NOTICE DATE: June 24, 2024

NOTICE TYPE: M-A062424-01 Financial/Credit

SHORT DESCRIPTION: Change in Handling Collateral Holds

INTENDED AUDIENCE: All Counter Parties 

DAYS AFFECTED: July 1, 2024

LONG DESCRIPTION: ERCOT Protocol Section 16.11.5(6)(c), Monitoring of a Counter-Party’s Creditworthiness and Credit Exposure by ERCOT, provides that if a Counter Party is issued a collateral call, ERCOT has the authority, but is not required, to retain any invoice payments due to that Counter Party unless and until the Counter Party increases its Financial Security.  This is known as a “collateral hold.” It has therefore been the practice of ERCOT, where a collateral call is greater than an invoice due to a Counter Party, to retain the entire invoice amount as a collateral hold.  It has also been the practice of ERCOT, where the collateral call amount is less than the invoice due to a Counter Party, to withhold the corresponding portion of the invoice payment due as a collateral hold.  In either case, if on the following day, the Counter Party has met the collateral call, ERCOT Treasury will return the invoice amounts which were under a collateral hold.  

ERCOT has found that the manual work in making these adjustments and releases to these invoice amounts prior to and when the collateral calls are met is labor intensive and poses a risk of inadvertent error due to the manipulation of invoice payments. Furthermore, in the vast majority of cases, the collateral calls are being met by the Counter Parties by the due date, allowing ERCOT to return the entire outstanding invoice amount to the Counter Party. Therefore, a large amount of manual work is being done to cover a very small chance that a collateral call will not be met by its due date.

Therefore, beginning July 1, 2024, ERCOT is adjusting its practice and will not be automatically withholding all invoice payments due to a Counter Party where that Counter Party has been requested to increase Financial Security, but is not yet late on meeting that request.  Instead, ERCOT will be exercising its discretion under ERCOT Protocol Section 16.11.5(6)(c), and only be withholding invoice payments where ERCOT believes there may be a risk of the Counter Party at issue not meeting its collateral call. (ERCOT will continue, as required by ERCOT Protocol Section 16.11.6.1.1, No Payments by ERCOT to Market Participant, to hold all invoice payments once a Counter Party has failed to meet a collateral call by its due date and transfer payments to collateral.)

CONTACT: If you have any questions, please contact your ERCOT Account Manager. You may also call the general ERCOT Client Services phone number at (512) 248-3900 or contact ERCOT Client Services via email at ClientServices@ercot.com.

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