Balance-of-Period TCC Auction

Transcription

1 Balance-of-Period TCC Auction Proposed Credit Policy Sheri Prevratil Manager, Corporate Credit New York Independent System Operator Credit Policy Working Group May 29, New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY

2 Background Balance-of-Period TCC Auctions will allow Market Participants to buy and sell TCCs for: The remainder of the current Capability Period. Any future month or combination of months in the current Capability Period. Any future month or combination of months in the next Capability Period when bought or sold during the Balance-of-Period Auction conducted in the last month of the current Capability Period (i.e. TCCs bought or sold in April for May through October) New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 2

3 Background Credit requirements were being developed during 2010 and 2011 to support both Centralized Multi-Duration and Balance-of-Period TCC Auctions. In October 2011 the NYISO proposed a phased approach for the delivery of the Multi-Duration Centralized TCC Auction Project due to certain complexities that increased the scope. Credit policy was developed for Non-Historic Fixed Price TCCs including annual payments for all awarded Two-Year TCCs as part of the first phase. Both Multi-Duration Centralized Auction and Balance-of-Period Auction credit policy development associated with later project phases were deferred. During the 2015 project prioritization process Market Participants agreed to support the Balance-of-Period TCC Auctions. CMS functional requirements due in Q Credit policy needed to meet project timeline New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 3

4 Proposed Credit Policy Assumptions Balance-of-Period TCCs will be purchased based on the Market Clearing Price for that TCC. Balance-of-Period TCCs are monthly TCCs purchased in a Balance-of-Period TCC Auction and will be paid for upon completion of the Balance-of-Period Auction in which they were purchased New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 4

5 Proposed Credit Policy The Balance-of-Period TCC credit policy will be made up of two components. Current month credit requirement Credit requirements for current month TCCs involve updating the current design to take account of the additional data on TCC outcomes that has become available since the current rules were developed in early Future month credit requirement The Balance-of-Period Auction credit requirements reflect the need for a fundamental extension of the current TCC collateral design to define credit requirements for future month TCCs. In addition, implementation of the Balance-of-Period TCC credit policy will require development of credit requirements covering the second six months of a year long TCC New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 5

6 Current Month Analysis Development and analysis of updated monthly credit coverage formulas utilizes data from June 2000 through December 2010 and from January 2011 through July Current month margins will cover the variability of payments due to the NYISO in the current month based on Day-Ahead Market prices. Assessed using historical NYISO data for monthly TCC auction prices and monthly TCC payment data New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 6

7 Current Month Analysis In 2011 a TCC level statistical analysis was performed to assess the relationship between the variability of payments due on monthly TCCs and TCC characteristics such as auction price and month covered. Statistical models were evaluated to determine which models yielded formulas that could be used to specify credit coverage margins and were examined to see how they performed at the TCC level. Analyzed the amount of credit coverage and uncovered payments due when applied to monthly TCC settlements New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 7

8 Current Month Analysis The NYISO resumed development of the Balance-of- Period credit policy in the latter part of Performance of the credit coverage formulas were compared to each other and with the current formulas. Utilized both data on monthly TCC outcomes through December 2010 and more recent data from January 2011 through July Utilizing data from January 2011 through July 2014 allowed the NYISO to: Assess how well the previously developed formulas would have performed and Assess the stability of their performance over time New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 8

9 Current Month Analysis The performance of the credit coverage formulas at the portfolio level was evaluated to determine if there were any unexpected correlations that may cause the formulas that performed well at the TCC level to not perform as well at the portfolio level. Comparisons showed that the alternative credit coverage rules would have required materially less collateral while reducing uncovered payments due for both the February 2005 through December 2010 period and the January 2011 through the July 2014 period. The potential for using separate intra-j, intra-k, and neither-jk formulas in place of a single non-jk formula was examined, however separate formulas that clearly performed materially better than the improved non-jk formula were not identified New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 9

10 Current Month Proposed Formulas Zone J Formula: Where α low = 1.250, α medium = 1.500, α high = Non-JK Formula Where α low = 1.000, α medium = 1.125, α high = Zone K Formula: Where α low = 1.625, α medium = 1.750, α high = DRAFT FOR DISCUSSION PURPOSES ONLY New York Independent System Operator, Inc. All Rights Reserved. 10

11 Current Month Comparisons The following tables compare the current monthly formula to the proposed new formula utilizing different scaling factors as follows: Proposed Current Month Formula - Scaling Factors Scaling Factor Rule Zone J Non-JK Zone K Current N/A N/A N/A Low Ma rgi n Medi um Ma rgi n Hi gh Ma rgi n New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 11

12 Current Month Comparisons Table 1 compares the credit coverage on monthly TCCs from February 2005 December Table 1 Portfolio Level Analysis Monthly TCCs February December 2010 Rule Credit Coverage ($ millions) Uncovered Payments Due Current $ 361 $ 3,374,381 Low Margin $ 256 $ 2,247,353 Medium Margin $ 289 $ 1,729,715 High Margin $ 318 $ 1,484,830 Under the medium margin rule credit coverage is reduced by $72M or 20% while uncovered payments decrease by $1.6M or 49%. Under the high margin rule credit coverage is reduced by $43M or 12% while uncovered payments decrease by $1.9M or 56% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 12

