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Total Potential Exposure (TPE) Overview

Total Potential Exposure (TPE) Overview. Credit Work Group May 28, 2008 Cheryl Yager. Overview. TPE Reports – General Summary of Protocol Section 16.11. TPE Reports - General. Total Potential Exposure (TPE) reports will be made available on the MIS system Business days around 10 or 11 am

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Total Potential Exposure (TPE) Overview

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  1. Total Potential Exposure (TPE) Overview Credit Work Group May 28, 2008 Cheryl Yager

  2. Overview • TPE Reports – General • Summary of Protocol Section 16.11

  3. TPE Reports - General • Total Potential Exposure (TPE) reports will be made available on the MIS system • Business days around 10 or 11 am • Business days around 6:00 (with final ACLs) • TPE reports – currently a series of 11 reports • ACL Summary Report • TPE Summary Report • EAL Summary Report • EAL Detail Report • AIL Detail Report • FCEOBL Summary Report • FCEOBL Detail Report (very detailed) • FCEOPT Summary Report • FCEOPT Detail Report (very detailed) • FCEFGR Summary Report • FCEFGR Detail Report (very detailed)

  4. TPE Reports - General • Reports designed to provide a level of detail consistent with current reporting • The mock reports provided include sample data to help market participants understand how the calculation is expected to work • Assumes a first priority security interest in CRRs has been given to ERCOT

  5. Summary of Protocol Section 16.11 TPE determined as follows: • Generally, if Counterparty has granted ERCOT a first priority security interest in receivables, formula is: • TPE = CCE + FCE • Otherwise, formula is: • TPE = max [0,CCE] + max [0,FCE] • Where • CCE is current credit exposure • FCE if future credit exposure

  6. Summary of Protocol Section 16.11 CCE = Max [(IEL for the first 60 days), EAL, AIL, (EAL+AIL)] Where IEL = Initial Estimated Liability (old TEL) EAL = Estimated Aggregate Liability AIL = Aggregate Incremental Liability (old NLRI)

  7. Summary of Protocol Section 16.11 EAL = Estimated Aggregate Liability = Max [IEL during the first 60-day period, Max (ADTE during the previous 60-day period)] + OUT + PUL + DALE Where ADTE = Average daily transaction extrapolated = 40 days times average daily amount from (typically)14 most recent initial settlement statements OUT = Outstanding unpaid transactions = all outstanding invoices for RT, DAM, CRR,etc (OIA) + estimated final and true up settlements (UFTA) + unbilled Day Ahead Market activity (UDAA) + ADR amounts + other PUL = Potential uplifts from short payments DALE = Average daily DAM liability extrapolated = 16 days times average daily amount from the seven most recent DAM settlement invoices

  8. Summary of Protocol Section 16.11 AIL = Aggregate Incremental Liability (old NLRI) = (RTLd) – Max[0, (ADTE / 40  N 0.9)] = Estimate of liability less collateral held for that liability Where RTL = Real-time liability

  9. Summary of Protocol Section 16.11 FCE = Future Credit Exposure (of CRRs) = FCEOBL + FCEOPT + FCRFGR Where FCEOBL = FCE of PTP Obligations FCEOPT = FCE of PTP Options FCEFGR = FCE of Flowgate rights

  10. Summary of Protocol Section 16.11 FCEOBL = Max (ACPEOBL, - FMMOBL) = Higher of auction clearing price exposure or FMM calculation Where: FMMOBL = Forward Mark to Market exposure for all obligations owned where price is determined based on a weighted average of 1) Auction clearing price 2) Today’s most recent PTP obligation value 3) Most recent five day’s average PTP obligation value 4) Previous month’s PTP obligation value Note: Weights still need to be determined.

  11. Summary of Protocol Section 16.11 Where: ACPEOBL = theAuction Clearing Price Exposure (ACPE) for PTP Obligations is calculated as follows: • if the PTP Obligation Auction Clearing Price is greater than $15 per MW, then 150 divided by the PTP Obligation Auction Clearing Price; • if the PTP Obligation Auction Clearing Price is between $0 and $15 per MW, then $10 per MW; and • if the PTP Obligation Auction Clearing Price is negative, then $10 per MW, plus the absolute value of the PTP Obligation Auction Price per MW. If FCEOBL is negative (a net asset to the Counter-Party), then the FCEOBL will be recalculated using PTP Obligations registered in the name of the Counter-Party only for (a) the remaining hours of the current month and (b) all hours in the following month

  12. Summary of Protocol Section 16.11 • Calculation for FCEOPT and FCE FGR are based only on the Forward Mark to Market Exposure; the Auction Clearing Price exposure is not included in the calculation. • Calculation of Forward Mark to Market Exposure for FCEOPT and FCEFGR is similar to FCEOBL. • FCEOPT and FCEFGR is calculated using OPTs and FGRs registered in the name of the Counter-Party only for: (a) The remaining hours of the current month and (b) All hours in the following month.

  13. Summary of Protocol Section 16.11 Please note that the information provided in this presentation about the TPE calculation is at a high level and address the general case. MPs should read the full Nodal Protocols regarding this calculation to understand their requirements in the Nodal market • The Nodal Protocols can be found on the ERCOT website at: www.ercot.com.

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