Credit Exposure and Loss Given Default Mark Ruane Credit Work Group ERCOT Public November 18, 2015

Credit Exposure and Loss Given Default ERCOT Public As part of the discussion on ERCOT market risk appetite staff have performed additional analysis of market exposure. We disaggregated Counter-Parties by exposure and rating and then tabulated: Number of Counter-Parties Exposure (defined as TPE) Excess collateral, not counting unsecured credit Average expected loss per Counter-Party

ERCOT Public Notes: Active Counter-Parties only included TPE and collateral balances used are averages for August Negative excess collateral shown is due to the adjustment to remove unsecured credit Counter-Parties that are subsidiaries of, or guaranteed by, rated entities are given the parent/guarantor’s rating, adjusted down one notch The “Loss Given Default” calculation is based on an average of historic default probabilities from S&P, Moody’s and Fitch TPE will typically exceed invoice exposure, so this is a conservative metric. It should be viewed as a relative indicator of credit portfolio risk, not a forecast for losses or uplift. Credit Exposure and Loss Given Default

ERCOT Public Summary statistics by market segment Credit Exposure and Loss Given Default

ERCOT Public Summary statistics by Counter-Party / parent / guarantor rating Credit Exposure and Loss Given Default

ERCOT Public Cross-tabulation: number of active Counter-Parties Credit Exposure and Loss Given Default

ERCOT Public Distribution of August average Total Potential Exposure Credit Exposure and Loss Given Default

ERCOT Public Distribution of August average excess collateral Credit Exposure and Loss Given Default

ERCOT Public Assumed 1-year probabilities of default Credit Exposure and Loss Given Default

ERCOT Public Assumed loss given default (Probability of default * TPE) Credit Exposure and Loss Given Default

ERCOT Public Observations: Traders constitute the largest share of Counter-Parties, but Load + Gen accounts for a majority (66.5%) of TEP Load-only Counter-Parties account for only about 7% of exposure Two-thirds of Counter-Parties are unrated, but these account for only 34% of TPE. Almost half of exposure is from non-investment grade Counter-Parties. Most exposure is in the Load+Gen segment, with the second largest component among traders. Because of the high concentration of low- or un-rated Counter- Parties, loss given default is 20% of TPE. This percentage varies from 6% for CRRAHs to 57% for Load+Gen Counter-Parties. Credit Exposure and Loss Given Default

Questions ERCOT Public Credit Exposure and Loss Given Default