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NPRR 206 DAM Credit Requirements Reduction: E Values and Percentiles

NPRR 206 DAM Credit Requirements Reduction: E Values and Percentiles. Luminant Proposal. NPRR 206 Goal and Luminant’s Current Proposal. Goal Encourage DAM Participation Right size collateral requirements Recognize offsetting risk Reflect basis risk between offsetting bids and offers

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NPRR 206 DAM Credit Requirements Reduction: E Values and Percentiles

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  1. NPRR 206DAM CreditRequirements Reduction:E Values and Percentiles Luminant Proposal

  2. NPRR 206 Goal and Luminant’s Current Proposal • Goal • Encourage DAM Participation • Right size collateral requirements • Recognize offsetting risk • Reflect basis risk between offsetting bids and offers • Enable hedged entities to bid in a manner that ensures price risk is managed and unnecessary real time short positions are not a result of a bidding strategy that is constrained by unnecessary and burdensome working capital obligations

  3. BIDS 4.4.10 (6)(a) Bid Exposure = Conditional Cap Exposure Implementation + E1 Adjustment Bid Exposure = Bid Quantity x [ Min [ Bid Price , “D” ] + E1 x Max [ 0 , Bid Price – “D” ]]

  4. BIDS - Luminant’s “E1” Definition Variable Definitions

  5. ENERGY ONLY OFFERS (“EOO”) 4.4.10 (6)(b) EOO Exposure = Energy Only Collateral Reductions + Energy Only Collateral Requirements EOO Exposure= [QEOO:P≤ath x E2 x -SPPbth] + Max [ 0 , [SPPRT -SPPDA]95th ] x E3 x QEOO

  6. ENERGY ONLY OFFERS – LT Luminant E2 and E3 Variable Definitions

  7. THREE PART OFFERS 4.4.10 (6)(c) Three Part Offer Exposure = A Qualifying 3Part Collateral Reduction Three Part Offer Exposure= [Q3P:P≤yth x - SPPzth]

  8. PTP Obligations & Ancillary Services 4.4.10(6)(d-e) PTP Exposure = QBid x [Max [ 0 , PBid ] + Max [ 0 , [ RT-SPPSource –RT-SPPSink ]”u”th percentile ] ] Ancillary Services Not Self Arranged = MCPC”t”th percentile x QAS not self-arranged

  9. LUME Summary Initial 60 Day Logic • Be Ultra-Conservative • Introduce a Minimum E1 value • Increase calculated E1 by 20% by multiplying 1.2 times E1 observations • Recognize offsetting risk at reduced levels • E3 = 1 • E2 = 1 – E1 • Lower A,B,Y,Z (Contingent Offer Offsets) • Increase D (Contingent Maximum Bid Posting Obligation) Post 60 Day Logic • Be Conservative • Utilize Data Available to ERCOT in variable calculations • E1: Allows Hedged Counterparties to bid in a manner that ensures RT short obligations are minimized by offsetting offers clearing without bids clearing • E2, A, Y: Recognize offsetting risk • B, Z, D: Reflect basis risk between bids and offers • Inclusion of CRRs and PTPs in E1, E2, E3 calculations recognizes basis risk and encourages basis risk management • E3: Posting obligation for Energy Only Offers • Develop a process (implementable by go-live) that is dependant on a counterparty’s historical activity to calculate exposure that adequately collateralizes risk, and provides ERCOT the discretion to recalculate when historical activity doesn’t align to current risk • Continue to develop a netting solution for the nodal parking deck

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