13 Current Month Comparisons Table 2 utilizes a larger sample and compares the credit coverage on monthly, six-month and annual TCCs from February 2005 December Table 2 Portfolio Level Analysis Monthly, Six-Month and Annual TCCs February December 2010 Rule Credit Coverage ($ millions) Uncovered Payments Due Current $ 2,423 $ 9,548,164 Low Margin $ 1,329 $ 8,195,352 Medium Margin $ 1,590 $ 6,879,278 High Margin $ 1,822 $ 5,943,300 Under the medium margin rule credit coverage is reduced by $833M or 34% while uncovered payments decrease by $2.6M or 28%. Under the high margin rule credit coverage is reduced by $601M or 25% while uncovered payments decrease by $3.6M or 38% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 13

14 Current Month Comparisons Table 3 compares the credit coverage on monthly TCCs from January July Table 3 Portfolio Level Analysis Monthly TCCs January July 2014 Rule Credit Coverage ($ millions) Uncovered Payments Due Current $ 238 $ 1,016,344 Low Margin $ 130 $ 999,861 Medium Margin $ 150 $ 797,104 High Margin $ 168 $ 696,560 Under the medium margin rule credit coverage is reduced by $88M or 37% while uncovered payments decrease by $219k or 22%. Under the high margin rule credit coverage is reduced by $70M or 29% while uncovered payments decrease by $320k or 31% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 14

15 Current Month Comparisons Table 4 utilizes a larger sample and compares the credit coverage on monthly, six-month and annual TCCs from January July Table 4 Portfolio Level Analysis Monthly, Six-Month and Annual TCCs January July 2014 Rule Credit Coverage ($ millions) Uncovered Payments Due Current $ 1,272 $ 1,197,629 Low Margin $ 501 $ 1,461,860 Medium Margin $ 626 $ 1,210,276 High Margin $ 737 $ 1,052,044 Under the medium margin rule credit coverage is reduced by $646M or 51% while uncovered payments slightly increase by $12k or 1%. Under the high margin rule credit coverage is reduced by $535M or 42% while uncovered payments decrease by $146k or 12% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 15

16 Current Month Comparisons Tables 5 and 6 show month by month information utilizing auction data from annual TCCs from the Autumn 2002 through Spring 2013 auctions. Tables 7 and 8 show month by month information utilizing auction data from monthly, six-month and annual TCCs from the Autumn 2002 through Spring 2013 auctions. While uncovered payments due in December, January and February would have averaged higher than in the summer months (i.e. June, July and August), these averages are driven by individual monthly outcomes. There is not statistically strong evidence that there is a seasonal effect and as such, there isn t necessarily a seasonal pattern. After reviewing the data, Market Participants may want to consider increasing the requirements by some margin (i.e. 10%) in the winter months and potentially reducing the margin in other months. NYISO would be concerned about shifting more collateral in certain months based on past outcomes that may not reflect a true long-run difference in the likelihood of losses. DRAFT FOR DISCUSSION PURPOSES ONLY New York Independent System Operator, Inc. All Rights Reserved. 16

17 Current Month Comparisons Table 5 compares collateral held and uncovered payments due at the TCC level utilizing annual TCCs only. As such, there is a common set of sources and sinks in the comparison for each month. Month Payments Due Current Monthly Table 5 Current Month Coverage TCC Level Payments Due,, Uncovered Payments Due, and % Payments Due Uncovered Annual TCCs November October 2014 ($ Millions) Low Medium High Current Monthly Uncovered Payments Due Low Medium High Current Monthly Low Medium High Jan $ (41.80) $ $ $ $ $ (14.40) $ (11.06) $ (10.19) $ (9.48) 34.46% 26.47% 24.37% 22.68% Feb $ (39.28) $ $ $ $ $ (9.32) $ (6.45) $ (5.56) $ (4.93) 23.72% 16.43% 14.14% 12.55% Mar $ (21.59) $ $ $ $ $ (2.33) $ (3.27) $ (2.94) $ (2.68) 10.78% 15.15% 13.60% 12.41% Apr $ (25.24) $ $ $ $ $ (5.75) $ (4.32) $ (3.74) $ (3.31) 22.80% 17.12% 14.82% 13.11% May $ (33.27) $ $ $ $ $ (8.98) $ (6.13) $ (5.39) $ (4.81) 26.98% 18.43% 16.20% 14.46% Jun $ (41.86) $ $ $ $ $ (8.11) $ (3.62) $ (3.02) $ (2.63) 19.38% 8.65% 7.22% 6.28% Jul $ (43.00) $ $ $ $ $ (4.68) $ (3.94) $ (3.60) $ (3.32) 10.88% 9.17% 8.36% 7.71% Aug $ (27.49) $ $ $ $ $ (1.62) $ (1.10) $ (0.91) $ (0.76) 5.90% 4.01% 3.29% 2.78% Sep $ (14.16) $ $ $ $ $ (1.13) $ (1.33) $ (1.11) $ (0.96) 8.01% 9.42% 7.80% 6.75% Oct $ (14.26) $ $ $ $ $ (1.27) $ (2.47) $ (2.25) $ (2.06) 8.92% 17.36% 15.75% 14.42% Nov $ (13.34) $ $ $ $ $ (2.40) $ (2.58) $ (2.25) $ (2.00) 17.98% 19.32% 16.84% 15.02% Dec $ (25.25) $ $ $ $ $ (4.17) $ (4.75) $ (4.31) $ (4.00) 16.53% 18.82% 17.08% 15.85% $ (340.55) $ 1, $ 1, $ 1, $ 1, $ (64.17) $ (51.05) $ (45.24) $ (40.94) 18.84% 14.99% 13.28% 12.02% Note: All collateral calculations performed utilizing monthly TCC prices. Current Margin = (e^((( (ln TCC Price +e)) (zone J) (Zone K) + Monthly Dummy))) % Payments Due Uncovered Monthly Dummies in Current Margin are as follows: Jan. (0.0000), Feb. ( ), Mar. (0.000), Apr. (0.0000), May (0.8181), Jun. (0.2835), Jul. (0.5201), Aug. (0.7221), Sep. (0.0000), Oct. (0.3200), Nov. ( ), Dec. (0.0000) New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 17

