1 Load to Price Correlation CWG/MCWG Suresh Pabbisetty, CQF, CSQA. ERCOT Public February 20, 2014 2 Background and Analysis Background: In order to understand if forward credit exposure can be reliably estimated, ERCOT analyzed the relationship between Real Time Settlement Point Prices (RTSPPs) and Load (which is consistently available in advance). Prior Analysis (presented at Jan 2014 CWG/MCWG meeting): ERCOT has gathered historic aggregate load at each Load Zone Settlement Point by interval and the corresponding RTSPPs. Load-to-price correlations were calculated based on the following scenarios; for all hours grouped by calendar years 2011, 2012, and for all hours grouped by calendar year and calendar month of last 3 years. for all years grouped by hours 1 through 24. ERCOT Public 3 Prior Analysis Results ERCOT Public Scenario 1: for all hours grouped by Load Zone, Calendar Year; Correlation is 13% to 29% Scenario 2: for all hours grouped by Load Zone, Calendar Year, and Calendar Month; Correlation range is 10% to 89% Scenario 3: for all hours grouped by Load Zone, Calendar Year, and Operating Hour; Correlation range is 3% to 72% 4 Additional Analysis - Design ERCOT Public Additional Analysis by ERCOT since Jan 2014 CWG/MCWG meeting: Data Transformations: Created following buckets of hourly load with respect to percentage of monthly maximum load; Up to 80% Between 80% and 90% Between 90% and 95% Between 90% and 100% In order to better analyze tail prices, we derived the following price variables; Log to the base e of RTSPP excluding ORDC Adder Log to the base e of RTSPP including ORDC Adder 5 Additional Analysis Design continued.. ERCOT Public Scenarios: 1.Grouped by Load Zone, Load Bucket, Operating Month; a.Correlation between load and log price excluding ORDC Adder. b.Correlation between load and log price including ORDC Adder. 2.Grouped by Load Zone, Load Bucket, Hour; a.Correlation between load and log price excluding ORDC Adder. b.Correlation between load and log price including ORDC Adder. 6 Additional Analysis Results ERCOT Public Results: Scenario 1: Correlations are low across the board and hence no detailed analysis was performed. Scenario 2: Improved hourly correlations are observed; hence detailed analysis was performed to calculate hourly correlations at each Load Zone for each bucket. Further details of the results of scenarios 2.a and 2.b are presented in Appendix A for each Load Zone. 7 Options / Next Steps Options / Next Steps: For certain combinations of Load Zone and Operating Hour, where statistically significant correlations are observed, additional methodologies can be implemented to mitigate forward price risk based on forward estimated load. One such methodology, summarized in Appendix B, uses buckets of percentage of hourly load to monthly maximum load to create adders at progressively higher levels. Continue further analysis to find statistically significant relationships of price and dependable variables that can be reliably estimated and available for future period. ERCOT Public 8 Questions ERCOT Public 9 Appendix A ERCOT Public 10 LZ_NORTH Correlations ERCOT Public 11 LZ_SOUTH Correlations ERCOT Public 12 LZ_HOUSTON Correlations ERCOT Public 13 LZ_WEST Correlations ERCOT Public 14 LZ_CPS Correlations ERCOT Public 15 LZ_LCRA Correlations ERCOT Public 16 LZ_AEN Correlations ERCOT Public 17 LZ_RAYBN Correlations ERCOT Public 18 Appendix B ERCOT Public 19 Options / Next Steps continued.. Optional Methodology: EAL q = Max[ (IEL q during the first L q -day period only ), RTLE q + RTLHPRE q, RTLF q ] + DALE q + Max [RTLCNS q, Max {URTA q during the previous L q -day period}] + OUT q + PUL q Where RTLHPRE q = Real Time Liability high Price Risk Extrapolated. RTLHPRE q = h belongs to {hl} p [MAXRTNETEVA cp, p, cd, h * RTSPPRSPRDEST p, cd, h ] Where {hl} = set of future hours for which load estimate is available and correlations are statistically significant. RTSPPRSPRDEST p, cd, h = Percentile rsprd of { (RTSPP p, od, i + inclusive of RTRPA p, od, i ) at Settlement Point p for the 15-minute interval i in an hour h of the Operating Day od, with the replacement of prices equal to the SWCAP as of od with the SWCAP as of cd for all od in ods} - RTSPPEST p, cd, h. Where rsprd is determined based on the Buckets of Hourly Load to Maximum Monthly Load Percentage as follows; Bucket 1 = low1 through high1 then rsprd = pctl1 Bucket 2 = low2 through high2 then rsprd = pctl2 Bucket 3 = low3 through high3 then rsprd = pctl3 Bucket 4 = low4 through high4 then rsprd = pctl4 ERCOT Public