Next Steps to Reduce the RTM Settlement TimelineAugust 29, 2013 COPS Workshop Update to TAC

Harika BasaranCOPS Chair

September 5, 2013

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August 29, 2013 COPS Workshop Highlights

• Well attended by diverse stake holders• Detailed presentations by ERCOT & TDSPs• All materials posted http://www.ercot.com/calendar/2013/08/20130829-COPS

• Goal was more fact finding and educating on the processes• All participants agree that the faster cash clears, the better it is for the

whole market• Disagreement is on the tradeoffs between reduced time line and

availability of accurate data & cost to system changes• Another disagreement is on the impact on the credit calculations vs.

reduced risk of uplift in case of market default• Developed 3 options to achieve the reduction in settlement timeline• Depending on the option, it may require significant protocol changes

from EPS meter to dispute processes to credit calculations

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Options Proposed at the Workshop-

1. Add a secondary Initial Settlement Statement1. OD + X, OD + Y where X + 7 = Y

2. Values of X and Y will need to be determined

3. It has been implemented in other ISOs (see slide #21)

4. Possibilities are: {1,8}, {2,9}, {3,10}, {4,11}, {5,12}, {6,13},

5. Days between X and Y proposed at 7 but could be something different, must be not too short but also not too long

6. Consider also moving Finals and True Ups from the way they are now OD + 57, and OD + 180

7. What is the minimum value of X?

8. Can X be less than 3 if the prices are not final after 2 business days per protocols?

9. Can X be less than 3 if the MPs still can enter trades after the adjustment period per protocols?

10. Can X be less than 2 so that RTM settles before DAM?

11. Additional settlement run also means additional extract data to be posted

12. MPs with load & gen have to pull, save and maintain bigger databases

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Options Proposed at the Workshop-

2. Settle DAM & RTM at the same time but include only certain charge types for RTM on the first run, then run another complete RTM

1. Settle RTM at OD + X with DAM for all charge types that have validated data available

2. QSE to QSE trades, EPS metered generation and load

3. Run another complete RTM Initial settlement after Y days and rerun all the RTM charge types again

4. Which specific RTM charge types need to be settled more quickly and have complete and validated data to be settled in the first run?

5. Values of X and Y need also to be determined

6. Consider moving Final and True up as well

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Options Proposed at the Workshop-

3. Set target OD + 5 for June 1, 2014 and OD + 3 for June 1, 20151. Tie targets in reduction to offer cap increases

2. Move the days for Final settlement statement to OD + 45 or less depending on TDSP processes

3. Keep True up at OD + 180 for complex disputes

4. Give MPs and ERCOT time to upgrade, improve their systems to capture accurate data and to comply with faster times

5. Can be phased as going in stages to OD + 6, then OD + 5, OD + 4 and OD + 3

6. Require an additional settlement run only if necessary

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Issues with settling in very short times OD + 1, 2, 3

• GENERATION DATA:• Generation data is the most significant one & determines the ERCOT load

• Most generators have EPS (ERCOT polled settlement meter) requirement per protocols (Section 10.2.3)

• Currently no proxy or estimation process exist such as profiles for generation data or NOIE bi-directional points

• Can we use real time SCADA (telemetry) data for the first run?

• Generators have been always paid based on TDSP data

• Need new protocols and system changes to include SCADA (telemetry) data as proxy for EPS by ERCOT and MPs

• TDSPs may have to increase their wire charge to recover

• Tradeoff is ongoing cost to stakeholders vs. benefits from reduced default uplift risk that may or may not happen at some unpredictable frequency & magnitude

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Issues with settling very in short times OD + 1, 2, 3 cont.

• PRICES & TRADES:• RTM prices are not final until after 2 business days per protocols (6.3.6)

• Do we want to settle RTM with unfinalized prices ?

• MPs can submit trades per protocols till next day 14:30 (4.4.2 (3))

• Do we want to settle with incomplete trades?

• AVALIABILITY OF LOAD DATA FOR THE INITIAL RUN

• Total load volume ERCOT wide (# of ESIIDs as of July 2013) Total % Available by Initial Settlement OD+7

– AMS 45.60% 45.60 %

– COMP_IDR 24.60 % 4.3 %

– NOIE 26.80 % 24.3 %

– NIDR 3:00 % 0.4 %

– Impact of shortening time line will affect each of the meter types differently

– Although majority AMS is available next day, ERCOT & TDSPs need to communicate to resolve any issues if time line is very short

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Issues with settling very in short times OD + 1, 2, 3 cont.