18 Current Month Comparisons Table 6 compares collateral held and uncovered payments due at the portfolio level utilizing annual TCCs only. As such, there is a common set of sources and sinks in the comparison for each month. Table 6 Current Month Coverage Portfolio Level Payments Due,, Uncovered Payments Due, and % Payments Due Uncovered Annual TCCs May October 2014 ($ Millions) Uncovered Payments Due % Payments Due Uncovered Month Payments Due Current Monthly Low Medium High Current Monthly Low Medium High Current Monthly Low Medium High Jan $ (11.20) $ $ $ $ $ (0.41) $ (0.59) $ (0.48) $ (0.43) 3.70% 5.29% 4.32% 3.83% Feb $ (10.01) $ $ $ $ $ (0.53) $ (0.09) $ (0.03) $ (0.01) 5.25% 0.85% 0.31% 0.08% Mar $ (5.24) $ $ $ $ $ (0.08) $ (0.13) $ (0.11) $ (0.10) 1.54% 2.39% 2.13% 1.98% Apr $ (5.33) $ $ $ $ $ (0.07) $ (0.07) $ (0.04) $ (0.02) 1.25% 1.23% 0.83% 0.46% May $ (7.92) $ $ $ $ $ - $ (0.04) $ - $ % - - Jun $ (11.75) $ $ $ $ $ (0.63) $ (0.05) $ (0.04) $ (0.03) 5.40% 0.45% 0.33% 0.28% Jul $ (10.81) $ $ $ $ $ - $ (0.01) $ (0.00) $ (0.00) % 0.04% 0.02% Aug $ (4.67) $ $ $ $ $ (0.05) $ - $ - $ % Sep $ (3.39) $ $ $ $ $ - $ (0.11) $ (0.05) $ % 1.35% - Oct $ (2.60) $ $ $ $ $ (0.01) $ (0.03) $ (0.03) $ (0.03) 0.32% 1.23% 1.11% 1.01% Nov $ (3.55) $ $ $ $ $ (0.11) $ (0.25) $ (0.14) $ (0.08) 3.03% 6.94% 4.04% 2.32% Dec $ (6.37) $ $ $ $ $ (0.33) $ (0.38) $ (0.36) $ (0.35) 5.19% 5.91% 5.72% 5.54% $ (82.84) $ 1, $ $ 1, $ 1, $ (2.22) $ (1.74) $ (1.30) $ (1.06) 2.67% 2.09% 1.56% 1.28% Note: All collateral calculations performed utilizing monthly TCC prices. Current Margin = (e^((( (ln TCC Price +e)) (zone J) (Zone K) + Monthly Dummy))) Monthly Dummies in Current Margin are as follows: Jan. (0.0000), Feb. ( ), Mar. (0.000), Apr. (0.0000), May (0.8181), Jun. (0.2835), Jul. (0.5201), Aug. (0.7221), Sep. (0.0000), Oct. (0.3200), Nov. ( ), Dec. (0.0000) New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 18

19 Current Month Comparisons Table 7 compares collateral held and uncovered payments due at the TCC level utilizing monthly, six-month and annual TCCs. Table 7 Current Month Coverage TCC Level Payments Due,, Uncovered Payments Due, and % Payments Due Uncovered Monthly, Six Month and Annual TCCs May September 2014 ($ Millions) Uncovered Payments Due % Payments Due Uncovered Month Payments Due Current Monthly Low Medium High Current Monthly Low Medium High Current Monthly Low Medium High Jan $ (83.73) $ $ $ $ $ (24.03) $ (19.66) $ (18.08) $ (16.85) 28.70% 23.48% 21.60% 20.12% Feb $ (83.85) $ $ $ $ $ (21.82) $ (17.73) $ (15.54) $ (14.14) 26.03% 21.15% 18.53% 16.86% Mar $ (47.72) $ $ $ $ $ (5.04) $ (6.60) $ (5.73) $ (5.12) 10.55% 13.83% 12.00% 10.74% Apr $ (56.26) $ $ $ $ $ (15.86) $ (13.72) $ (12.13) $ (10.83) 28.20% 24.39% 21.57% 19.26% May $ (60.25) $ $ $ $ $ (17.01) $ (13.11) $ (11.62) $ (10.43) 28.24% 21.76% 19.29% 17.32% Jun $ (73.87) $ $ $ $ $ (12.77) $ (7.07) $ (6.04) $ (5.43) 17.29% 9.57% 8.17% 7.36% Jul $ (80.15) $ $ $ $ $ (10.32) $ (9.20) $ (8.36) $ (7.68) 12.88% 11.48% 10.43% 9.58% Aug $ (52.88) $ $ $ $ $ (4.32) $ (3.64) $ (3.06) $ (2.70) 8.17% 6.88% 5.79% 5.11% Sep $ (26.31) $ $ $ $ $ (2.84) $ (3.59) $ (3.10) $ (2.75) 10.80% 13.64% 11.78% 10.44% Oct $ (27.82) $ $ $ $ $ (3.12) $ (4.63) $ (4.05) $ (3.57) 11.21% 16.63% 14.56% 12.85% Nov $ (29.20) $ $ $ $ $ (4.27) $ (4.61) $ (3.88) $ (3.36) 14.61% 15.79% 13.28% 11.49% Dec $ (56.36) $ $ $ $ $ (9.96) $ (10.92) $ (9.81) $ (9.04) 17.67% 19.38% 17.41% 16.05% $ (678.39) $ 4, $ 2, $ 2, $ 2, $ (131.37) $ (114.48) $ (101.41) $ (91.91) 19.36% 16.87% 14.95% 13.55% Note: All collateral calculations performed utilizing monthly TCC prices. Current Margin = (e^((( (ln TCC Price +e)) (zone J) (Zone K) + Monthly Dummy))) Monthly Dummies in Current Margin are as follows: Jan. (0.0000), Feb. ( ), Mar. (0.000), Apr. (0.0000), May (0.8181), Jun. (0.2835), Jul. (0.5201), Aug. (0.7221), Sep. (0.0000), Oct. (0.3200), Nov. ( ), Dec. (0.0000) New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 19

