Settlements Seminar February 10, 2016 ERCOT Public.

Settlements Seminar February 10, 2016 ERCOT Public

Agenda 1. Antitrust Admonition ERCOT 1:00 p.m. 2.
Introduction and Welcome M. Trenary M. Ruane 1:05 p.m. 3. ERCOT Settlements: Organization, Processes and Controls O. Dinopol 1:15 p.m. 4. CRR Balancing Account Settlement A. Rosel 1:45 p.m. Break 2:15 p.m. 5. ERCOT Credit: High-level calculations and processes V. Spells 2:25 p.m. 6. Settlements Impacts of 2016 NPRR Implementations 2:55 p.m. 7. Questions and Additional Discussion 3:25 p.m. Adjourn 3:30 p.m. ERCOT Public

Settlements: Organization, Processes and How Controls are Implemented
Ohlen Dinopol February 10, 2016 ERCOT Public

Settlements: An ERCOT Function
Nodal Protocols 1.2. Functions of ERCOT (d)Ensure that electricity production and delivery are accurately accounted for among the All-Inclusive Generation Resources and wholesale buyers and sellers, and Transmission Service Providers (TSPs) and Distribution Service Providers (DSPs), in the ERCOT Region. AND administer settlement and billing for services provided by ERCOT (PUCT substantive rule § ) ERCOT Public

Settlements Overview Nodal Protocols Section S&B Process Overview Settlement is the process used to resolve financial obligations between a Market Participant and ERCOT, including administrative and miscellaneous charges. We figure out who should pay x, who should get charged y and then create the bill ERCOT Public

Organization: Settlements, Retail & Credit
Mark Ruane Ohlen Dinopol Settlement Operations Austin Rosel Settlement Services Dave Michelsen Retail Operations Don Tucker Settlements Metering Randy Roberts Data Loading and Aggregation Vanessa Spells Credit ERCOT Public

Settlement Operations
Ohlen Dinopol Settlement Operations Mark Bengtson Ponda Bethke Chris Espinosa Connie Harris Anna Rocha Teresa Simien ERCOT Public

Settlement Operations: Responsibilities
All Production Support Batch scheduling and support Systems Integration Support / Validations Settlement Validations Billing Validations Approvals Financial Transfer All manual settlement processes Verifiable Cost Data Entry Disputes Support Process, Procedures, Controls for Production Activity Protocol Compliance SSAE16 Audit Support ERCOT Public

Austin Rosel Settlement Services
Magie Annab Steve Chappel Ino Gonzalez Keely Hilton Blake Holt Cary McCafferty Matt Tozer ERCOT Public

Settlement Services – Responsibilities
Stakeholder Support Meetings NPRRs, Comments Data Requests Change & Analysis Activities Impact Analysis Project Deliverables Release Management Coordination Project and Change Support Testing Data Analysis and Mandatory Reports Production Tool Development and Maintenance Strategic Initiatives Support Verifiable Cost Analysis and Approval Disputes / ADR Analysis ERCOT Public

Data Flow ERCOT Public

Data Flow and Process ERCOT Public

Process Daily batch activities Preparations before batch
System Integration points and Bill determinants check Inbound from MMS, EMS, CRR Backout and Rerun jobs as needed Validations after batch Bill determinants Bill amounts Statements Invoices Approvals Ad hoc processes Monthly invoices Emergency Response Service (ERS) MMATOT report Manual changes Support model changes Price corrections Others ERCOT Public

Process Invoice Day Invoice Day + 2 Invoice Day + 3 Timelines
Posting of Statements and Invoices Daily Batch - Catch-up on weekend runs Financial Transfers Payments processing and approvals multiple times a day Payouts by 5pm from Treasury Operating Day Day 5 Day 6 ERCOT Issues DAM Statement & Invoice Payment Due (to ERCOT) Payment Due (to Market Participant) Day 2 1700 Day Ahead Invoice Day Invoice Day + 2 Invoice Day + 3 1700 1700 ERCOT Issues Invoice DAM Statements RTM Statements Payment Due (to Market Participant) Payment Due (to ERCOT) ERCOT Public

