Seasonality NPRR Back-Casting Results CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public

1. Seasonality NPRR Back-Casting Results CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public March 19, 2014

2. Background • Background: • ERCOT has developed a seasonal and settlement point-based exposure calculation methodology for DAM and RTM. • A white paper explaining this methodology was presented to CWG/MCWG in its August 28, 2013 meeting. • A draft NPRR on this concept was presented and discussed in the January 22, 2014 CWG/MCWG meeting. • The concept was further discussed at the February 28, 2014 CWG/MCWG meeting in which ERCOT was asked to estimate the impact of the proposed calculations compared to current methodology. ERCOT Public

3. Back-Casting Prototype • Prototype: • ERCOT has developed a prototype model to perform seasonal and settlement point-based exposure calculations. • This prototype used the following data: • Realized historic Counter-Party aggregated volumes • DAM and RTM prices • DAM and RTM statements. • Operating days since Nodal Go-Live through February 19, 2014. • Compares realized/actual Settlement Point Prices to prices estimated based under the proposed methodology. • Compares seasonal and settlement point-based RTLE to RTLE based on current Protocols. • RTLE was estimated for the following dates: • August 1st, 2013, August 2nd, 2013, September 1st, 2013, October 1st, 2013, November 1st, 2013, December 1st, 2013, January 1st, 2014, February 1st, 2014. ERCOT Public

4. Back-Casting Prototype Limitations • Limitations: • Prototype does not include the look-back of rolling averages over previous 40 days as proposed in the draft NPRR. • Instead it used only one set of rolling average values as of the calculation date / business date. • Prices do not reflect replacement of historic price caps with current price caps. • Prices do not include Operating Reserve Price adders. • Limited validation performed due to time and resource constraints. ERCOT Public

5. 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 for an Operating Date and Operating Hour. ERCOT Public

6. Back-Casting Prototype Results – RTM Price Spread • RTM price spread was calculated as the difference between RTM Price Estimate based on Seasonal and Settlement Point NPRR and actual RTM Settlement Point for an Operating Date and Operating Hour. ERCOT Public

7. Back-Casting Prototype Results – RTLE comparison • RTLE based on Seasonal and Settlement Point draft NPRR compared with RTLE based on current Protocol calculations. ERCOT Public

8. Back casting Prototype Results - Summary • DAM and RTM spreads: • DAM and RTM spreads are materially higher during summer peaks • DAM spread and RTM spread generally follow seasonal patterns. • RTLE comparison: • Aggregated RTLE based on seasonal and settlement point methodology is more volatile than current methodology • Proposed methodology RTLE is high during summer months and lower during non-summer months. • Based on the sample results, RTLE increased in the aggregate for 79 Counter-Parties and decreased for 55 Counter-Parties. • Results may significantly vary based on calculation/business date, Counter-Party-specific most recent activity, historic prices, price caps, and Operating Reserve Price adders. ERCOT Public

9. Questions ERCOT Public