20 Current Month Comparisons Table 8 compares collateral held and uncovered payments due at the portfolio level utilizing monthly, six-month and annual TCCs. Table 8 Current Month Coverage Portfolio Level Payments Due,, Uncovered Payments Due, and % Payments Due Uncovered Monthly, Six Month and Annual TCCs May September 2014 ($ Millions) Uncovered Payments Due % Payments Due Uncovered Month Payments Due Current Monthly Low Medium High Current Monthly Low Medium High Current Monthly Low Medium High Jan $ (19.49) $ $ $ $ $ (0.68) $ (1.03) $ (0.90) $ (0.82) 3.51% 5.30% 4.63% 4.19% Feb $ (23.31) $ $ $ $ $ (5.09) $ (4.65) $ (4.05) $ (3.62) 21.85% 19.95% 17.40% 15.54% Mar $ (7.83) $ $ $ $ $ (0.07) $ (0.10) $ (0.10) $ (0.09) 0.96% 1.31% 1.22% 1.13% Apr $ (12.14) $ $ $ $ $ (0.49) $ (0.33) $ (0.27) $ (0.21) 4.07% 2.76% 2.20% 1.71% May $ (15.78) $ $ $ $ $ (2.12) $ (1.73) $ (1.49) $ (1.28) 13.40% 10.93% 9.46% 8.13% Jun $ (13.93) $ $ $ $ $ (0.64) $ (0.22) $ (0.20) $ (0.18) 4.59% 1.61% 1.45% 1.29% Jul $ (11.41) $ $ $ $ $ (0.14) $ (0.11) $ (0.05) $ (0.04) 1.23% 0.99% 0.42% 0.31% Aug $ (9.61) $ $ $ $ $ (0.24) $ (0.01) $ (0.00) $ % 0.07% 0.01% - Sep $ (5.28) $ $ $ $ $ (0.04) $ (0.28) $ (0.14) $ (0.10) 0.80% 5.28% 2.68% 1.82% Oct $ (4.08) $ $ $ $ $ (0.48) $ (0.34) $ (0.23) $ (0.12) 11.79% 8.38% 5.56% 3.01% Nov $ (7.97) $ $ $ $ $ (0.04) $ (0.17) $ (0.09) $ (0.02) 0.55% 2.09% 1.08% 0.27% Dec $ (12.97) $ $ $ $ $ (0.74) $ (0.86) $ (0.69) $ (0.62) 5.70% 6.63% 5.31% 4.77% $ (143.80) $ 3, $ 1, $ 2, $ 2, $ (10.79) $ (9.84) $ (8.20) $ (7.09) 7.50% 6.84% 5.70% 4.93% Note: All collateral calculations performed utilizing monthly TCC prices. Current Margin = (e^((( (ln TCC Price +e)) (zone J) (Zone K) + Monthly Dummy))) Monthly Dummies in Current Margin are as follows: Jan. (0.0000), Feb. ( ), Mar. (0.000), Apr. (0.0000), May (0.8181), Jun. (0.2835), Jul. (0.5201), Aug. (0.7221), Sep. (0.0000), Oct. (0.3200), Nov. ( ), Dec. (0.0000) New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 20

21 Current Month Comparisons Tables 9 and 10 represent path by path comparisons based on a sample of six-month TCCs from May 2005 through October The path by path method indicates noticeably lower collateral however, there is also noticeably higher uncovered payments due. Methodology is based on the auction price and a margin. In January and February only 50% of the payments due are covered New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 21