Processes and Controls
Settlements covers about 25% of the ERCOT SSAE16 Audit Control Objectives. Settlement Operations provides evidence of compliance with the Audit Control Objectives. Evidence examples include: Independent validations of system results - using SAS or Excel Two-person teams on all Settlement validations on bill amount and Statement validations on Invoice validations on all Manual Processes ERCOT Public

Questions ERCOT Public

CRR Balancing Account Austin Rosel February 10, 2016 ERCOT Public

Fast Facts The CRR Balancing Account is not new. ERCOT has had a CRR balancing account since Nodal Go-Live. In December 2014 NPRR580, “Establishment of a Rolling CRR Balancing Account Fund”, changed the balancing account to a “rolling” account where instead of allocating all excess balance to load, only the surplus balance over $10M is allocated to load. This leaves a starting balance available that can refund CRR short charges even if there was no net contribution to the balancing account for the month. This is covered by section 7.6, & 9.12 in the Nodal Protocols. NPRR742, “CRR Balancing Account Invoice Data Cuts”, is in flight and will change the extract for the CRR Balancing Account. The beginning and end of the month balances will be available on the same extract. Shadow settlements can be run for a month without pulling the prior months values from the prior months extract. ERCOT Public

Congestion Revenue Rights Balancing Account
The following slides are from the “Market Settlements 301” training class given by the ERCOT training department. This class is an advanced 24 hour 3 day course. The schedule for the training can be found on ERCOT’s website and all materials are available for download at Please download the materials or attend the training for a more thorough and detailed training on the CRR Balancing Account. ERCOT Public

CRRs Settled in the Day-Ahead Market Payments for Cleared DAM Energy Offers Payments for Cleared DAM PTP Obligation Bids Charges for Cleared DAM Energy Bids Charges for Cleared DAM PTP Obligation Bids Up to this point all of the payments and / or charges we have seen are based on the assumption that there are enough funds collected in the Day-Ahead to sufficiently pay that amount due to CRR Account Holders. These funds are collected as Congestion Rent in the DAM which is basically the differences between all the charges for DAM bids and the payments out for DAM Offers (and a negative PTP Obligaiton bid which would restult in a payment. The money left over is DAM Congestion Rent which is used to pay to CRR Account Holders. Payment due to CRR Account Holders (Target Payment) Congestion Rent ERCOT Public 20

CRRs Settled in the Day-Ahead Market Payments for Cleared DAM Energy Offers Payments for Cleared DAM PTP Obligation Bids Charges for Cleared DAM Energy Bids Charges for Cleared DAM PTP Obligation Bids However, in some hours there may not be enough DAM Congestion Rent collected to pay CRR Account Holders. Some hours there is not enough Congestion Rent to pay CRR Owners Payment due to CRR Account Holders (Target Payment) Congestion Rent Congestion Rent ERCOT Public 21

CRRs Settled in the Day-Ahead Market Payments for Cleared DAM Energy Offers Payments for Cleared DAM PTP Obligation Bids Charges for Cleared DAM Energy Bids Charges for Cleared DAM PTP Obligation Bids However, in some hours there may not be enough DAM Congestion Rent collected to pay CRR Account Holders. Some hours there is more Congestion Rent collected than needed to pay CRR Owners Payment due to CRR Account Holders (Target Payment) Congestion Rent Congestion Rent ERCOT Public 22

CRRs Settled in the Day-Ahead Market Occurs hourly Payments for Cleared DAM Energy Offers Payments for Cleared DAM PTP Obligation Bids Charges for Cleared DAM Energy Bids Charges for Cleared DAM PTP Obligation Bids In the DAM, if the Congestion Rent is equal to or greater than the net amounts due to all CRR Owners for any Settlement Interval, then ERCOT shall pay the net amounts due to the CRR Owners and put any excess amount into the CRR Balancing Account. Payment due to CRR Account Holders (Target Payment) Congestion Rent Congestion Rent ERCOT Public 23

