Meeting Summary - 05/19/2025 CFSG Meeting

▶️1 - Antitrust Admonition

▶️2 - Revisions to Credit Exposure Calculations for Ancillary Service Products related to Real-Time Co-Optimization (RTC)

02.-Credit-Updates-for-RTC-v2.pdf

• Updated slides were posted this morning with red boxes indicating report changes.
• The presentation focused on changes related to credit with the RTC project.
• Unbilled Day-Ahead Amounts (UDAA) now includes virtual offers activity for ancillary services.
• Current AS activity is captured in AS payments and charges; virtual offers will be added.
• Protocol changes were listed for inclusion in reports.
• Two components of EAL calculations, real-time liability completed not settled and real-time liability forward, will include AS payments and charges.
• Addition of two new columns in reports for volumes and amounts.
• Minimum Current Exposure (MCE) calculations will capture day-ahead spread between day-ahead and real-time market prices.
• Two new columns added to MCE for extrapolated volume and amounts.
• Default Uplift supporting data reporting will capture uplift volumes in data report, with sections for initials, finals, and true ups.
• The presentation was part of implementation of RTC+B, involving minimal changes to existing infrastructure.

▶️3 - DC Energy proposal on CRR collateralization

03.-CRR-Credit-Proposal-DC-Energy.pdf

• The item discusses areas of potential exploration instead of a formal proposal regarding CRR collateral.
• CRR collateral has not been reviewed in about five years, prompting a timely exploration.
• Topics include potential improvements in collateral efficiency and accuracy.
• ERCOT might provide a high-level overview of current CRR collateral rules in future meetings.
• Two main ideas were discussed: interactions between obligations and options, and monthly collateral calculation approach.
• Current rules calculate collateral for obligations and options separately, ignoring portfolio interactions.
• Current method calculates each month in isolation, leading to potential over-collateralization.
• Recommendation includes considering a single Portfolio Weighted Adder (PWA) where obligations and options are considered together.
• Another suggestion is to adjust the correlation assumption between monthly outcomes from 100% to possibly 50%, similar to PJM's methodology.
• A gap analysis is proposed to assess the adequacy of current collateral requirements.
• Discussion on collateralization is open for further exploration and analysis, potentially leading to a comprehensive review.
• Some participants express support for revisiting the collateral framework given potential inefficiencies.
• There might be wider market implications and benefits in terms of freeing up capital and improving market processes.
• Consensus for more active participation and continued discussion to address CRR collateralization.
• Possible revisit of a previous proposal on default uplift allocation connected to collateral discussions.

▶️4 - Stress Testing Framework

04.-Stress-testing-framework.pdf

• Introduction of a new stress testing framework project linked but distinct from previous NPRR1067 proposal.
• The framework aims to proactively identify and manage credit risks related to operational and market decisions.
• Discussion around the impact of extreme events, like Winter Storm Uri, on market participants and overall market stability.
• ERCOT's current credit framework lacks unsecured credit and minimum capitalization requirements; the new approach aims to proactively manage risks.
• The proposed framework will involve identifying, measuring, and mitigating risks before events occur.
• The goal is to develop a proactive risk management framework for potential default scenarios under various stress events.
• Framework will focus on triggering conversations with potential high-risk entities to raise awareness.
• Concerns were raised about the feasibility and effectiveness of the approach in preventing defaults like those experienced during Winter Storm Uri.
• Participants emphasized the need for awareness and risk assessment rather than a reactive approach, highlighting existing market uplift mechanisms for defaults.
• The new approach will concentrate initially on load and load-gen entities to assess and manage risk effectively.
• Discussion of using basic, intuitive methods to create early awareness without complex modeling.
• Clarification that ERCOT is not seeking to implement margin calls based on these stress tests.
• Consensus on the necessity to start the stress test framework development and refine it over time.
• Engagement with other ISOs and credit rating agencies to understand and incorporate their insights.
• Discussion around how the framework will help identify potential risk entities but won't seek additional collateral based on stress testing outcomes.
• Feedback and engagement with market participants are deemed crucial for the development and refinement of the framework.

▶️5 - Standard Review of NPRRs for Credit Impacts (Vote)

05.-NPRRs-for-review.pdf

• Motion to approve the combo ballot as presented passed unanimously with no abstentions.
• Three NPRRs were discussed today: NPRR1282, NPRR1281, and NPRR1277.
• NPRR1282 involves changes to ancillary service duration for real-time co-optimization, focusing on operational process improvements.
• NPRR1281 aims to improve the designation of alternate FFSS resources by clarifying early equivalent availability factor language, also focusing on operational improvements.
• NPRR1277 involves revisions to the EAL formula, addressing over-collateralization while reducing instances of under-collateralization, with positive credit implications.
• No revisions were filed for NPRR1277; it was accepted as submitted.
• Combo ballot created for voting on these NPRRs.
• All representatives voted in favor, and the motion carried successfully.

▶️6 - ERCOT Updates

▶️6.1 - Credit Exposure

06.-ERCOT-Updates-Credit-Exposure-May-2025.pdf

• Market wide Total Potential Exposure (TPE) decreased from $1.84 billion to $1.78 billion in April due to extrapolated exposure rolling off.
• Discretionary credit exposure decreased by 9% from $4.1 billion to $3.73 billion.
• No unusual collateral activity noted for April.
• TPE for April is less than $2 billion, down to $1.7 billion.
• RTSPP and DASPP prices for April mostly under $50, except April 7 with prices around $140 and $40 respectively.
• Total credit limit for April is about $506 million with major collateral instruments such as actuality bonds, letters of credit, and cash.
• LC concentration among banks is within concentration limits.
• Highest market segment exposure is for load and gen, followed by traders, load, generation, and serial activity.
• Invoice exposures for all market segments are within TPE coverage.
• Invited questions and thanked participants.

▶️7 - New Business