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The model was calibrated by comparing to historic actual daily exposure levels. However, the following should be noted: The model does not reflect potential changes in behavior in response to higher caps. Load fulfillment strategies will differ by participant. The model was designed to estimate aggregate market exposure, not that of individual market participants. Actual credit exposure calculations are dependent on actual and historical market behavior of individual participants. Credit exposure calculations do not incorporate revisions from NPRR 347/400 expected to be implemented in late Model Assumptions
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The credit exposure impact of higher system-wide offer caps was estimated using an internal ERCOT model under four scenarios: 1. (Base Case) “Normal” summer day in which no peak price intervals
are reached2. Approximate maximum exposure in August 2011 (two days with
peak prices over two weeks, 12 intervals at cap)3. Four days with peak prices over two weeks4. Six days with peak prices over two weeks
Credit Impact of Increased Caps
The following assumptions were used to estimate credit exposure:• “Normal” summer daily volume• Volume increase on days with peak intervals• Number of peak intervals in Real-Time and Day-Ahead markets• How net load entity requirements are filled: self-generation,
bilaterals, Day-Ahead or Real-Time Market, for both peak- and non-peak periods
• Average Real-Time and Day-Ahead Market prices
In the stress scenarios the variables changed were the price caps and the number of days and intervals with peak pricing.
Model Assumptions
The model was calibrated by comparing to historic actual daily exposure levels. However, the following should be noted:• The model does not reflect potential changes in behavior in
response to higher caps.• Load fulfillment strategies will differ by participant.• The model was designed to estimate aggregate market exposure,
not that of individual market participants. Actual credit exposure calculations are dependent on actual and historical market behavior of individual participants.
• Credit exposure calculations do not incorporate revisions from NPRR 347/400 expected to be implemented in late 2012.
Model Assumptions
The chart below shows the modeled sensitivity of credit exposure to different price cap levels.
Results
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$3,000 $5,000 $7,000 $9,000 $11,000 $13,000 $15,000
Tota
l Pot
etial
Exp
osur
e ($
m)
Price Cap
Estimated Total Potential Exposure
Scenario 4
Scenario 3
Scenario 2
Base CaseAugust 2011
In the base case price caps have no impact. In Scenario 2 (August 2011) doubling the cap increases credit exposure by a factor of approximately 1.5.
Results
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$3,000 $5,000 $7,000 $9,000 $11,000 $13,000 $15,000
Tota
l Pot
etial
Exp
osur
e ($
m)
Price Cap
Estimated Total Potential Exposure
Scenario 4
Scenario 3
Scenario 2
Base Case
Questions
