ERCOT Credit Finance Sub Group Meeting Notes - 8/16

Agenda                                   

1.     Antitrust Admonition

2.     Approval of Minutes (Vote)

3.     New Invoice Report

a.     ERCOT shared that the internal conversations continue about the invoice report. They presented their mock-up version. The mock-up was well-received by market participants, as far as content.

b.     However, the group discussed the best timing for this report. Some stakeholders asked whether this can be generated after the last invoices on the same day that the invoices posted, or for other specific invoice timing. The lag to next day was an issue for certain parties, but ERCOT noted that some invoices have to be manually posted, so same day is a challenge.

4.     EAL change proposals

a.     Presentation posted and given by DC Energy on potential changes to improve the credit estimated aggregate liability (EAL) calculation, improve accuracy, and address negative credit gaps.

b.     They presented three conapts to help adjust the shape and the credit curves and stakeholders discussed RFAF as only multiplied by RT activity, not DAM activity. They stated that EAL is an incredibly complex calculation that not many people really understand it outside of ERCOT.

c.     It was noted that Rainbow Energy has addressed similar concerns at previous meetings.

5.     Solution to DC Ties double-counting

a.     ERCOT presentation posted and given to speak to DC Tie export double counting. They are working on a technical solution to eliminate the double counting. They are considering removing DC Tie exports from load estimates and estimated load ratio shares. They hope to be able to implement a solution by April of 2024. This resolution should not require any protocol revisions.

6.     Change to EAL calculation: analysis of various scenarios

a.     ERCOT presentation posted and given, speaking to the various proposals that have arisen for how to address this issue. EAL is a component of TPLE and is informed by RFAR/RTLF, DFAF/DALE, and exposure to the market (RTCLNS).

b.     They presented four different scenarios to adjust the calculation. DC Energy stated that their preferred idea, as suggested above, is compatible with Scenario 2. Rainbow Energy suggested that Scenario 4 was worth exploring because part of the problem has resulted from not netting (import and export exposure) and they think netting must be part of the solution, consistent with Scenario 4.

c.     ERCOT will bring an update to the next CFSG meeting.

7.     Letter of Credit concentration limits

a.     ERCOT provided a brief update. They are working on the draft NPRR to revisit these limits, related to collateral calls. They received comments about whether it might be appropriate to institute a grace period to amend the LC to increase it is once they’ve reached their current limit. ERCOT responded that they would have 4 months after reaching the limit to request and increase.

b.     Stakeholders raised concerns over changes associated with the implementation of this revision and association with NPRR1112. More market participants are going to be relying on letters of credit.

                                               i.     Some banks don’t have large tangible net worth and may reach the Letter of Credit limits quickly. Also, for banks that have a $750M cap, there is not secondary cap if that first cap is exhausted. This could result in sizeable letters of credit from individual banking institutions. In particular, it was pointed out that many electric cooperatives use Cooperative Finance Corporation, which doesn’t hold large tangible net worth.

                                             ii.     ERCOT understood the concern being expressed, but they didn’t see a way to differentiate the market participants who use these financial institutions. They also responded that there are instances where specific banks have held credit up to a billion, for short periods, which is above the $750M. This happens during the summer months, and they the amount of credit go down moving into the fall.

c.     ERCOT is open to discussing these overages, and setting a secondary limit. Existing protocols allow for these overages.

d.     A stakeholder raised the idea of a scoring model for banks (similar to concepts from NPRR1067), instead of relying solely on ratings.

8.     NPRR1112

a.     ERCOT provided a verbal update. They have sent market notices and at the next CFSG meeting they will provide a summary of the changes to reports that will result from the implementation of this revision. October 1^st, is the implementation date.

b.     Stakeholders asked whether parties will need to provide termination notices for individual agreements that they held. Market participants may choose to keep agreements in place, however, and that guarantee is no longer a basis to provide unsecured credit in ERCOT. Therefore, the value will be zeroed out. ERCOT will follow-up with their Legal department and respond next month.

9.     Standard Review of NPRRs for Credit Impacts (Vote)

a.     ERCOT presentation posted and given.

b.     NPRR1186 was deemed as not impacting credit calculations, on the combo ballot.

10.  ERCOT Updates

a.     Credit Exposure

                                               i.     ERCOT presentation posted and given.

Combo Ballot – ballot passed

11.  New Business

a.     The October meeting with be in-person (hybrid). An in-person meeting will be held once a year.

12.  Adjourn