NOTICE DATE:  February 3, 2011
NOTICE TYPE:  W-A020311-01 Financial/Credit
SHORT DESCRIPTION:  Credit updates
INTENDED AUDIENCE:  Counter-Parties, CRRAHs and QSEs
DAY AFFECTED:  February 3, 2011

LONG DESCRIPTION:  Certain portions of the credit calculations in the ERCOT Protocols use recent history to collateralize for forward risk. While this generally produces reasonable results, underlying assumptions must be reviewed during periods of unusual activity. The Protocols allow ERCOT flexibility to adjust exposure calculations to address unusual situations as they arise. ERCOT does not consider activity like what was experienced February 3, 2011, as a good estimate of activity for the next weeks or months; therefore, ERCOT has made or will make the following adjustments to mitigate the impact of the unusual activity experienced so far this week while collateralizing for a) ERCOT's best estimate of exposure that has been incurred and b) maintaining reasonable coverage for forward risk.

Credit Monitoring and Management (CMM) - Credit Adjustments

Based on its review, ERCOT has or will make the following adjustments:

1)    AIL - ERCOT has applied a factor of 0.05 to the Not Completed (Forward Days) section of the Aggregate Incremental Liability (AIL) component effective from February 3, 2011, through February 9, 2011 (this is an update from the one sent on February 2, 2011), and

2)    ADTE - As previously reported, ERCOT will exclude Operating Day February 2, 2011, from the Average Daily Transaction Extrapolated (ADTE) calculated on February 18, 2011, before determining the Highest ADTE

3)    DALE - ERCOT will freeze the Daily Average Liability Extrapolated (DALE) calculation on Friday, February 4, 2011, and will use this as the DALE through February 9, 2011. After February 9, ERCOT will calculate the DALE excluding the DAM runs for Operating Days February 3 and 4 from the DALE.

Credit Reports

Credit Reports are being updated for the AIL adjustment noted above. ERCOT will post the credit reports as soon as they are available.

Collateral Posting - Deadline Extended

ERCOT normally requires collateral to be posted by noon for it to be available for the next morning's Day Ahead Market run. ERCOT has extended the deadline to 16:00 for February 3, 2011. Therefore, any collateral received by 16:00 will be reflected in the Available Credit Limit sent tonight for the DAM run on February 4, 2011.

ERCOT will continue to monitor credit exposure over the next few days and may take additional actions to adjust TPE and/or DAM parameters as needed.
CONTACT:  If you have any questions, please contact Vanessa Spells at [log in to unmask]<mailto:[log in to unmask]>, (512) 225 7014, or Rizaldy Zapanta at [log in to unmask]<mailto:[log in to unmask]>, (512) 225-7015. You may also send credit inquiries to [log in to unmask]<mailto:[log in to unmask]>.
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