22 Current Month Comparisons Table 9 incorporates the path by path method and compares collateral held and uncovered payments due at the TCC level (using portfolio level data) utilizing six-month TCCs. Note that while the collateral is significantly lower under the path method, the % of payments due that is uncovered is far greater than in any other scenario. Table 9 Current Month Comparison TCC Level (using Portfolio Level Data)- Six Month TCCs Total, Payments Due, Uncovered Payments Due and % Due Uncovered May October 2014 ($ Millions) Month Payments Uncovered Payments Due % Due Uncovered Current Path Current Path Current Path Due Low Medium High Low Medium High Low Medium High Monthly Method Monthly Method Monthly Method Jan $ (38.03) $ $ $ $ $ $ (9.04) $ (8.37) $ (7.73) $ (7.25) $ (17.32) 23.76% 22.00% 20.33% 19.06% 45.53% Feb $ (41.02) $ $ $ $ $ $ (11.05) $ (9.37) $ (8.38) $ (7.77) $ (19.55) 26.94% 22.85% 20.43% 18.94% 47.67% Mar $ (20.60) $ $ $ $ $ $ (2.33) $ (2.79) $ (2.36) $ (2.08) $ (6.87) 11.31% 13.54% 11.47% 10.08% 33.36% Apr $ (23.48) $ $ $ $ $ $ (7.74) $ (7.29) $ (6.50) $ (5.82) $ (14.18) 32.95% 31.07% 27.70% 24.77% 60.39% May $ (22.82) $ $ $ $ $ $ (7.36) $ (6.29) $ (5.67) $ (5.16) $ (13.60) 32.24% 27.57% 24.85% 22.61% 59.59% Jun $ (24.38) $ $ $ $ $ $ (2.85) $ (1.92) $ (1.66) $ (1.50) $ (7.71) 11.68% 7.87% 6.80% 6.17% 31.64% Jul $ (26.67) $ $ $ $ $ $ (3.56) $ (2.98) $ (2.68) $ (2.45) $ (7.81) 13.34% 11.16% 10.06% 9.20% 29.27% Aug $ (21.18) $ $ $ $ $ $ (1.87) $ (1.84) $ (1.62) $ (1.50) $ (5.95) 8.81% 8.67% 7.64% 7.10% 28.09% Sep $ (9.95) $ $ $ $ $ $ (1.39) $ (1.79) $ (1.56) $ (1.39) $ (3.47) 13.98% 17.95% 15.73% 13.98% 34.91% Oct $ (12.63) $ $ $ $ $ $ (1.72) $ (2.01) $ (1.69) $ (1.42) $ (5.75) 13.64% 15.91% 13.41% 11.24% 45.53% Nov $ (10.08) $ $ $ $ $ $ (0.81) $ (1.24) $ (0.96) $ (0.77) $ (3.71) 8.03% 12.35% 9.51% 7.60% 36.85% Dec $ (23.35) $ $ $ $ $ $ (4.27) $ (4.99) $ (4.49) $ (4.15) $ (10.21) 18.29% 21.38% 19.23% 17.77% 43.74% TOTAL $ (274.19) $ 1, $ $ 1, $ 1, $ $ (53.98) $ (50.88) $ (45.31) $ (41.26) $ (116.14) 19.69% 18.56% 16.53% 15.05% 42.36% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 22

23 Current Month Comparisons Table 10 incorporates the path by path method and compares collateral held and uncovered payments due at the portfolio level utilizing six-month TCCs. Note that while the collateral is significantly lower under the path method, the % of payments due that is uncovered is far greater than in any other scenario. Table 10 Current Month Comparison Portfolio Level - Six Month TCCs Total, Payments Due, Uncovered Payments Due and % Due Uncovered May October 2014 ($ Millions) Month Payments Uncovered Payments Due % Due Uncovered Path Path Path Due Current Low Medium High Current Low Medium High Current Low Medium High Method Method Method Jan $ (9.02) $ $ $ $ $ $ (1.10) $ (1.55) $ (1.20) $ (0.94) $ (4.27) 12.17% 17.16% 13.30% 10.43% 47.34% Feb $ (14.71) $ $ $ $ $ $ (5.38) $ (4.85) $ (4.44) $ (4.12) $ (7.77) 36.55% 32.98% 30.21% 28.03% 52.84% Mar $ (4.46) $ $ $ $ $ $ (0.05) $ (0.00) $ (0.00) $ (0.00) $ (0.31) 1.22% 0.05% 0.02% 0.00% 7.01% Apr $ (9.34) $ $ $ $ $ $ (0.95) $ (0.38) $ (0.21) $ (0.11) $ (4.91) 10.17% 4.06% 2.23% 1.21% 52.63% May $ (10.11) $ $ $ $ $ $ (2.04) $ (1.69) $ (1.44) $ (1.25) $ (6.16) 20.20% 16.70% 14.29% 12.39% 60.92% Jun $ (4.44) $ $ $ $ $ $ (0.12) $ (0.08) $ (0.07) $ (0.05) $ (0.76) 2.74% 1.84% 1.50% 1.22% 17.01% Jul $ (4.76) $ $ $ $ $ $ (0.07) $ (0.13) $ (0.11) $ (0.09) $ (0.39) 1.53% 2.65% 2.30% 1.99% 8.19% Aug $ (4.13) $ $ $ $ $ $ (0.00) $ (0.02) $ (0.02) $ (0.02) $ (0.58) 0.02% 0.59% 0.52% 0.46% 14.17% Sep $ (2.46) $ $ $ $ $ 8.20 $ (0.01) $ (0.01) $ (0.01) $ (0.01) $ (0.22) 0.20% 0.55% 0.42% 0.29% 8.99% Oct $ (3.74) $ $ $ $ $ 9.25 $ (0.41) $ (0.29) $ (0.20) $ (0.11) $ (1.37) 10.86% 7.84% 5.21% 2.85% 36.67% Nov $ (2.63) $ $ $ $ $ 9.77 $ (0.01) $ (0.06) $ (0.04) $ (0.00) $ (0.49) 0.32% 2.20% 1.62% 0.15% 18.78% Dec $ (4.85) $ $ $ $ $ $ (0.07) $ (0.18) $ (0.15) $ (0.14) $ (0.82) 1.54% 3.74% 3.19% 2.78% 16.93% TOTAL $ (74.65) $ 1, $ $ $ $ $ (10.21) $ (9.25) $ (7.90) $ (6.85) $ (28.07) 13.68% 12.39% 10.58% 9.18% 37.60% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 23