• GENERAL CONCERNS RAISED WITH SETTLING TOO FAST:• ERCOT and TDSPs have no time to check or do any reasonable validation• Possibility of charging the incorrect MP and paying to the incorrect MP• Credit calculations will also use that first cut of initial settlement• At what point does the risk of generation data availability become a “showstopper” or

require a solution?• At what point do we anticipate transitioning from settlement on predominantly TDSP-

submitted usage data to predominantly ERCOT-estimated usage data?• At what point is an additional settlement iteration needed in order to mitigate risk

associated with waiting until Final Settlement to resolve data availability and accuracy issues? At X=6, 5, 4, 3?

• At what point do we anticipate introduction of credit risk that may outweigh credit benefit?

• Cost of to ERCOT and all stakeholders to improve accuracy of the data & complying with additional settlement run

• Tradeoff is cash clearing based on incomplete and not validated data until the second initial settlement run and cost of upgrades & staffing vs. benefits from reduced default uplift risk that may or may not happen at some unpredictable frequency & magnitude

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Next Steps

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Next Steps -

• Scheduled a second workshop in lieu of September COPS meeting– September 10, 2013 Tuesday WEBEX and Met Center

• Homework– Pros and cons of the each option for each MP– Impact on systems & staffing of each option– Is there a floor of OD + X that market should not go below that is determined by

posting of the final RTM prices and availability of good generation data & trade data?– When does the cost of reducing time line and adding another settlement run

becomes more than benefits achieved with reduced risk of default uplift ?

• Objectives of the second workshop– Is there an option all MPs can agree on?– Is there a hybrid of all 3 options most of the MPs can agree on?– If not define alternatives with pros and cons for each– Draft NPRR language and time line for implementation of the next steps

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The following slides are provided for informational purposes only and were

developed by ERCOT Staff for the workshop

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Settlement Cycle Effect on ERCOT Credit Exposure

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Settlement cycle effect on credit exposure

ERCOT’s credit exposure calculation addresses a number of credit risk components.

EALq = Max[(IELq during the first 40-days + DALEq), (Max{RTLE during the previous 40-days} + DALEq), (RTLFq + DALEq)] + Max[RTLCNSq,Max{URTAq during previous 40-days}] + OUTq + PULq

TPEA=

Max [0, MCE, Max(0, (EALQ + CRRA*EALA))]

EALa = Max[Max[RTLCNSq, Max{URTAq during previous 40-days}] + OUTq + PULq

TPES=

Max [0,((1-CRRA)*EALA)] + Max [0, FCEA] + IA

FCEa = FCEOBLa + FCEOPTa

FCEOBL = Max(ACPEOBL, -

FMMOBL)

FCEOPT = -FMMOPT

IEL = DEL x Max[0.2, RTEFL] x RTAEP x 40IEL = DEG x Max[0.2, RTEFG] x RTAEP x 40IEL = DEL x Max[0.1, RTEFL] x RTAEP x 40 + DEG x Max[0.1, RTEFG] RTAEP x 40

DALE = Average of CP level total of DAM Statements of QSEs by operating date * 16

RTLE = Average of CP level total of RTM Initial Statements of QSEs by operating date * M1

URTA = Average of CP level total of RTM Initial Statements of QSEs by operating date * M2

RTLF = 7 days Sum of CP level total of RTM Estimates of QSEs by operating date * 150%

OUT = OIA + UFTA + UDAA + CARD

RTLCNS = Sum of CP level total of RTM Estimates of QSEs by operating date for all RTM completed and not settled operating days

PUL = Estimated Potential Uplift for the CP for QSEs

OIA = CP level sum of (Invoice Amount - Payment Amount)

of all Invoices of all QSEs

UFTA = Average of CP level total of RTM Final Statements of QSEs by operating date * 60 + Average of CP level total of RTM True-Up Statements of QSEs by operating

date * 180

UDAA = Sum of CP level total of DAM Estimates of QSEs by operating date for all DAM completed and not settled

operating days

CARD = CP Level Estimated Credit of CRR Auction Revenue

Distribution

URTA = Average of CP level total of RTM Initial Statements of CRRAHs by operating date * M2

OUT = OIA + UFTA + UDAA

RTLCNS = Sum of CP level total of RTM Estimates of CRRAHs by operating date for all RTM completed and not settled operating days

PUL = Estimated Potential Uplift for the CP for CRRAHs

OIA = CP level sum of (Invoice Amount - Payment Amount) of all Invoices of all CRRAHs

UFTA = Average of CP level total of RTM Final Statements of CRRAHs by operating date * 60 +

Average of CP level total of RTM True-Up Statements of CRRAHs by operating date * 180