Any CRR Auction Fees for the month are also added to the CRR Balancing Account.
Congestion Rent Determinant CRR Auction Fee Total ERCOT Public

CRR Balancing Account: Outcomes
Refunding short paid CRR Account Holders from CRR Balancing Account Outcome #2 Dispensing remaining funds in CRR Balancing Account There are 3 Balancing Account outcomes we need to cover: -Refunding shortfall charges from the CRR Balancing Account, -The dispensation of remaining funds in the CRR Balancing Account after paying back shortfall charges, if any funds remain, -Another avenue of repaying shortfall charges if Balancing Account funds for the month are insufficient. Outcome #3 Refunding short paid CRR Account Holders when funds in CRR Balancing Account are insufficient ERCOT Public

Refunding short paid CRR Account Holders from CRR Balancing Account Outcome #2 Dispensing remaining funds in CRR Balancing Account We'll start with refunding shortfall charges from the CRR Balancing Account. Outcome #3 Refunding short paid CRR Account Holders when funds in CRR Balancing Account are insufficient ERCOT Public

CRR Balancing Account Payment due to CRR Account Holders Monthly At the end of the month, ERCOT liquidates the CRR Balancing Account. If there were any CRR Account Holders that have been short paid during the month, ERCOT will use the funds in the CRR Balancing Account to pay these CRR Account Holders. ERCOT will use the CRR Balancing Account to make up as much of the amount CRR Account Holders were short paid during the month as possible. ERCOT Public

Monthly Refunds to Short-Paid CRR Owners
Trigger #1 At the end of the month, the CRR Balancing Account and Shortfall charges included: CRRBACRTOT = $27,000 CRRFEETOT = $3,000 CRRSAMTTOT = $25,000 If CRRAH1’s shortfall charges were $2,500, will they receive a refund from the Balancing Account? If so, how much of a refund will they receive? Trigger/Outcome #1: -At the end of the month total CRR Balancing Account was $30,000, and CRRSAMTTOT was $25,000. If CRRAH1's shortfall charges were $2,500 will they receive a refund from the Balancing Account? If so, how much of a refund will they receive? -Yes - because the balancing account holds more than enough to fully repay all shortfall charges, CRRAH1 will receive a full refund of $2,500. Outcome #1 Yes! Because CRRBACRTOT + CRRFEETOT are sufficient to fully refund CRRSAMTTOT, CRRAH1 will receive a full refund of $2,500. ERCOT Public

Refunding short paid CRR Account Holders from CRR Balancing Account Outcome #2 Dispensing remaining funds in CRR Balancing Account Next we will discuss the dispensation of any funds that remain in the CRR Balancing Account after refunding short paid CRR owners. Outcome #3 Refunding short paid CRR Account Holders when funds in CRR Balancing Account are insufficient ERCOT Public

CRR Rolling Balancing Account
CRR Balancing Account Fund Payment due to CRR Account Holders Monthly Pay to QSEs representing Load If there are any funds left after all short paid CRR Account Holders have been paid, ERCOT places any excess funds in a savings account called the CRR Balancing Account Fund, until the defined FUNDCAP of $10 million is reached. Once the FUNDCAP is reached, ERCOT will distribute any remaining Balancing Account funds to QSEs on a load ratio share basis. ERCOT Public

CRR Balancing Account Closure
Trigger #2 At the end of the month, the CRR Balancing Account and Shortfall charges included: CRRBACRTOT = $27,000 CRRFEETOT = $3,000 CRRSAMTTOT = $25,000 The Balancing Account Fund maximum limit has been met. If QSE1’s LRS is 10%, will they receive a payment from the Balancing Account? If so, how much of a payment will they receive? Outcome #2 Yes! Because the Balancing Account Fund has reached it’s maximum limit, QSE1 will receive 10% x $5,000, or $500. ERCOT Public

Refunding short paid CRR Account Holders from CRR Balancing Account Outcome #2 Dispensing remaining funds in CRR Balancing Account Next we will discuss how CRR owners may be refunded when the CRR Balancing Account is insufficient. Outcome #3 Refunding short paid CRR Account Holders when funds in CRR Balancing Account are insufficient ERCOT Public