24 Current Month Summary Under the proposed Balance-of-Period Auction collateral design, credit coverage for the current month of a TCC purchased as a six-month or annual TCC will be determined by the current month TCC formula. While the current monthly formula includes distinct credit coverage margin formulas for each month, the proposed formulas will initially be the same for all months, subject to further discussion with Market Participants. The CMS will maintain the capability to implement distinct monthly formulas to allow changes to be made based on experience with Balanceof-Period Auctions. The monthly credit coverage formula will include distinct credit coverage margin formulas for Zone J, Zone K and Non-JK. The CMS will have the capability to implement distinct formulas for Intra-J, Intra-K and Neither-JK TCCs to allow changes to be made based on experience with Balance-of-Period Auctions. DRAFT FOR DISCUSSION PURPOSES ONLY New York Independent System Operator, Inc. All Rights Reserved. 24

25 Future Month Credit Requirement TCCs covering future months of the current Capability Period will be marked-to-market every month based on the prices in the Balance-of-Period TCC Auction. requirements will be adjusted based on those prices. Market Participants will have the opportunity to purchase and/or sell any future month of the current Capability Period and as such, the NYISO will need to establish credit coverage for two types of future month TCCs. The future months comprising the remainder of a capability period, to cover the remaining months of a six month TCC. If a Market Participant purchased a six month TCC in spring 2015, in mid May 2015, the NYISO would require credit coverage for the current month (May) and for the remainder of the Capability Period (June through October). TCCs covering individual future months. Market Participants might purchase TCCs covering the month of July in the May Balance-of-Period Auction and have no other TCC holdings in other months. DRAFT FOR DISCUSSION PURPOSES ONLY New York Independent System Operator, Inc. All Rights Reserved. 25

26 Future Month Credit Requirement The Balance-of-Period credit policy has been designed to establish a distinct collateral requirement for each month of six month TCCs, rather than based on a collateral requirement for the remainder of the period. With this design, there will no longer be a credit requirement for a month that is sold within the current capability period New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 26

27 Future Month Analysis Given that the NYISO has never run Balance-of-Period Auctions, there is no historical New York data to show how the prices of future month TCCs would move from month to month. Balance-of-Period data since 2006 is available from PJM. The NYISO has used PJM Balance-of-Period Auction data to estimate the likely variability of NYISO Balance-of-Period prices. This assessment is based on the following assumption: The ratio of the month to month variations in future FTR prices in PJM to the similar ratio in New York will be similar to the ratio of the variability of current month TCC payments between the two regions. This is considered an appropriate method for assessing the potential variability of NYISO Balance-of-Period prices New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 27

28 Future Month Analysis The proposed credit policy for future month TCCs will initially use the historical PJM data to define credit requirements for future month TCCs. As NYISO data becomes available following implementation of the Balance-of-Period Auction, the NYISO will use a combination of historical NYISO TCC and PJM FTR data to define credit requirements for future month TCCs New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 28

29 Future Month Analysis The proposed methodology for calculating the credit requirement for future month TCCs is based on individual monthly credit coverage margins for each future month of the Capability Period for which a TCC is held. Margins will be calculated by multiplying the monthly credit requirement for the TCCs held for that month by an index ratio. The index ratio measures the ratio of the variability of PJM future month FTR auction prices to the variability of future month TCC payments. The index ratio would be applied to the current month credit margin as calculated for a given monthly TCC price. The index ratio will set the collateral requirement for a future month TCC as a specified fraction of the margin for the corresponding current month TCC. The index ratios the NYISO has developed are all less than 1. There will be less collateral on future month TCCs than on a current month TCC with the same source, sink and auction price. This reflects the fact that the month to month variability of TCC prices in PJM is much less than the variability between auction price and payments due. DRAFT FOR DISCUSSION PURPOSES ONLY New York Independent System Operator, Inc. All Rights Reserved. 29

30 Future Month Analysis Distinct index ratios will be used for each month. Index ratios were developed using data for summer, winter and shoulder months, respectively. Summer months are considered May, June, July and August. Winter months are considered December, January and February. Shoulder months are considered March, April, September, October and November New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 30

31 Future Month Analysis Proposed Index Ratios Spring Auctions Summer Capability Period Table 11 Spring Auctions As of Date for Month May June July August September October April Current 1 Month in Summer 2 Month in Summer 3 Month in Summer 4 Month in Shoulder 5 Month in Shoulder Index Ratio May - Current 1 Month in Summer 2 Month in Summer 3 Month in Shoulder 4 Month in Shoulder Index Ratio June - - Current 1 Month in Summer 2 Month in Shoulder 3 Month in Shoulder Index Ratio July Current 1 Month in Shoulder 2 Month in Shoulder Index Ratio August Current 1 Month in Shoulder Index Ratio September Current Index Ratio New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 31