UDAA = Sum of CP level total of DAM Estimates of CRRAHs by operating date for all DAM

completed and not settled operating days

Credit Exposure Calculations Summary

Exposure that must be secured

Exposure that must be secured

Exposure that may be

unsecured

Exposure that may be

unsecured

Future exposure from

CRRs

Future exposure from

CRRs

Day Ahead Market

exposure

Day Ahead Market

exposure

Real Time Market

exposures

Real Time Market

exposures

Mass transition risk componentMass transition risk component

Unbilled/unpaid amounts

Unbilled/unpaid amounts

Estimates for new Counter-

Parties

Estimates for new Counter-

Parties

Minimum collateral amounts

Minimum collateral amounts

Current exposure for

QSEs

Current exposure for

QSEs

Current exposure for

CRRAHs

Current exposure for

CRRAHs

ERCOT Public

Unsettled Real Time

component

Unsettled Real Time

component

Settled Real Time

component

Settled Real Time

component

Unsettled Real Time

component

Unsettled Real Time

component

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Settlement cycle revisions affect the indicated components.

EALq = Max[(IELq during the first 40-days + DALEq), (Max{RTLE during the previous 40-days} + DALEq), (RTLFq + DALEq)] + Max[RTLCNSq,Max{URTAq during previous 40-days}] + OUTq + PULq

TPEA=

Max [0, MCE, Max(0, (EALQ + CRRA*EALA))]

EALa = Max[Max[RTLCNSq, Max{URTAq during previous 40-days}] + OUTq + PULq

TPES=

Max [0,((1-CRRA)*EALA)] + Max [0, FCEA] + IA

FCEa = FCEOBLa + FCEOPTa

FCEOBL = Max(ACPEOBL, -

FMMOBL)

FCEOPT = -FMMOPT

IEL = DEL x Max[0.2, RTEFL] x RTAEP x 40IEL = DEG x Max[0.2, RTEFG] x RTAEP x 40IEL = DEL x Max[0.1, RTEFL] x RTAEP x 40 + DEG x Max[0.1, RTEFG] RTAEP x 40

DALE = Average of CP level total of DAM Statements of QSEs by operating date * 16

RTLE = Average of CP level total of RTM Initial Statements of QSEs by operating date * M1

URTA = Average of CP level total of RTM Initial Statements of QSEs by operating date * M2

RTLF = 7 days Sum of CP level total of RTM Estimates of QSEs by operating date * 150%

OUT = OIA + UFTA + UDAA + CARD

RTLCNS = Sum of CP level total of RTM Estimates of QSEs by operating date for all RTM completed and not settled operating days

PUL = Estimated Potential Uplift for the CP for QSEs

OIA = CP level sum of (Invoice Amount - Payment Amount)

of all Invoices of all QSEs

UFTA = Average of CP level total of RTM Final Statements of QSEs by operating date * 60 + Average of CP level total of RTM True-Up Statements of QSEs by operating

date * 180

UDAA = Sum of CP level total of DAM Estimates of QSEs by operating date for all DAM completed and not settled

operating days

CARD = CP Level Estimated Credit of CRR Auction Revenue

Distribution

URTA = Average of CP level total of RTM Initial Statements of CRRAHs by operating date * M2

OUT = OIA + UFTA + UDAA

RTLCNS = Sum of CP level total of RTM Estimates of CRRAHs by operating date for all RTM completed and not settled operating days

PUL = Estimated Potential Uplift for the CP for CRRAHs

OIA = CP level sum of (Invoice Amount - Payment Amount) of all Invoices of all CRRAHs

UFTA = Average of CP level total of RTM Final Statements of CRRAHs by operating date * 60 +

Average of CP level total of RTM True-Up Statements of CRRAHs by operating date * 180

UDAA = Sum of CP level total of DAM Estimates of CRRAHs by operating date for all DAM

completed and not settled operating days

Credit Exposure Calculations Summary

Exposure that must be secured

Exposure that must be secured

Exposure that may be

unsecured

Exposure that may be

unsecured

Future exposure from

CRRs

Future exposure from

CRRs

Day Ahead Market

exposure

Day Ahead Market

exposure

Real Time Market

exposures

Real Time Market

exposures

Mass transition risk componentMass transition risk component

Unsettled Real Time

component

Unsettled Real Time

component

Estimates for new Counter-

Parties

Estimates for new Counter-

Parties

Minimum collateral amounts

Minimum collateral amounts

Current exposure for

QSEs

Current exposure for

QSEs

Current exposure for

CRRAHs

Current exposure for

CRRAHs

Unsettled Real Time

component

Unsettled Real Time

component

Settlement cycle effect on credit exposure

ERCOT Public

Settled Real Time

component

Settled Real Time

component

Unsettled Real Time

component

Unsettled Real Time

component

Unsettled Real Time

component

Unsettled Real Time

component

Unbilled/unpaid amounts

Unbilled/unpaid amounts

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Estimated impact on total ERCOT credit exposures for different Real-Time Market settlement cycles.

