Nodal Transition Plan Options Credit Work Group May 28, 2008 Cheryl Yager
Overview • Goals for determining exposure during transition • Zonal settlement calendar • Nodal calendar • Components to consider • Transition Options Considered • Other transition options to consider?
Goals for determining exposure during transition • Ensure that collateral held during transition matches risk • Not too much • Not too little • Use general rules that are understandable and reasonable to implement • Be adaptable • If the general rules don’t fit a company’s circumstances, use flexibility to ensure collateral held matches risk
Zonal settlement calendar • Nov 20 (Thurs) – invoice with Oct 31 – Nov 6 initial data • Dec 1 (Mon due to Thanksgiving) invoice with Nov 7-13 initial data • Dec 4 (Thurs) – invoice with Nov 14-20 initial data • Dec 11 (Thurs) – invoice with Nov 21-27 initial data • Dec 18 (Thurs) – invoice with Nov 28-30 initial data - partial • EALs can be calculated at each of these dates
Nodal calendar • Dec 1 (Mon) – RT market goes live • Dec 7 (Sun) – first DAM auction • Dec 9 (Tues) – first DAM settlement statement and invoice • Dec 11(Thurs) – first RT settlement statement • Dec 18 (Thurs) – first RT invoice with Dec 1–4 settlement statements - partial • Dec 29 (Mon due to Christmas) – second RT invoice with Dec 5-11 settlement statements • Jan 2 (Fri due to New Year’s) – third RT invoice with Dec 12-18 settlement statements It will be Dec 29th or Jan 2nd before ERCOT will have enough information to have a complete calculation for the CMM system • The transition period is effectively the month of December 2008
Transition Options Considered • 1 Import detailed invoice / settlement data from Zonal and calc collateral in CMM system Benefit • CMM system begins adding data as it is available • AIL calculates effectively with an ADTE Drawbacks • Don’t necessarily want zonal “data” in CMM system • Would have to “adjust” off activity since payments from Zonal invoices aren’t brought over to CMM system
Transition Options Considered • 2 Use the IEL functionality in the new system • Calculate the EAL from Zonal invoices and enter in CMM system as IEL Benefit • Sets a “minimum” level of collateral through transition • Establishes an estimate of Zonal run-off liability • CMM system begins adding data as it is available Drawback AIL won’t have an ADTE, which may overstate liability unless manually adjusted
Transition Options Considered • 3 Estimate Zonal “run off” liability (combo of EAL and NLRI, adapted – updated weekly) and have CPs estimate RT activity for Nodal to establish an ADTE Benefits • Establishes an estimate of Zonal run-off liability • CMM system begins adding data as it is available • AIL calculates effectively with an ADTE Drawback • Historically, actual use of BES in an initial period is generally higher than initial estimates of use of BES given to ERCOT
Transition Options Considered • 4 Use ADTE and EAL/NLRI from Zonal Benefit • Zonal calculation is known and documented • CMM system begins adding data as it is available • AIL calculates effectively with an ADTE • Establishes an estimate of Zonal run-off liability Drawbacks ?
Transition Options Considered • 5 Some combo of options 2 and 4- Use IEL as a minimum and ADTE for the AIL component Benefit • Sets a “minimum” level of collateral through transition • CMM system begins adding data as it is available • AIL calculates effectively with an ADTE • Establishes an estimate of Zonal run-off liability
Other transition options to consider? • ERCOT staff is leaning toward something like Options 4 or 5, but is open to other ideas on how to handle the transition period and would like input from CWG. • Will work out a more detailed plan and timeline once we narrow down approaches • ERCOT staff recognizes that any particular method used for transition may not fit all Counter-Parties and that adjustments may need to be made.