On April 23, 2021, the Electric Reliability Council of Texas (ERCOT) issued a Market Notice that estimated the cumulative aggregate short pay amount due to Storm Uri at $2,992,497,089.61.
Subsequently, on April 27, 2021, ERCOT issued a Market Notice noting that, under ERCOT's rules, Counter-Parties must maintain Financial Security or an Unsecured Credit Limit at an amount that equals or exceeds its Total Potential Exposure (TPE) and further stating that ERCOT intends to issue Default Uplift Invoices that collectively total no more than $2.5 million each month, the limit set by ERCOT Protocol Section 9.19.1(4). At this rate, ERCOT expects to uplift approximately $30 million within the next 12 months. The Potential Uplift (PUL) component of TPE contemplates including one year's worth of expected Default Uplift Invoices in the TPE calculation.
However, in a potentially chilling announcement, ERCOT also stated that ERCOT Protocol Section 16.11.4.1(3) gives ERCOT discretion to deviate from the standard TPE calculation if ERCOT determines that it "does not adequately match the financial risk created by that Counter-Party's activities." Additionally, under ERCOT Protocol Section 16.11.7(2), ERCOT has the authority to request Financial Security up to the maximum of the determined TPE for a terminating Market Participant and may then draw against that Financial Security to satisfy payment obligations on any subsequently issued Default Uplift Invoices. ERCOT then advised that for a Counter-Party that accrued an obligation to pay a Default Uplift Ratio Share and that chooses to terminate its Standard Form Market Participant Agreement (SFA), ERCOT will set that Counter-Party's TPE up to a maximum of the entire amount of the Counter-Party's Default Uplift Ratio Share.
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2020. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.