Transmission Congestion Rights – Credit Perspective April 17, 2014.

Transmission Congestion Rights – Credit Perspective

April 17, 2014

Presentation Goals

Provide a detailed flow of how credit requirements are impacted by the TCR Market

Come away with an understanding of how Credit will be evaluated and assessed during the TCR Auction and TCR Award Periods

2

• AO – Asset Owner

• ACP – Auction Clearing Price

• ARR – Auction Revenue Right

• CH – Credit Holder

• CMS – Credit Management System

• DA – Day Ahead

• ENS – Estimated Not Settled (Represented as ETCRE in Tariff)

• ETCRE – Estimated TCR Exposure

• TCR – Transmission Congestion Rights

• MCC – Marginal Congestion Component

• MP – Market Participant

• OD – Operating Day

• RT – Real Time

Common Acronyms

3

Transmission Congestion Rights

A TCR serves as a financial hedge against congestion costs

4

Transmission Congestion Rights

TCR positions can be submitted in TCR Auctions by:

5

• Bid to buy TCR

• Offer to sell existing TCR

• Self-convert ARRs

• Bids, Offers, and ARRs make up a TCR Portfolio during an auction period

Sign Conventions

• A negative TCR Hold means SPP estimates that the potential value of the TCR will result in a liability to the Credit Customer

• A positive TCR Hold means SPP estimates that the potential value of the TCR will result in a asset to the Credit Customer

• A positive invoice total will result in a payment by the Credit Customer

• A negative invoice total will result in a payment to the Credit Customer

6

TCR Reference Prices are a two-tiered statistical estimate :

•TCR Mean Price: Weighted average of what a given TCR might have been worth in an historical reference period

•TCR Stress Test Price: Weighted percentile value based on adverse market price congestion differentials in a historical reference period

TCR Reference Prices

7

TCR Reference Prices

TCR Reference Prices are used in:

• Assessment of TCR Bids and Offers in the various TCR Auctions

• TCR valuation during the TCR Hold period

• Determining credit requirements for Secondary Market Transactions

A Final Reference Price will be calculated for each source/sink combination for each TCR Product and posted publicly for MP reference

8

TCR Netting

During TCR Auction period:

• Exposure for each TCR is evaluated individually

• There is NO netting between positively and negatively valued Bids and Offers.

• Netting will take place between ARR’s

During TCR Award period:

• SPP DOES permit netting of positively and negatively valued TCRs

Per FERC Order 741: TCR positions are not netted with other trading groups (Virtuals, DA/RT, etc.)

9

ARR Netting

During TCR Auction period:

• ARRs will net on a weighted basis. 90% value for positive (positive Reference Prices) ARR’s bid into the Auction. 100% value for negative (negative Reference Prices) ARR’s bid into the Auction. • Example: Portfolio of 2 ARR’s bid into the Auction.

10

ARR Value Weight Weighted Value used for Credit Check

ARR1 $(90) 100% $(90)

ARR2 $100 90% $90

Collateral Requirement $0

TCR Lifecycle

11

TCR Bid ENS, TCR Offer ENSTCR ARR ENS, and TCR Batch

ENS

TCR Bid ENS, TCR Offer ENSTCR ARR ENS, and TCR Batch

ENS

TCR Forecast Award

(Acquisition; Disposal and Hold)

TCR Forecast Award

(Acquisition; Disposal and Hold)

TCR Award Exposure Roll Off

TCR Award Exposure Roll Off TCR InvoicedTCR Invoiced

TCR Pre-Conditions

• CH ABC Energy has $100,000 in secured credit

• Their AO, ABC Energy 1, is participating in the TCR Auction and has been awarded a TCR in a previous auction

12

TCR AUCTIONSection 1

13

TCR – Auction Period

• The CMS receives a Batch of TCR Bids/Offers/ARRs from the TCR system

• CMS then determines that all Bids and ARRs contained in the Batch have available TCR Product Final Reference Prices and all Offers have either a TCR Hourly Final Reference Price or a TCR Product Final Reference Price

14


• TCR Reference Price calculations:

• We will look at two examples of TCR Hourly Final Reference Price calculations

15

TCR Product Final Reference

Price

TCR Hourly Final Reference

PriceTCR Hours

TCR Hourly Final Reference

PriceMean Price Max (0, TCR Stress Test Price)