Payment due to CRR Account Holders Monthly If the CRR Balancing Account does not have enough funds to make up all the short payments during the month, we can look to the Balancing Account Fund for repayment. ERCOT Public

Trigger #3 At the end of the month, the CRR Balancing Account and Shortfall charges included: CRRBACRTOT = $27,000 CRRFEETOT = $3,000 CRRSAMTTOT = $50,000 With a Balancing Account Fund of $25,000, will the shortpaid CRRAHs be fully refunded? Outcome #3 Yes! Although CRRBACRTOT + CRRFEETOT are insufficient to fully refund CRRSAMTTOT, the remaining $20,000 of refunds can be paid from the Balancing Account Fund. ERCOT Public

Payment due to CRR Account Holders X may remain short paid Monthly If the Balancing Account Fund does not have enough funds to make the rest of the short payments, the CRR Account Holders will remain short paid, although this outcome is unlikely once the FUNDCAP is reached. ERCOT Public

Balancing Account Data
ERCOT Public

Fast Facts - Resettlement
The balancing account is only settled once, in the month after the month covered by the CRRs. However, if a resettlement occurs the balancing account may be resettled. ERCOT has not resettled the CRR Balancing Account since the addition of the rolling fund. If the CRR Balancing Account was resettled: Market Notice announcing the DAM resettlement Market Notice announcing the CRR Balancing Account resettlement Invoices and extracts would flow like usual The resettlement will be calculated using the CRR Balancing Account Fund Balance at the end of the previous month from the date of the resettlement invoice ( ). The Monthly Load Ratio Share (MLRS) used in the resettlement of the CRR Balancing Account will be the same MLRS value used on the initial settlement. (9.12 (2)) ERCOT Public

Credit Exposure and Management
Vanessa Spells February 10, 2016 ERCOT Public

TPE is an estimate of how much a Counter-Party:
Credit Exposure Credit exposure is determined by calculating for Total Potential Exposure (TPE) daily TPE is an estimate of how much a Counter-Party: Currently owes (outstanding invoices & un-invoiced amounts) Expected to owe today and in the future Objectives: To determine a collateral amount ERCOT will need to hold if a Counter-Party fails to pay its obligations (invoices) Minimize losses to be uplifted to the market if Counter-Party fails to pay/defaults Establish daily credit limits for participating in CRR Auctions and Day-Ahead Market (ACLs) ERCOT Public

Credit Exposure TPE Inputs Invoices & Statements
Initials, Finals & True-Ups Estimates of Current Activity Price * Volume Volume (MWH) Load, Generation, DA Bids & Offers, Trades with other Counter-Parties Price Real Time (RT) & Day Ahead (DA) Total Potential Exposure (TPE) TPE Secured (CRR-related exposure) TPE Any (Real-Time & Day-Ahead exposure) ERCOT Public

Credit Exposure TPE Any Exposure can be covered by:
Secured Collateral: Cash Letters of Credit (issued by Bank which guarantees payment on behalf of Counter-Party if certain conditions are met) Surety Bond (issued by Surety company which is obligated to pay contractual obligations of the Counter-Party) Unsecured Credit Unsecured Credit (no collateral required; amount determined by Counter-party’s creditworthiness) Guarantee (another entity, usually a Parent Company promising to pay if counter-party fails to pay) ERCOT Public

Credit Exposure TPE Any TPEA = Max [0, MCE, [Max [0, (EAL)]]
Higher of: EAL (Estimated Aggregate Liability), or MCE (Minimum Current Exposure) EAL Real-Time Extrapolated Exposure based on average billed days to account for unbilled days and forward exposure Day-Ahead Extrapolated Exposure: based on average billed days to account for unbilled days and forward exposure Real-Time Estimates for Unbilled Days Day-Ahead Estimates for Unbilled Days Forward Week Real-Time Estimates Outstanding Invoices Estimates of Potential Uplift and Incremental Load Exposure due to Mass Transition ERCOT Public

