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NPRR638 (Seasonality) Back-Cast ResultsCWG/MCWGSuresh Pabbisetty, ERP, CQF, CSQA.ERCOT PublicOctober 3, 2014

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Background

Background:

•At its September 17, 2014 meeting, CWG/MCWG requested analysis to estimate the impact of using the maximum, instead of the average, of recent statements to compute RTLE and DALE.

ERCOT Public

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Back-Casting Model

Model Assumptions:

• Prices do not reflect replacement of historic price caps with current price caps which is in the NPRR.

• Model does not include the look-back of rolling averages over previous 40 days as proposed in the draft NPRR. This increases volatility of back-cast values.

• Model uses standard M1 extrapolation value. This will tend to understate back-tested credit exposure values.

• Prices do not include ORDC price adders.

ERCOT Public

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Back-Casting Prototype Results – DAM Price Spread

DAM price spread was calculated as the difference between DAM Price Estimate based on proposed methodology and actual DAM Settlement Point Prices.

ERCOT Public

-$250

-$200

-$150

-$100

-$50

$0

$50

$100

$150

DAM Price Spread

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Back-Casting Prototype Results – RTM Price Spread

RTM price spread was calculated as the difference between the RTM price estimate based on NPRR 638 and actual RTM Settlement Point Prices. Summer prices are higher under NPRR 638.

ERCOT Public

-$500

-$400

-$300

-$200

-$100

$0

$100

RTM Price Spread

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Back-Casting Prototype Results – RTLE comparison

Seasonality RTLE using average statement amount compared to max.

ERCOT Public

Notes: Data points represent one day per month only.

(200,000,000)

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

NPRR638 RTLE Backcast

RTLE with Average RTLE with Maximum RTLE Current Calc RTM Statements Sum

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Back-Casting Prototype Results – RTLE comparison

RTLE based on NPRR638 methodology compared with RTLE based on current Protocol calculations.

ERCOT Public

Notes: Data points represent one day per month only.

-$80

-$60

-$40

-$20

$0

$20

$40

$60

$80

$100

$120

$ millions

NPRR638 RTLE Backcast

NPRR638 RTLE Current RTLE Calc

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Back-Casting Prototype Results – DALE comparison

Seasonality DALE using average statement amount compared to max.

ERCOT Public

Notes: Data points represent one day per month only.

(200,000,000)

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

NPRR638 DALE Backcast

DALE with Average DALE with Maximum DALE Current Calc DAM Statements Sum

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Back casting Prototype Results - Summary

ERCOT Public

DAM and RTM spreads:•DAM and RTM prices are materially higher during summer peaks•DAM and RTM spreads generally follow seasonal patterns•Methodology does not account for unexpected price spikes

RTLE comparison:•Proposed methodology RTLE (Real-Time Liability Extrapolated) is higher during summer months and generally lower during non-summer months.•Aggregated RTLE based on NPRR638 methodology appears more volatile than current methodology due to differential in lookbacks which is under review.•Based on earlier back-testing, RTLE increases in the aggregate for a majority of Counter-Parties (decreases primarily for generators).

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Questions

ERCOT Public