• Mean Price Calculation:

16

Mean Price 75% MeanY-1 Sink MCC Source MCC

25% MeanY-2 Sink MCC Source MCC

Calculation of Mean Price

•75% * ($6.00 - $2.00) + 25% * ($7.00 - $4.00)•75% * $4.00 + 25% * $3.00•$3.00 + $.75 = $3.75

Example #1TCR Hourly Final Reference Price – Normal Flow

Mean Price


• Stress Test Price calculation:

17

Source MCC Sink MCC

MeanY-2 Source MCC Sink MCC

75th PercentileY-1

Stress Test Price 75%

75th PercentileY-2

25%

Since the Mean Price is positive, the Stress Test

price is stressed at the 75th percentile

Calculation of Stress Test Price

•75% * ($3.00 - $1.00) + 25% * ($4.00 - $2.00)•75% * $2.00 + 25% * $2.00•$1.50 + $.50 = $2.00

Example #1TCR Hourly Final Reference Price – Normal Flow


• Then we calculate the TCR Hourly Final Reference price using the Mean and Stress Test price

18

TCR Hourly Final Reference Price

$1.75

Mean Price$3.75

Stress Test Price$2.00

TCR Product Final Reference Price

$1,386


$1.75

TCR Hours792


• Mean Price Calculation:

19

Mean Price 75% MeanY-1 Sink MCC Source MCC

25% MeanY-2 Sink MCC Source MCC

Calculation of Mean Price

•75% * ($4.00 - $8.00) + 25% * ($2.00 - $4.00)•75% * $-4.00 + 25% * $-2.00•$-3.00 + $-.50 = $ (3.50)

Mean Price

Example #2TCR Hourly Final Reference Price – Counter Flow


• Next we calculate the Stress Test Price:

20

Source MCC Sink MCC

MeanY-2 Source MCC Sink MCC

90th PercentileY-1

Stress Test Price 75%

90th PercentileY-2

25%

Since the Mean Price is negative,

the Stress Test price is stressed

at the 90th percentile

Calculation of Stress Test Price

•75% * ($2.00 - $1.00) + 25% * ($3.00 - $2.00)•75% * $1.00 + 25% * $1.00•$.75 + $.25 = $1.00

Example #2TCR Hourly Final Reference Price – Counter Flow


• Then we calculate the TCR Hourly Final Reference price using the Mean and Stress Test price

21


$ (4.50)

Mean Price$-3.50

Stress Test Price$1.00


$ (3,024)


$ (4.50)

TCR Hours672


• TCR Bids and Offers impact on Credit

22

TCR Bids: •CMS evaluates whether you have enough credit to buy the TCR and Hold it

•A TCR Bid curve is defined by at least two and up to eleven TCR Point Numbers and CMS creates one or more segments based on the TCR Point Numbers

TCR Offers: •CMS evaluates whether you have enough credit to sell the TCR (in the event of a loss on the sale) and remove the Hold from the Portfolio (if it is an asset)

•A TCR Offer curve is defined by at least two and up to eleven TCR point Numbers and CMS creates one or more segments based on the TCR Point numbers


• Next CMS will determine the Liability Maximizing quantity for each Bid Segment

• ABC Energy 1 submits a Bid for a 2015 Spring, On-Peak TCR consisting of 4 segments (Bid ID 1)

23

Up to MW Bid Price TCR Hours Segment Cost TCR Product Final Reference Price

Segment Hold TCR Bid ENS

5 $5 672 $ (25) $ (3,024) $ (15,120) $ (15,145)

12 $4 672 $ (48) $ (3,024) $ (36,288) $ (36,336)

20 $3 672 $ (60) $ (3,024) $ (60,480) $ (60,540)

25 $2 672 $ (50) $ (3,024) $ (75,600) $ (75,650)


• Next CMS will determine the Liability Maximizing quantity for each Offer Segment

• ABC Energy 1 submits an Offer of a 2015 Spring, On-Peak TCR consisting of 4 segments. (Bid ID 2)

24

Up to MW Offer Price

TCR Hours Segment Offer Loss


Segment Asset Loss

TCR Offer ENS

5 $ (10) 672 $ 0 $ (3,024) $ 0 $ 0

7 $ (9) 672 $ (50) $ (3,024) $ 0 $ (50)

9 $ (8) 672 $ (63) $ (3,024) $ 0 $ (63)