32 Future Month Analysis Proposed Index Ratios Autumn Auctions Winter Capability Period Table 12 Autumn Auctions As of Date for Month November December January February March April October Current 1 Month in Winter 2 Month in Winter 3 Month in Winter 4 Month in Shoulder 5 Month in Shoulder Index Ratio November - Current 1 Month in Winter 2 Month in Winter 3 Month in Shoulder 4 Month in Shoulder Index Ratio December - - Current 1 Month in Winter 2 Month in Shoulder 3 Month in Shoulder Index Ratio January Current 1 Month in Shoulder 2 Month in Shoulder Index Ratio February Current 1 Month in Shoulder Index Ratio March Current Index Ratio New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 32

33 Future Month Analysis Proposed index ratios applicable at the beginning of the Capability Period. Table 13 Spring Auctions Index Ratio for Month May June July August September October 1 Month in 2 Month in 3 Month in 4 Month in 5 Month in Current Summer Summer Summer Shoulder Shoulder Table 14 Autumn Auctions Index Ratio for Month November December January February March April Current 1 Month in Winter 2 Month in Winter 3 Month in Winter 4 Month in Shoulder 5 Month in Shoulder New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 33

34 Future Month Analysis Historical monthly auction prices and the six-month price were used to simulate what the prices for the future months of the Capability Period might have been in the initial Balance-of-Period auction for this comparison. The simulations are only illustrative as the actual operation of these formulas cannot be observed on NYISO data until the Balance-of-Period auctions run and generate forward auction prices. The monthly prices needed to apply the Balance-of- Period collateral requirement for the comparisons in Tables 15 and 16 were simulated by scaling the monthly auction prices to equal the six-month auction price for each TCC in the sample New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 34

35 Future Month Analysis The lack of data on how future month prices would have changed over time as well as limited ways to simulate those future month prices has limited the comparison to the initial collateral and the total payments due over the term of the TCC. One strength of the new design is that re-valuation of portfolios each month will enable collateral calls to be made more timely New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 35

36 Future Month Analysis It is anticipated that the Balance-of-Period design will perform better than indicated by these comparisons, however, the NYISO cannot validate this assumption until the actual operation of the auction is observed. If the new collateral design operates as anticipated, it may be possible to adjust the credit requirements downward over time. Until the NYISO has observed the actual operation of the Balance-of-Period auction design there are some risks of making further reductions in collateral New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 36

37 Future Month Analysis Table 15 utilizes the index ratios to compare the current rule to the proposed new rules at the TCC level as of the beginning of the Capability Period using simulated future month prices. Table 15 TCC Level: All TCCs - Summary Credit Coverage and Payments Due ($ millions) Spring Spring 2014 Credit Coverage Uncovered Payments Due Offset Payments Due Percentage Payments Due Uncovered Season Current Rule Low Medium High Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring 26.75% 29.17% 26.88% 25.01% Fall 32.50% 37.55% 35.51% 33.94% TOTAL 30.00% 33.90% 31.76% 30.05% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 37

38 Future Month Analysis Table 16 utilizes the index ratios to compare the current rule to the proposed new rules at the portfolio level as of the beginning of the Capability Period using simulated future month prices. Table 16 Portfolio Level: All TCCs - Summary Credit Coverage and Payments Due ($ millions) Spring Spring 2014 Credit Coverage Uncovered Payments Due Offset Payments Due Percentage Payments Due Uncovered Season Current Rule Low Medium High Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring $ 1.64 $ 2.33 $ 1.81 $ 1.34 Fall $ 4.22 $ 7.86 $ 6.27 $ 5.03 TOTAL $ 5.86 $ $ 8.08 $ 6.37 Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring 7.44% 10.58% 8.20% 6.07% Fall 10.59% 19.71% 15.71% 12.62% TOTAL 9.47% 16.46% 13.04% 10.29% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 38

39 Future Month Analysis Table 17 utilizes the index ratios to compare the current rule to the proposed new rules at the portfolio level as of the beginning of the Capability Period using future month prices simulated by using the actual monthly auction price for the first month and scaled prices for the remaining five months. Table 17 Alternate Price Scaling Methodology Portfolio Level: All TCCs - Summary Credit Coverage and Payments Due ($ millions) Spring Spring 2014 Credit Coverage Uncovered Payments Due Offset Payments Due Percentage Payments Due Uncovered Season Current Rule Low Medium High Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring $ 1.64 $ 1.52 $ 0.89 $ 0.33 Fall $ 4.22 $ 6.41 $ 4.62 $ 3.41 TOTAL $ 5.86 $ 7.93 $ 5.51 $ 3.74 Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring $ $ $ $ Fall $ $ $ $ TOTAL $ $ $ $ Spring 7.44% 6.88% 4.05% 1.50% Fall 10.59% 16.08% 11.58% 8.55% TOTAL 9.47% 12.80% 8.90% 6.04% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 39

