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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 A. Rosel 2:55 p.m. 7. Questions and Additional Discussion

ERCOT 3:25 p.m. Adjourn M. Trenary 3:30 p.m. ERCOT Public 2 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 25.361.) ERCOT Public 4 Settlements Overview Nodal Protocols Section 9.1.1 - 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 5 Organization: Settlements, Retail & Credit Mark Ruane Ohlen Dinopol Settlement Operations ERCOT Public Austin Rosel

Settlement Services Dave Michelsen Retail Operations Don Tucker Settlements Metering Randy Roberts Data Loading and Aggregation Vanessa Spells Credit 6

Settlement Operations Ohlen Dinopol Settlement Operations Mark Bengtson ERCOT Public Ponda Bethke Chris Espinosa Connie Harris

Anna Rocha Teresa Simien 7 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 8 Settlement Services Austin Rosel Settlement Services Magie Annab

ERCOT Public Steve Chappel Ino Gonzalez Keely Hilton Blake Holt Cary McCafferty Matt Tozer

9 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 10 Data Flow ERCOT Public 11 Data Flow and Process ERCOT Public

12 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 13 Process

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 Day Ahead Operating Day Invoice Day Day 2 Invoice Day + 2

Day Invoice 5 Day 6 Day + 3 1700 ERCOT ERCOT IssuesIssues Invoice DAM DAM Statements Statement & RTM Statements Invoice ERCOT Public

1700 17001700 Payment Due Payment Due Market (to(to Market Participant) Participant) Payment Payment Due Due (to ERCOT) (to ERCOT) 14 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 - ERCOT Public on all Settlement validations on bill amount and Statement validations on Invoice validations on all Manual Processes 15 Questions

ERCOT Public 16 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, 7.9.3 & 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 18 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 ERCOTs website and all materials are available for download at http://

www.ercot.com/services/training/index.html Please download the materials or attend the training for a more thorough and detailed training on the CRR Balancing Account. ERCOT Public 19 Congestion Revenue Rights Balancing Account CRRs Settled in the Day-Ahead Market Charges for Cleared DAM Energy Bids Charges for Cleared DAM PTP Obligation Bids Payment due to CRR Account Holders (Target Payment)

ERCOT Public Payments for Cleared DAM Energy Offers Payments for Cleared DAM PTP Obligation Bids Congestion Rent Slide 20 Congestion Revenue Rights Balancing Account CRRs Settled in the Day-Ahead Market Charges for Cleared DAM Energy Bids Charges for Cleared DAM PTP Obligation Bids

Payment due to CRR Account Holders (Target Payment) ERCOT Public Payments for Cleared DAM Energy Offers Payments for Cleared DAM PTP Obligation Bids Congestion Rent Some hours there is not enough Congestion Rent to pay CRR Owners Slide 21 Congestion Revenue Rights Balancing Account

CRRs Settled in the Day-Ahead Market Charges for Cleared DAM Energy Bids Charges for Cleared DAM PTP Obligation Bids Payment due to CRR Account Holders (Target Payment) ERCOT Public Payments for Cleared DAM Energy Offers Payments for Cleared DAM PTP Obligation Bids Congestion Rent

Some hours there is more Congestion Rent collected than needed to pay CRR Owners Slide 22 Congestion Revenue Rights Balancing Account CRRs Settled in the Day-Ahead Market Occurs hourly Charges for Cleared DAM Energy Bids Charges for Cleared DAM PTP Obligation Bids Payment due to CRR Account Holders (Target Payment) ERCOT Public Payments for Cleared

DAM Energy Offers Payments for Cleared DAM PTP Obligation Bids Congestion Rent Slide 23 Any CRR Auction Fees for the month are also added to the CRR Balancing Account. Auction Fees Congestion Rent Determinant CRR Auction Fee Total ERCOT Public

Slide 24 CRR Balancing Account: Outcomes Outcome #1 Refunding short paid CRR Account Holders from CRR Balancing Account Outcome #2 Dispensing remaining funds in CRR Balancing Account Outcome #3 Refunding short paid CRR Account

Holders when funds in CRR Balancing Account are insufficient ERCOT Public Slide 25 CRR Balancing Account: Outcomes Outcome #1 Refunding short paid CRR Account Holders from CRR Balancing Account Outcome #2 Dispensing remaining funds in CRR Balancing Account

Outcome #3 Refunding short paid CRR Account Holders when funds in CRR Balancing Account are insufficient ERCOT Public Slide 26 Congestion Revenue Rights Balancing Account CRR Balancing Account Payment due to CRR Account Holders Monthly 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 CRRAH1s shortfall charges were $2,500, will they receive a refund from the Balancing Account? If so, how much of a refund will they receive? Outcome #1 ERCOT Public Yes! Because CRRBACRTOT + CRRFEETOT

are sufficient to fully refund CRRSAMTTOT, CRRAH1 will receive a full refund of $2,500. Slide 28 CRR Balancing Account: Outcomes Outcome #1 Refunding short paid CRR Account Holders from CRR Balancing Account Outcome #2 Dispensing remaining funds in CRR Balancing Account Outcome #3

Refunding short paid CRR Account Holders when funds in CRR Balancing Account are insufficient ERCOT Public Slide 29 CRR Rolling Balancing Account CRR Balancing Account Fund Payment due to CRR Account Holders Monthly Pay to QSEs representing Load 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 QSE1s LRS is 10%, will they receive a payment from the Balancing Account? If so, how much of a payment will they receive? Outcome #2 ERCOT Public Yes! Because the Balancing Account Fund has reached its maximum limit, QSE1 will

receive 10% x $5,000, or $500. Slide 31 CRR Balancing Account: Outcomes Outcome #1 Refunding short paid CRR Account Holders from CRR Balancing Account Outcome #2 Dispensing remaining funds in CRR Balancing Account Outcome #3

Refunding short paid CRR Account Holders when funds in CRR Balancing Account are insufficient ERCOT Public Slide 32 CRR Rolling Balancing Account Payment due to CRR Account Holders Monthly ERCOT Public CRR Rolling Balancing Account 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 ERCOT Public Yes! Although CRRBACRTOT + CRRFEETOT are insufficient to fully refund CRRSAMTTOT, the remaining $20,000 of refunds can be paid from the Balancing Account Fund. Slide 34 CRR Rolling Balancing Account

X Payment due to CRR Account Holders may remain short paid ERCOT Public Monthly Balancing Account Data ERCOT Public 36 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 (7.9.3.6). 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 37 Questions ERCOT Public 38

Credit Exposure and Management Vanessa Spells February 10, 2016 ERCOT Public 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 40 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

41 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-partys creditworthiness) Guarantee (another entity, usually a Parent Company promising to

pay if counter-party fails to pay) ERCOT Public 42 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 43 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 44 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-toPoints 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 45 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 46

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 47 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 48 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 49 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 run @ 10 am of following day ERCOT Public 50 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 51 Credit Questions ERCOT Public 52 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) NPRR419 - 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

54 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 55 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

56 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 57 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 58 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 59 Questions ERCOT Public 60

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