1 ICE Price Data Analysis CWG/MCWG Suresh Pabbisetty, CQF, ERP, CSQA. ERCOT Public January 20, 2016.

1

ICE Price Data AnalysisCWG/MCWGSuresh Pabbisetty, CQF, ERP, CSQA.ERCOT PublicJanuary 20, 2016

2

ICE Price Analysis

Background:

• CWG/MCWG is considering using ICE futures prices as an input to determine ERCOT’s credit risk exposure

• ERCOT staff has been running a Capacity Forecast Model (CFM) since early 2015 to estimate Excess Reserves by Operating Hour

• CWG/MCWG has reviewed preliminary analysis results at their December 2015 meeting

• Additional analysis was requested to compare ICE prices to actual RTM prices to market-wide TPE

• Run descriptive statistics of relation between ICE prices to RTM prices

ERCOT Public

3

ICE Price Analysis

Data Inputs and Transformations:• ICE Futures prices pertaining to North HUB Settlement Point for

Daily Peak (END) and Off-peak (NED) contracts• ICE doesn’t have new pricing information available on

weekends and holidays. The most recent available price of the same contract is substituted if a price is missing

• ICE Prices from early January 2011 through mid-December 2015

• Daily Average Price is calculated as (16 * Peak Price + 8 * Off-peak Price)/24

• North HUB RTSPP from early January 2011 through mid-December 2015

• Daily Average Price is calculated using simple average of all interval RTSPPs in an Operating Day

ERCOT Public

4

ICE Price AnalysisData Inputs and Transformations (continued):

• Capacity Forecast Model (CFM) Excess Reserves from mid-March 2015 through mid-December 2015

• Prior tests of data indicated that relationship between CFM Excess Reserves and RTSPP is non-linear

• A logarithm is taken for both CFM Excess Reserves and RTSPP to allow linear regression.

• Regression is performed to the above mentioned to identify the linear relationship as;

• Log10(CFM Predicted Price) = (-0.6521)*Log10(CFM Excess Reserves) + 4.2027

• A slope of -0.6521 indicates a negative correlation, so that 1 unit of increase in Log10(Excess Reserves) would result in a decrease of 0.6521 units to Log10(CFM Predicted Price).

ERCOT Public

5

ICE Price AnalysisData Inputs and Transformations (continued):

• CFM Predicted Prices are available only for 6 forward days. Most recently available (6th Day) Forward Price is used for 7th through 21st forward days

• Aggregated market-wide TPE from October 2012 through mid-December 2015

• Forward Price Averages of 21 days, 15 days and 7 days are calculated and used for analysis purposes

ERCOT Public

6

ICE Price Analysis

OFF1 P50 Excess Reserves to RTSPP regression by Hour:

ERCOT Public

7

ICE Price Analysis

Price and TPE Comparison (2011 to 2015):

ERCOT Public

8

ICE Price Analysis

Price Comparison (2011 to 2015):

ERCOT Public

9

ICE Price Analysis

Price Comparison (2015):

ERCOT Public

10

ICE Price Analysis

21 Days Average Price Comparison (2015):

ERCOT Public

11

ICE Price Analysis21 Days Average of ICE Price to RTSPP Correlation (2015):

ERCOT Public

12

ICE Price Analysis

21 Days Average of CFM Predicted Price to RTSPP Correlation (2015):

ERCOT Public

13

ICE Price Analysis15 Days Average Price Comparison (2015):

ERCOT Public

14

ICE Price Analysis

15 Days Average of ICE Price to RTSPP Correlation (2015):

ERCOT Public

15

ICE Price Analysis

15 Days Average of CFM Predicted Price to RTSPP Correlation (2015):

ERCOT Public

16

ICE Price Analysis

7 Days Average Price Comparison (2015):

ERCOT Public

17

ICE Price Analysis

7 Days Average of ICE Price to RTSPP Correlation (2015):

ERCOT Public

18

ICE Price Analysis

7 Days Average of CFM Predicted Price to RTSPP Correlation (2015):

ERCOT Public

19

ICE Price Analysis

Statistics of ICE Price Errors (Actual RTSPP – ICE/CFM Price):

ERCOT Public

Statistic

21 Days Average ICE Price Error

15 Days Average ICE Price Error

7 Days Average ICE Price Error

Minimum -95.04 -150.52 -188.36Maximum 70.75 95.35 187.56Mean -1.47 -1.49 -2.03Standard Deviation 11.65 14.18 19.17

20

ICE Price Analysis

Statistics of CFM Predicted Price Errors (Actual RTSPP – ICE/CFM Price) - continued:

ERCOT Public

Statistic

21 Days Average CFM Price Error

15 Days Average CFM Price Error

7 Days Average CFM Price Error

Minimum -8.54 -7.71 -67.08Maximum 14.34 18.55 11.03Mean 1.70 1.75 -2.98Standard Deviation 3.79 4.01 7.39

21

ICE Price Analysis

R-Square Matrix:

ERCOT Public

R-Square Matrix

Estimate

RTSPP (21 Days Average)

RTSPP (15 Days Average)

RTSPP (7 Days Average)

ICE 0.46 0.52 0.65CFM 0.48 0.49 0.50

22

Questions

ERCOT Public