40 Future Month Analysis The index ratios would be recalculated periodically using a combination of historical PJM Balance-of-Period Auction data and, as NYISO data becomes available, NYISO Balance-of-Period Auction data. Data used to calculate the index ratios would initially consist exclusively of historical PJM data. The NYISO plans to periodically update the index ratios with NYISO Balance-of-Period Auction data until such time the index ratios are defined based solely on NYISO data. The NYISO continues to evaluate the best approach to add NYISO data to develop the index ratios. Given the uncertainty, Market Participants could consider whether the NYISO should initially apply a margin to the index ratios calculated from historical PJM data New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 40

41 Portfolio Level Adjustment Analysis Portfolio level adjustments to the holding requirement for monthly TCCs (current and future) are based on measures of portfolio diversification rather than individual TCC characteristics. The adjustments that have been developed potentially increase the collateral requirement for undiversified portfolios. Given the lower amount of collateral held for Balance-of-Period TCCs, an additional adjustment to reduce requirements could pose additional risk to the market. Adjustments that would further reduce the collateral requirement for highly diversified portfolios have been examined but the NYISO has not yet identified reliable rules for such adjustments New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 41

42 Portfolio Level Adjustment Analysis The proposed portfolio level adjustment seeks to apply higher credit requirements to TCC portfolios that are more concentrated in the constraints that they would create flows over. There is more exposure to common changes in congestion patterns and payments due. Requires a method of measuring concentration in constraint exposure of a TCC portfolio. Grouped the TCCs in the portfolio based on whether the TCCs have the same zonal sources and sinks. Geographic concentration Adjustments are based on the value of an HHI index of portfolio concentration measured both for the number of TCCs and TCC market value. The HHI is a well established measure of concentration New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 42

43 Portfolio Level Adjustment Analysis Geographic Concentration Zonal Groupings Zone A-E All PJM Proxies Zone F All Ontario Proxies Zone G-I All ISO-NE Proxies Zone J All HQ Proxies Zone K Each zonal source/sink pair is treated as a separate path, with TCCs in reverse directions counted separately. TCCs sourcing and sinking within the same grouping are treated as an additional separate zonal path New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 43

44 Portfolio Level Adjustment Analysis HHI Adjustments Index of Portfolio Concentration Utilizes the zonal groupings to calculate two geographic concentration HHIs for each portfolio. Indexes are calculated as the sum over all geographic portfolios. Index 1 weighted by TCC auction value (% TCC market value in portfolio on path i) 2 Calculated based on the absolute value of the path values so that it includes the sum of the market value of all paths with positive market values and the sum of the absolute value of the paths with negative market values. Index 2 weighted by the number of TCCs (% TCCs in portfolio on path i) 2 The index ranges from 0 to 1 DRAFT FOR DISCUSSION PURPOSES ONLY New York Independent System Operator, Inc. All Rights Reserved. 44

45 Portfolio Level Adjustment Analysis HHI Adjustments Proposed Rules If either of the HHI weighted indexes exceed.9, the collateral requirement will be multiplied by 1.3. If neither of the weighted HHI indexes exceed.9 but, one or both fall between.7 and.9 the collateral requirement will be multiplied by 1.2. If neither of the weighted HHI indexes exceed.7 but, one or both fall between.5 and.7, the collateral requirement will be multiplied by 1.1. Example Consider a portfolio with 70 TCCs from G to J and 30 TCCs from A to F. The value of the HHI index based on number of TCCs would be.58 ( ). The collateral requirement for the Balance-of-Period TCCs, based on the rules above, would increase by 10% New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 45

46 Portfolio Level Adjustment Analysis Table 18 compares the current requirement with the proposed Balance-of-Period credit policy and the proposed HHI adjustment from the Spring 2005 through Fall 2010 auctions. Table 18 Actual Portfolios ($ millions) Spring Fall 2010 Current 3% Medium HHI Adjustment Payments Due $ $ $ $ $ $ Uncoverd Payments Due $ 3.13 $ 4.77 $ 4.05 % Uncovered 4.12% 6.27% 5.33% Number of Portfolios with Uncovered Due with Uncovered Due in excess of $100k New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 46

47 Portfolio Level Adjustment Analysis Table 19 compares the current requirement with the proposed Balance-of-Period credit policy and the proposed HHI adjustment from the Spring 2011 through Spring 2014 auctions. Essentially all of the uncovered payments due are for the Winter 2012 Capability Period. Table 19 Actual Portfolios Spring Spring 2014 ($ Millions unless noted) Actual Prices From Spring Spring 2014 Current 3% Medium HHI Adjustment Payments Due $ 9.61 $ 9.61 $ 9.61 $ $ $ Uncoverd Payments Due $ 1.69 $ 2.46 $ 2.34 Uncovered Payments Due per Auction (dollars) $ 241,190 $ 351,477 $ 333,997 % Uncovered 17.56% 25.60% 24.32% Number of Portfolios with Uncovered Due with Uncovered Due in excess of $100k New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 47

48 Portfolio Level Adjustment Analysis As noted, the portfolio level adjustment will adjust highly concentrated Balance-of-Period portfolios upward to account for the added risk they may pose to the marketplace. An alternative to consider is utilizing the high collateral requirement without a portfolio adjustment. All Market Participants would be subject to this requirement regardless of how diversified the portfolio they hold is New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 48

49 Next Steps Provide additional data as needed. Address any Market Participant feedback received at May CPWG. Send comments or suggestions related to the proposed credit policy framework to New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 49

50 New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 50