11 $ (7) 672 $ (72) $ (3,024) $ 0 $ (72)


• Lets look at how Segment Offer Loss is calculated– First, we must calculate the Slope of the Offer Curve for

Segment 2

25

Slope0.5

(TCR Offer PriceSegment2 – TCR Offer PriceSegment2-1)

$ (9) – $ (10)

(TCR Offer MWSegment2 – TCR Offer MWSegment2-1)

7 - 5


• Then we must calculate the Intercept for Segment 2

• We use these to determine the TCR Offer Maximum Loss MW

26

Intercept(12.50)

Offer PriceSegment2

$ (9)Slope * TCR Offer MWSegment2

0.5 * 7 = 3.5

TCR Offer Loss MW(12.50)

Intercept(12.50)

2* Slope2* 0.5

TCR – Auction

• TCR Offer Maximum Loss MW

IF <

THEN

27

TCR Offer Loss MW(12.50)

TCR Offer MWSegment2-1

5

TCR Offer Loss MW5

TCR Offer MWSegment2-1

5


• Then we must calculate the TCR Maximum Offer Cost Offer Price for Segment 2

• Then we use these to calculate the Segment Offer Loss for Segment 2

28

TCR Maximum Offer Price

$ (10)

Intercept(12.50)

TCR Offer Loss MW5

Slope0.50

Segment Offer Loss

$ (50)Min of 0,

TCR Offer Loss MW * TCR maximum Offer Price5 * $ (10)


• Next, lets assume ABC Energy submits two ARR’s into the Auction. One positive (Asset) and one negative (Liability)

29

ARR Bid MW TCR Product Final Reference Price

ARR Estimated Value

ARR Weighting

TCR ARR ENS

10 $ 1,386 $ 13,860 90% $ 12,474

9 $ (375) $ (3,375) 100% $(3,375)

Netted position for ARR’s (If net is > $0, then $0): $ 0


• Once TCR Bid, Offer and ARR ENS is calculated, CMS then determines the TCR Auction ENS for the Batch

30

TCR Auction ENS$ (75,722)

TCR Bid ENS$ (75,650)

TCR Offer ENS$ (72)

TCR ARR ENS$0

TCR Batch ENS ∑ TCR Auction ENS


• ABC Energy has Secured Credit Limit Available (CLA) of $100,000

31

Secured CLA$ 100,000

TCR Batch ENS$75,722

Secured CLA$24,278

TCR AWARDSection 2

32

TCR – Award Period

• CMS received the Auction Transaction payload from the TCR System

• CMS then determines the TCR Start Date, End Date and Time of Use (TOU) for each TCR in the payload– CMS uses these dates to calculate the following:

TCR Hours

TCR Days

Count of Calendar Days from the Start Date to the End Date without consideration of the TOU. For example, a Spring On-Peak TCR would have a Start Date of 4/1/2015 and an End Date of 5/31/2015. The count of calendar days is 61

33


• CMS will then calculate the Acquisition or Disposal Price for each TCR

34

TCR Award Type = BUY Acquisition Price

TCR Award Type = SELL Disposal Price


35

TCR Acquisition

ENSMIN 0, -1 (Sink ACP – Source ACP)

TCR Award

MW

TCR Days Remaining

Ratio

TCR Disposal ENS MIN 0, (Sink ACP – Source ACP)

TCR Sale MW

TCR Days Remaining Ratio


• So based on the Auction bid curve for ABC Energy, lets assume they are awarded the following:

36

Bid ID Bid Type

ARR Awarded MW


1 Buy No 15 $ (3,024)

2 Sell No 8 $ (3,024)

3 Buy Yes 10 $ 1,386

4 Buy Yes 9 $ (375)


• Based on the Awarded numbers, CMS will now calculate ABC Energy’s Acquisition and Disposal ENS for each Bid ID

37

TCR Awarded MW15

TCR Days Remaining Ratio1

TCR Acquisition

ENS$ (150.00)

MIN (Sink ACP – Source ACP)$10.000, -1

Bid ID 1


• Based on the Awarded numbers, CMS will now calculate ABC Energy’s Acquisition and Disposal ENS for each Bid ID

38

TCR Sale MW8

TCR Days Remaining Ratio1

TCR Disposal ENS

$ (96.00)

