NOTICE DATE: June 4, 2020
NOTICE TYPE: M-A060420-01 Financial / Credit
SHORT DESCRIPTION: Software Error Identified in ERCOT’s Credit Monitoring and Management (CMM) System
INTENDED AUDIENCE: All Counter-Parties
DAYS AFFECTED: November 9, 2012 - June 4, 2020
LONG DESCRIPTION: ERCOT has identified a software error in its CMM system that occurred with the implementation of Nodal Protocol Revision Request (NPRR) 347, Single Daily Settlement Invoice and Updates to Credit Calculations, including addition of a Minimum Collateral Exposure Component, on November 9, 2012. ERCOT implemented a software fix on June 4, 2020 to align the Total Potential Exposure (TPE) calculation with NPRR347, as described below.
NPRR347, in relevant part, revised the TPE calculation. TPE sets the amount of Financial Security that a Counter-Party must post with ERCOT to satisfy creditworthiness requirements. TPE incorporates estimates of forward Real-Time, Day-Ahead, and Congestion Revenue Rights (CRR) exposure. Forward market exposure estimates utilize defined variables, including Real-Time Liability (RTL), which are comprised of specified market exposure elements. Real-Time Liability Forward (RTLF), an estimate of Real-Time forward exposure, uses RTL to define a Counter-Party’s potential liability for seven future days. Under NPRR347, a Counter-Party’s RTL is multiplied by 110% if it represents an amount owed to ERCOT, and by 90% if it is a credit to the Counter-Party. The result is then adjusted by 150% in RTLF.
ERCOT has determined that the 110% and 90% adjustments to RTL have not been included in the RTLF calculation since the implementation of NPRR347. In addition, the 150% RTLF adjustment has not been applied to two RTL components: Real-Time congestion payments/charges for Self-Schedules, and payments/charges for Point-To-Point (PTP) Obligations settled in Real-Time. Because RTL can represent charges or credits, the impact of the errors on RTLF can be either positive or negative.
The TPE calculation utilizes the maximum of RTLF and a second Real-Time liability estimate, the maximum of Real-Time Liability Extrapolated (RTLE). Therefore, the error may have increased TPE in cases where it incorrectly caused RTLF to exceed the maximum of RTLE, and decreased TPE when the opposite occurred. In short, in some circumstances, the software error either increased or decreased a Counter-Party’s TPE, which may have resulted in more or less collateral being posted with ERCOT than would otherwise have been the case.
Due to system limitations, ERCOT is unable to quantify the number of instances where an erroneous RTLF determined the TPE for a Counter-Party since the implementation of NPRR347. However, since January 2019, ERCOT estimates that on most days, the total aggregate RTLF, if corrected, would have exceeded the erroneously computed RTLF. Moreover, the maximum of RTLE would likely have exceeded the corrected RTLF on all but one day, indicating that the error impacting RTLF was likely not a material driver of total TPE since January 2019.
ADDITIONAL INFORMATION: ERCOT plans to discuss this error at the Market Credit Working Group (MCWG) / Credit Work Group (CWG) meeting on June 17, 2020, and at the Technical Advisory Committee (TAC) meeting on June 24, 2020.
CONTACT: If you have any questions, please contact your ERCOT Account Manager. You may also call the general ERCOT Client Services phone number at (512) 248-3900 or contact ERCOT Client Services via email at ClientServices@ercot.com.
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