ERCOT Public

Settlement cycle effect on credit exposure

Notes:1.M2 factor reflects unbilled historical activity. It reduces to 10 days in September to reflect the settlement cycle reduction from 9 to 7 days. The M1 factor reflects forward risk.2.Price spikes will increase exposure under any scenario.3.URTA adjusted by changing M2 factor.4.Pro rata adjustments to RTLCNS.

Current Eff. 9/2013RTM Settlement days 7 7 5 3 1 M2 days (used in URTA) 12 10 8 6 4 Est. Total Potential Exposure (TPE) ($m) 591.7$ 583.2$ 574.6$ 566.0$ 557.4$

Change ($) NA (8.6)$ (17.2)$ (25.8)$ (34.3)$ Change (%) NA -1% -3% -4% -6%

URTA, debit values only 73.0$ 60.8$ 48.7$ 36.5$ 24.3$ Change ($) NA (12.2)$ (24.3)$ (36.5)$ (48.7)$

Change (%) NA -17% -33% -50% -67%

Test Values

16ERCOT Public

Settlement cycle effect on credit exposure

Estimated impact on credit exposures for different Real-Time Market settlement cycles.

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0% - 1 2 3 4 5 6 7 8

Change in TPE for RT Invoice Days

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Estimated exposure does not decrease pro rata to RT settlement days.

ERCOT Public

Settlement cycle effect on credit exposure

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Current State

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Evolution of ERCOT’s RTM Settlement Timeline

Period Statement Invoice

8/2000 –2/2002 OD+3 Issued Weekly, due in 5 BDs

3/2002 – 12/2005 OD+17 Issued Weekly, due in 5 BDs

1/2006 – 11/2011 OD+10 Issued Weekly, due in 5 BDs

12/2011 – 3/2013 OD+9 Issued Weekly, due in 5 BDs

Daily, OD+9, due in 2 BDs

4/2013 – 7/2013 OD+8 Daily, OD+8, due in 2 BDs

8/2013 to current OD+7 Daily, OD+7, due in 2 BDs

Under Discussion X < OD+7 Daily, OD+X, due in 2 BDs

ERCOT Public

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Cash Clearing Stats on the Current OD+7 Schedule

OD + "X"$ to ERCOT:

# of ODs$ to ERCOT:

% of ODs$ to Market:

# of ODs$ to Market:

% of ODs

9 147 40.27% 0 0.00%

10 52 14.25% 95 26.03%

11 138 37.81% 51 13.97%

12 24 6.58% 179 49.04%

13 4 1.10% 32 8.77%

14 0 0.00% 6 1.64%

15 0 0.00% 1 0.27%

16 0 0.00% 1 0.27%

Total 365 100% 365 100%

• On an OD+7 timeline, the vast majority of the Operating Days have cash cleared through ERCOT within 13 calendar days from the OD.

• For each day removed from the timeline, a corresponding day is removed from the cash clearing timeline

ERCOT Public

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Benchmarking with Other ISOs/RTOs

Statement T+3, T+12, T+55,…Cash Clears ~OD+12*

Statement T+7, T+59, T+180Cash Clears ~OD+12*

Statement T+7, T+47, T+77, T+137,…Cash Clears ~OD+22*

Statement T+4 (credit only), T+7, T+14, T+55, T+105Cash Clears ~OD+21*

Statement T+1, EOM+5, ~T+120, ~T+240

Cash Clears ~OD+12*

Statement T+4B, ~EOM+120, ~EOM+300Cash Clears ~OD+12*T+10B, T+20B

Cash Clears ~OD+43*

Statement T+7B, T+2MCash Clears ~OD+49*

Statement Wkly (T+3 to T+9) Cash Clears ~OD+11*

*Cash clearing timeline based on an example day of 6/6/2013. However, non-business days have the effect of creating a range of dates during which this activity can occur. Cash clearing is from OD to payment to the Market Participant.

The statement and cash clearing timelines added to this map are approximations for an “apples to apples” comparison

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Advanced Meter Settlement Impacts – July 2013

July 2013: At month end, settling 6.3M ESIIDs using Advanced Meter data.

July 2013: 97.0% of the load in ERCOT is settled with 15-min interval data (AMS, Competitive IDR, and NOIE IDR).

ERCOT Public

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ERCOT Wide Load Volumes by Meter Type – INITIAL Settlement – July 2013

ERCOT Public

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ESI ID Data Availability “Look-Back” Analysis – August 2013

ERCOT Public

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ESI ID Data Availability “Look-Back” Analysis – August 2013

ERCOT Public

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ESI ID Data Availability “Look-Back” Analysis – August 2013

ERCOT Public

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ESI ID Data Availability “Look-Back” Analysis – August 2013

ERCOT Public

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QUESTIONS & COMMENTS