Credit Exposure EAL Max of: (IEL + DALE), or Max [(MAXRTLE + DALE), (RTLF + DALE)] Add: Max of: RTLCNS or MAXURTA Add: OUT + PUL + ILE IEL: Initial Estimated Liability (initial requirement for new CPs only) MAXRTLE: Highest Real-Time Extrapolated Exposure (RTLE) in last 40 days RTLE = Average Real-Time Initial Statements over last 14 days extrapolated by M1 days (from 12 – 20 days total) M1 = 12 days + Mass Transition days based on number of ESI IDs Termination period upon default RTLF: Real-Time Liability Forward Uses RTLCNS estimates at 150% price factor 7 days: current day + 6 forward days ERCOT Public

Credit Exposure DALE: Average of Day-Ahead Statements over last 7 days extrapolated by M1 Days RTLCNS: Real-Time Liability Estimate for unbilled days Real-Time Imbalance estimate (based on estimated Load, Generation, Bilateral Sales & Purchases, and DA Sales and Purchases) Also includes estimates of DC Ties, Congestion Costs, Point-to- Points MAXURTA: Highest Unbilled Real-Time Extrapolated Exposure (URTA) in last 40 days URTA = Average Real-Time Initial Statements over last 14 days extrapolated by M2 (9 days) M2 based on current Real-Time settlement timeline ERCOT Public

Credit Exposure OUT (Outstanding Unpaid Transactions) – Sum of:
OIA (Outstanding Invoice Amounts) – any unpaid invoices whether charge or credit UDAA (Unbilled Day Ahead Amounts) – estimates of Day-Ahead charges or credits for days that are not yet settled UFA (Unbilled Final Amounts) – average of Final Statements in last 14 calendar days multiplied by 56 UTA (Unbilled True Up Amounts) – average of True Up Statements in last 14 calendar days multiplied by 180 CARD (CRR Auction Revenue Distribution) – two months of unpaid CRR auction revenue due to CP PUL (Potential Uplift Amount) – CPs share of estimated uplift/short-pay due to a default ILE (Incremental Load Exposure) – Estimated incremental exposure resulting from a mass transition ERCOT Public

Credit Exposure MCE Sets a floor for collateral requirement (because EAL can at times be very minimal or less than zero); Average of last 14 settled operating days Higher of any of the following: 5 Days of Load Less 80% of Generation plus Net Bilateral Sales; or less 80% of Net Bilateral Purchases; 2 Days of 20% of Generation; 1 Day of net Day-Ahead transactions cleared ERCOT Public

Credit Exposure TPE Secured CRR-related exposure
Is covered ONLY by secured collateral. TPES = Max [0, FCE] + IA Future Credit Exposure [FCE] FCE= FCEOBL + FCEOPT (credits) Congestion Path Specific Risk (estimate what is owed in the future for the CRRs in a portfolio) Historic DAM Settlement Point prices Auction Clearing Prices ERCOT Public

Credit Exposure TPE Secured Portfolio Exposure calculated for
Current month , prompt month and forward months for Obligations Remaining days in current operating month and prompt month for Options (Conservative) The final exposure is a volume-weighted average of risk CRR Obligation – can be positive (CRRAH owes ERCOT) or negative (ERCOT owes CRRAH ) CRR Options – only negative Independent Amount (IA) Required for Counter Parties that do not meet the capitalization requirements to participate in the ERCOT market. Is not used for trading in the market ERCOT Public

Credit Exposure Available Credit Limit
Credit limit available for bidding in CRR auctions and Day Ahead Market For CRR auctions: 90% of Secured collateral less TPE Secured For DAM: 90% of Unsecured Credit plus Secured collateral (net of credit locked for CRR) less TPE Any ACLs for DAM – used in DAM 10 am of following day ERCOT Public

Daily Process CMM calculates TPE overnight around 2AM (earlier for FCE) Validate calculations/reports – invoices/statements and all other data inputs are received Collateral requests Post Credit reports to MIS (12 noon deadline) Credit posts collateral received and returned Credit runs afternoon calculations at around 1:45 PM TPE updated with any invoice payments received by 12 noon ACLs calculated based on updated TPE and collateral Credit sends updated ACLs to CRR and DAM ERCOT Public