MIN (Sink ACP – Source ACP)$ (12.00)0,

Bid ID 2


• Now we know the Acquisition and Disposal ENS for all three Bid IDs

39

Bid ID Bid Type ARR Awarded MW

Acquisition / Disposal Price

Acquisition / Disposal ENS

1 Buy No 15 $ (150) $ (150)

2 Sell No 8 $ (96) $ (96)

3 Buy Yes 10 $ 0 $ 0

4 Buy Yes 9 $ 0 $ 0


• The next step in the Award process is CMS will calculate the TCR Hold ENS to determine how much collateral will be needed to “Hold” the TCR for the life of the product

40

TCR Hold ENS TCR Product Final Reference Price

TCR Current

MW

Months Remaining

Ratio


• The Monthly Remaining Ratio is calculated because TCR Hold is rolled off on a monthly basis at the conclusion of a full month. For example, since the product we have used in this presentation is the Spring 2015, we know that it will consist of 2 months (April and May). Therefore our Monthly Remaining Ratio will be 1 at the time of the Award

41


• Now that we understand the TCR Hold ENS calculation, we can look at how much it will cost to Hold each of the three TCRs in our example

42

TCR Hold ENS

$ (45,360)


$ (3,024)

TCR Current MW15

Months Remaining Ratio

1

Bid ID 1



43

TCR Hold ENS

$ 24,192


-1 * $ (3,024)

TCR Current MW

8


1

Bid ID 2



44

TCR Hold ENS

$ 13,860


Price$ 1,386

TCR Current MW10


1

Bid ID 3



45

TCR Hold ENS

$ (3,375)


Price$ (375)

TCR Current MW

9


1

Bid ID 4


• Now we know how much collateral will be needed for ABC Energy to Hold all 4 TCRs in their Portfolio

46

TCR Award Type

ARR Self-Convert?

Awarded MW


TCR Hold ENS

Acquisition / Disposal ENS

Buy No 15 $ (3,024) $ (45,360) $ (150)

Sell No 8 $ (3,024) $ 24,192 $ (96)

Buy Yes 10 $ 1,386 $ 13,860 $ 0

Buy Yes 9 $ (375) $ (3,375) $ 0

TOTAL $ (10,683) $(246)


• Now that we have the TCR Hold, Acquisition, and Disposal ENS calculated, lets look at how these roll off over the life of the product– Acquisition and Disposal ENS both roll off daily over the

life of the product based on the Days Remaining Ratio

– TCR Hold ENS rolls off monthly based on the Monthly Remaining Ratio

47


• The TCRs we are using in our example are all Spring 2015 TCRs therefore they are all 4/1/2015 through 5/31/2015

• To fully understand how TCR Hold ENS Roll-off is calculated, lets assume the maximum operating day (OD) that has been settled is 4/4/2015

48

4/1/2015 5/8/2015 6/8/2015

Monthly Remaining Ratio 2/2= 1 1/2= 0.5 0/2= 0

Bid ID 1 $ (45,360) $ (22,680) $ 0

Bid ID 2 $ 24,192 $ 12,096 $ 0

Bid ID 3 $ 13,860 $ 6,930 $ 0

Bid ID 4 $ (3,375) $ (1687.50) $ 0


• There are 61 days in the life of a Spring 2015 TCR

49

ACP Day 61 Day 51 Day 41 Day 31 Day 21 Day 11 Day 0

Daily Remaining Ratio

- 61/61= 1

51/61= 0.84

41/61= 0.67

31/61=0.51

21/61= 0.34

11/61= 0.18

0/61=0

Bid ID 1 $ 10 $ (150) $ (126.00) $ (100.50) $ (76.50) $ (51.00) $ (27.00) $ 0

Bid ID 2 $ 12 $ (96) $ (80.64) $ (64.32) $ (48.96) $ (32.64) $ (17.28) $ 0

Bid ID 3 - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Bid ID 4 - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

TCR – Secondary Market

• Calculations used for Secondary Market Transaction– TCR Award ENS for both the Buyer and the Seller

– TCR Hold ENS for the AO’s proposed Secondary Market transfer for both the Buyer and the Seller We use the Transferred MW value rather than the Awarded

MW

50

Questions?

Jared [email protected]

Transmission Congestion Rights – Credit Perspective April 17, 2014.

Documents

Transcript of Transmission Congestion Rights – Credit Perspective April 17, 2014.