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Market Credit Working Group Update to WMS

Market Credit Working Group Update to WMS. Wed. July 21, 2010. MCWG July 2010 Overview. MCWG Activities Since June 2010 WMS Update ERCOT Market Trials and Credit Requirements MCWG Activities Since June 2010 WMS Update 2010 Goals (and parking lot) Next Meeting MCWG.

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Market Credit Working Group Update to WMS

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  1. Market Credit Working Group Update to WMS Wed. July 21, 2010

  2. MCWG July 2010 Overview • MCWG Activities Since June 2010 WMS Update • ERCOT Market Trials and Credit Requirements • MCWG Activities Since June 2010 WMS Update • 2010 Goals (and parking lot) • Next Meeting MCWG

  3. ERCOT Market Trials and Credit Requirements • Indications from different market participants that credit requirements have improved significantly, with improved data, but that credit requirements remain extremely high • This applies to both the energy markets and CRR markets • Note NPRR 206 has now been been incorporated into the credit requirements, and the ‘e’ factors are expected to be incorporated on or about August 9th • Other issues identified • Availability to reports, and accuracy ~much improved, but issues are still being worked on by Staff • Clarity on how cutover will work ~Staff is developing a plan to use nodal prices for Day 1 • Parallel review of credit requirements has begun (next slide)

  4. MCWG Activities Since June 2010 WMS Update • MCWG meet twice since the last WMS update • July 2nd, 2010 (via phone) • WMS Update, and discuss kick-off meeting for parallel process to review nodal credit • July 15th, 2010 (in person + WebEx) • kick-off meeting for parallel process to review nodal credit (next slide)

  5. July 15th Meeting: Nodal credit MCWG reviewed the following areas • DAM Credit Requirements • CRR Credit Requirements • CRR Security Interest Agreement (separate item/slide) • NPRR 241

  6. July 15th Meeting: DAM and CRR’s • Quality of data has improved for the energy markets. Credit requirements have come down significantly, but remain high • ‘e’ factors remain outstanding until early August • MCWG will monitor the impact of the ‘e’ factors and review again at a separate face-to-face meeting in late August 2010 • CRR credit requirements represented largest part of the face-to-face meeting • Luminant provided a presentation (distributed to exploder) • Findings/recommendations provided by Luminant (next slide) • No consensus by MCWG to the recommendations by Luminant • MCWG will continue to monitor and discuss again in late August at the next face-to-face meeting

  7. Luminant CRR Proposals (1) Prior to Nodal Inception Revise variable inputs within the Auction Clearing Price Exposure (“ACPE”) calculations and manage FMM Weights Decrease “Y” and “A” from $1.5 to a “Rightsized” value Eliminate the need for a negative bid to post collateral (i.e. remove absolute bid price requirement) Revise the FMM weights following an auction to reflect 100% ACP and monitor

  8. Luminant CRR Proposals (2) Other Parking Desk Proposals for CRR’s Incorporate partial netting of CRRs into TPE, DAM & DALE Increase ACL utilization limit from 90% Revise FCEOBL to equal the Sum of ACPEOBL and - FMMOBL Bid Auction constraint based on the Shadow Price or a Historical Auction/Market Value Determine ACPE values based on Source/Sink, Volatility, TOU, Term, CPTY Design FCE equations to incorporate FWD market values Incorporate CRR Account Balance into the TPE equation Exclude Counterparties who have granted a first lien from the Auction Exposure Calculation and from prepayment requirements

  9. First Priority Security Interest (CRR’s) Document Timeline from Staff • July 1, 2010 – ERCOT circulates initial draft to CPs. • July 19, 2010 – Comments back from CPs. • August 2, 2010 – ERCOT circulates second draft to CPs. • August 17, 2010 – ERCOT reviews document with F&A. • September 21, 2010 – Final review and possible approval by F&A and ERCOT Board.

  10. First Priority Security Interest (CRR’s) • MCWG discussed the First Priority Security Agreement at the July 15th meeting • Appears Munis can not sign • Others indicated they may be prohibited under their financing agreements, though this was not uniform • Stakeholders were encouraged to submit comments that may allow them to sign • Will revisit after ERCOT reviews the first set of comments • Stakeholders may need to seek waivers from lenders, or in the case of Muni’s a Protocol change, to allow for netting

  11. NPRR 241 • Issue of XML versus XLS format was discussed and Staff is to review • Staff to review language to ensure language is consistent with intent, and modify accordingly.

  12. MCWG Parking Lot for 2010 Direction of invoice timing change Perform bottom up review of existing creditworthiness standards (after CCRO Best Practices efforts) Reduction of settlement cycle due to PRR 568 (7days) Further reductions in settlement cycles This includes looking at the potential to reduce the settlement cycle 30% with improved metering

  13. Next Meeting MCWG • Friday July 23th 9:30AM (phone) • Update on MCWG presentation to WMS • Other business

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