Credit Questions ERCOT Public

2016 NPRRs Impacting Settlements
Austin Rosel February 10, 2016 ERCOT Public

Upcoming NPRRs Before each release the Settlement Services department reviews the settlement changes with CSWG. The intent of these reviews is to cover items that would be of interest to someone doing shadow settlements. Formulas, protocol changes and any intermediate billing determinants that may not be obvious are covered during these reviews with CSWG. 2016 NPRRs (as of 2/1/2016) NPRR689 - Settlement of Ancillary Service Assignment in Real-Time Operations (R1) NPRR Revise Real-Time Energy Imbalance and RMR Adjustment Charge (R2) NPRR617 - Energy Offer Flexibility (R3) NPRR700 - Utilizing Actual Fuel Costs in Startup-Offer Caps (R3) NPRR662 - Proxy Energy Offer Curves (R4) NPRR272 - Definition and Participation of Quick Start Generation Resources (R6) ERCOT Public

NPRR689 NPRR689 - Settlement of Ancillary Service Assignment in Real-Time Operations (R1) Settlement mechanism for NPRR663 Ancillary Service Insufficiency Actions If sufficient Ancillary Services cannot be procured via DAM, SASM and RUC, then Ancillary Service will be assigned to QSEs. QSE assigned the Ancillary Services (Reg-Up or RRS) is paid the assigned MW times the RTSPP minus the ORDC price adder. Costs are spread the same way as current AS costs are spread, on Load Ratio Share basis. The QSE will receive a Verbal Dispatch Instruction from ERCOT for the assignment. The QSE must file a settlement dispute to be considered for the payment. ERCOT implemented this process manually: Data will not be provided in the extracts (can be requested from client rep) Will be invoiced via a Misc. Invoice. ERCOT Public

NPRR419 NPRR419 Revise Real-Time Energy Imbalance and RMR Adjustment Charge (R2) New Real-Time Energy Imbalance (RTEIAMT) billing determinants. Changes were made to provide better information about imbalance quantities, the end results of the calculations are the same. The Real Time Market Consolidated Operating Day Extract and Real Time Market Market Operating Day Extract will be changed for this NPRR. A new column for the generation site code attribute used in the new billing determinants will be added to the extracts. Correction was made in this NPRR to the RMR Adjustment Charge (RMRAAMT) to use the same prices and quantities that are used in the Real-Time Energy Imbalance settlement. ERCOT Public

NPRR617/700 NPRR617/700 - Energy Offer Flexibility & Utilizing Actual Fuel Costs in Startup-Offer Caps Bundled together for cost savings. Allows higher Startup and Minimum Energy offers into the DAM, 200% of the generic or verifiable costs. DAM and RUC Make-Whole and RUC Clawback and Decommit calculations changed so that resources are made whole to the minimum of verifiable/generic or their offer. VCMRR008 bundled with NPRR700 to accommodate the changes in the startup cost calculations used in DAM Make-Whole. ERCOT Public

NPRR662 NPRR662 - Proxy Energy Offer Curves (R4)
Energy Offer Curve extension logic changed. Any shadow settlements related to the calculation of Real-Time Average Incremental Energy Cost that has curve transformation logic will need to be changed. ERCOT Public

NPRR272 NPRR272 - Definition and Participation of Quick Start Generation Resources (R6) Only impacts Quick Start Generation. Introduces a status, OFFQS, for Quick Start Generation Resources (QSGR). This status is used to indicate they are Off-Line and available to SCED and replaces the current work-around that uses the ON status for this purpose. This changes an ERCOT manual process that impacts calculations of eligibility for payments for QSGRs, but does not impact any Settlement Extract data. Any shadow settlement processes that use telemetered statuses related to QSGR could be impacted. ERCOT Public

Settlements Seminar February 10, 2016 ERCOT Public.

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Settlements Seminar February 10, 2016 ERCOT Public.

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