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Exposure Stress Testing CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public June 12, 2014

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Exposure Stress Testing CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public June 12, 2014. Exposure Stress Testing. Background: SWCAP of $7000 was effective June 1, 2014 and $9000 SWCAP will be in place June 1, 2015.

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Exposure Stress Testing

CWG/MCWG

Suresh Pabbisetty, CQF, CSQA.

ERCOT Public

June 12, 2014

exposure stress testing
Exposure Stress Testing
  • Background:
  • SWCAP of $7000 was effective June 1, 2014 and $9000 SWCAP will be in place June 1, 2015.
  • Operating Reserve price adders were effective June 1, 2014. These 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

exposure stress testing1
Exposure Stress Testing
  • Uncovered Exposure:
  • RT 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

exposure stress testing2
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

exposure stress testing3
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

exposure stress testing4
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.

Additional Scenarios:

Twenty-eight high price intervals with imbalance volume similar to that of August 2011 event, during which there were 28 intervals (15-minute) that had prices close to cap over the period of August 2, 2011 through August 6, 2011 .

Four high price intervals with imbalance volume similar to that of January 6, 2014.

ERCOT Public

exposure stress testing5
Exposure Stress Testing
  • Results:
  • Note incremental exposure includes positive values only.

ERCOT Public

exposure stress testing6
Exposure Stress Testing

Results:

Note: Of the $460m incremental positive exposure in the August 2011, $390m is attributable to net load Counter-Parties, and $70m to net generation Counter-Parties.

ERCOT Public

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Q & A

ERCOT Public

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