. CMM Calculates the DAM credit limit as (ACL – CRR Auction credit limit)
5. CMM sends the credit limit to CRR & DAM
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Discussion Topic #2- Allocation of Available Credit Limit (ACL) to multiple entities under one Counter-Party
• Currently ERCOT will only be able to send one ACL per Counter-Party entity. If an entity has sub-QSEs, how will ERCOT determine how to split the limit among the sub-QSEs?
– On the 28th of September 2006 TPTF Meeting, TPTF mentioned their preference is to have the CMM send the ACL per Counter-Party to DAM/CRR and let them roll up the exposure from sub-QSEs and validate at the Counter-Party level.
– ERCOT’s preliminary assessment found that it is feasible to do this; however, protocol changes are required in the DAM & CRR Sections to validate the credit requirement at the Counter-Party level
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Discussion Topic #3 – ERCOT’s Assumption on Real Time Liability (RTL)
• Real Time Liability (RTL) is a component of AIL, considered to be the equivalent of NLRI in the ZONAL Protocols
– Real-Time Liability is defined as —The estimated or settled amounts due from or to ERCOT due to activities in the Real Time and Adjustment Period. Real-Time Liability is the amounts for Load increased by amounts for awarded DAM Energy Offers, and Energy Trade sales and is decreased by amounts for awarded DAM Energy Bids, Energy Trade purchases, and estimated or settled amounts for generation. In addition Real-Time Liability will be adjusted for CRRs settled in Real Time and for other amounts due to or from ERCOT by the Counter-Party.
ERCOT intends to estimate the RTL using the specific components identified and other readily available estimated data but does not intend to fully estimate all liabilities
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Discussion Topic #4 - Formula for AIL
• Average Incremental Liability (AIL) as in the Protocol
• Average Incremental Liability (AIL) as proposed
• Reason for Change:– Data included in AIL is only a subset of data included in EAL; Therefore, AIL is
used to test the reasonableness of EAL and not a replacement for EAL.
ERCOT Proposal: Make the change in the Nodal Protocols for consistency
AIL = Max [0,
N
d 1 (RTLd) – Max[0, (ADTE / 40 N 0.9)]]
AIL = d (RTLd) – Max[0, (ADTE / 40 N 0.9)]
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• Protocol Definition for Weighting Factors for CRR in FCEFCE = FCEOBL + FCEOPT + FCEFGR– W1, W2, W3, W4 are weighting factors for each of the three
components W1 – Weighting Factor Associated with Auction Clearing Price W2 – Weighting Factor Associated with Today’s Value of CRR W3 – Weighting Factor Associated with Five Day Value of CRR W4 – Weighting Factor Associated with Previous Month Value of CRR
• ERCOT Proposal: Build the system so that weighting factors may be customized by the month for which CRRs apply
• Reason: To allow flexibility in valuing CRRs based on how far in the future they will apply. For example, the set of weighting factors for FCEOBL for CRRs applicable for the remainder of the current month may be different from the set for FCEOBL for CRRs applicable for a month one year from now.
Discussion Topic # 5 -Future Credit Exposure – Weighting Factors
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Discussion Topic # 5 -Future Credit Exposure – Weighting Factors
Future Credit Exposure Calculation
10/6/2006Unified Operating Schedule Page 2 of 4
February 07 March 07 April 07 May 07 June 07 July 07 August 07 September 07 October 07 November 07 December 07
February 07 March 07 April 07 May 07 June 07 July 07 August 07 September 07 October 07 November 07 December 07
February 07 March 07 April 07 May 07 June 07 July 07 August 07 September 07 October 07 November 07 December 07
FCEOBL
FCEOPT
FCEFGR
3/25/2007
W2 * TOPTV
3/24/2007
W2 * TCRRV
3/24/2007
W3 * FDOPTV
3/23/2007
W3 * FDTCRV
3/23/2007
W4* PMOPTV
3/21/2007
W4* PMTCRV
3/24/2007
W1 * ACP
March 07
3/21/2007
W4* PMOBLV
3/24/2007
W3 * FDOBLV
3/21/2007
W2 * TOBLV
3/23/2007
W1 * ACP
December 07
3/23/2007
W1 * ACP
March 07August 07
May 07June 07
July 07
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Discussion Topic # 6 – ERCOT’s Assumption on TOBLV,TOPTV, TCRRV
• Nodal Protocol Language for TOBLV, TOPTV, TCRRV– TOBLV Today’s PTP Obligation Value– TOPTV Today’s PTP Option Value– TCRRV Today’s FGR Value
Considering the timeline of data transfer from other ERCOT IT systems to CMM and the execution timeline of credit exposure monitoring calculation, ERCOT assumes the following:– TOBLV Today’s Most Recent PTP Obligation Value– TOPTV Today’s Most Recent PTP Option Value– TCRRV Today’s Most Recent FGR Value
ERCOT Proposal: Make the changes indicated to the Nodal Protocols.
2020
Discussion Topic #7 – Protocol Language for FCEFGR
• The Nodal Protocol Language for FCEFGR refer to the following three terms:– TCRRV Today’s FGR Value– FDCRRV Five-day FGR Value– PMCRRV Previous Months’ FGR Value
ERCOT Proposal: Rename the three terms to TFGRV, FDFGRV and PMFGRV in the Nodal Protocols to align with the rest of the terminology for Flow Gate Rights
2121
• ERCOT credit staff evaluated two options when looking at the transfer process for CRRs. – Option 1: Handle somewhat manually as a “one off”– Option 2: Handle in an automated way
• If handled manually– Credit staff will generate and review calculations and approve the
transfer– Business process would take 3-5 business days
• If handled in an automated way– Transfers may be handled more quickly– More costly to develop the system– No benefit of a “human” review of values for both entities
• ERCOT Proposal: Handle the transfer of CRRs manually as a “one off” process given the anticipated level of transfers.
Discussion Topic # 8 – Transfer of bilateral CRRs and credit requirements
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Questions
?