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Exposure Stress Testing CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public March 22, 2014

Exposure Stress Testing CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public March 22, 2014. Exposure Stress Testing. Background: SWCAP of $7000 will be effective June 1, 2014 and of $9000 by June 1, 2015.

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Exposure Stress Testing CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public March 22, 2014

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  1. Exposure Stress Testing CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public March 22, 2014

  2. Exposure Stress Testing • Background: • SWCAP of $7000 will be effective June 1, 2014 and of $9000 by June 1, 2015. • Operating Reserve price adders will be effective by June 1, 2014. This could increase the frequency of above-average prices. • ERCOT is seeking to measure the impact of price scenarios on exposure. • Risk: • Increased volatility and high prices could result in a significant increase in exposure under stress conditions. ERCOT Public

  3. Exposure Stress Testing • Uncovered Exposure: • Exposure in excess of security posted in a stress scenario over one day. • Increased Exposure = ΣiΣ p[(Volume Escalation Factor * Real Time Imbalance Volume) * (Stressed RTSPP – RTSPP)] • Where i = stress interval, p = settlement point, RTSPP = Real Time Settlement Point • Uncovered Exposure = Increased Exposure + TPE – CRR Locked ACL - Collateral Held • A stress scenario is a market condition in which certain intervals have prices at the SWCAP and potential imbalance volume escalation. ERCOT Public

  4. Exposure Stress Testing • Notes: • Stress scenarios are applied only to Real Time Market. • Does not recalculate the affect on TPE (especially RTLE) once the high prices are settled. • Requires an assumption of the number of stress intervals, price, and volume escalation levels. ERCOT Public

  5. Exposure Stress Testing • Assumptions: • April 10, 2014 data used for base case. • Prices are scaled based on January 6, 2014 Operating Day, hour 7. • Stress case intervals begin at 15-minute interval #61 (ie 15:15). • Imbalance volume escalation is applied uniformly across all Settlement Points. • Derived incremental exposure is added to existing TPE calculation. ERCOT Public

  6. Exposure Stress Testing • Scenarios: • One high price interval with no imbalance volume escalation. • Ten high price intervals with no imbalance volume escalation. • One high price interval with 10% imbalance volume escalation. • Ten high price intervals with 10% imbalance volume escalation. ERCOT Public

  7. Exposure Stress Testing • Results: • Note incremental exposure includes positive values only. ERCOT Public

  8. Exposure Stress Testing Results: ERCOT Public

  9. Q & A ERCOT Public

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