ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the 2010 ISDA ERCOT Protocol (the "Protocol").
THIS FREQUENTLY ASKED QUESTIONS DOES NOT PURPORT TO BE AND SHOULD NOT BE CONSIDERED A GUIDE TO OR AN EXPLANATION OF ALL RELEVANT ISSUES OR CONSIDERATIONS IN CONNECTION WITH THE PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.
Adherence Letter Submission Process
When do I need to send in my Adherence Letter?
The Protocol opens for adherence on Friday, November 19, 2010 and closes on Monday, November 29, 2010. ISDA reserves the right to reopen the Protocol for a subsequent adherence period.
How do I send in my Adherence Letter?
All Adherence Letters must be delivered by email to ERCOTprotocol@isda.org. In the email, you must submit both your conformed and executed copies of the Adherence Letter.
The Adherence Letter(s) should be on your firm’s letterhead. Nothing in the form Adherence Letter available on ISDA's website may be changed with the exception of completing the details of your firm name, date and signature block.
You are not required to send your original Adherence Letter(s) by mail to ISDA.
What is a “conformed copy”?
A conformed copy of the Adherence Letter means that the name of the authorized signatory (for example, Patricia Smith) is typed rather than having Patricia Smith’s actual signature on the letter. ISDA only posts on its website the conformed copy of all Adherence Letters.
You must also submit an executed, or signed, copy of the Adherence Letter in addition to the conformed copy of the Adherence Letter. ISDA keeps the executed copy of the Adherence Letter for its files and does not share the executed copy with anyone else.
Who is an authorized signatory?
An authorized signatory to the Adherence Letter is an individual who has the legal authority to bind the adhering firm.
What if I am an investment or asset manager – how do I complete the signature block?
If you are an investment or asset manager and act on behalf of multiple funds, you must indicate the following in the signature block: "Investment/Asset Manager, acting on behalf of the funds and accounts listed in the relevant Master Agreement between it and another Adhering Party". A separate Adherence Letter for each fund or account does not need to be submitted to ISDA. Further, no specific names of clients of the investment/asset manager will be publicly disclosed on the ISDA website in connection with the Protocol.
Can I change the text of the Adherence Letter?
No. The Adherence Letter must be in the same format as the form letter published in the 2010 ISDA ERCOT Protocol. You may obtain a copy of the form Adherence Letter by visiting the ISDA website, www.isda.org and clicking on "2010 ISDA ERCOT Protocol" and then clicking on "Form of Adherence Letter".
Does it cost any money to adhere to the Protocol?
Who Should Use the Protocol?
Any company with an active derivatives business, whether or not it is an ISDA Member, should strongly consider using the Protocol. The Protocol is open to both ISDA Members and non-Members.
No Right of Revocation
Can I revoke my participation in the Protocol?
No. Once an Adherence Letter has been accepted by ISDA, an Adhering Party is bound by all amendments with other parties that have adhered to the Protocol.
You can, however, bilaterally agree to amend your Covered Master Agreement with your counterparty (the other Adhering Party) in accordance with Section 5(b) of the Protocol, and any such subsequent amendments will supersede those made by the Protocol to the extent that they are inconsistent.
DETAILS RELATING TO THE PROTOCOL
What does the Protocol do?
The Protocol consists of the following three Annexes:
Annex 1 – No Market Disruption Event; Modification to Commodity Reference Price/Floating Price; Corrections to Published Prices;
Annex 2 – Additional Provisions regarding ERCOT Charges to be Incorporated into Covered ISDA Master Agreements; and
Annex 3 – Additional Provisions regarding ERCOT Charges to be Incorporated into Covered EEI Master Agreements.
An Adhering Party specifies in its Adherence Letter whether it wishes to adhere to all or only some of the Annexes. As between two Adhering Parties, where one has specified that less than all of the Annexes are applicable, only those Annexes to which both parties have adhered will be applicable. The amendments set out in the Annexes that are applicable as between two Adhering Parties will apply to the relevant Covered Protocol Documents. The amendments take effect from the Implementation Date, which is December 1, 2010.
What is the purpose of the different Annexes?
- Annex 1 – No Market Disruption Event; Modification to Commodity Reference Price/Floating Price; Corrections to Published Prices.
Annex 1 applies to “Covered Transactions” (as defined in the Protocol), which are cash-settled transactions governed by an ISDA Master Agreement and which reference the Market Clearing Price for Energy (the “MCPE”) for any of the North, South, West or Houston zones in the Electric Reliability Council of Texas (“ERCOT”) region. The purpose of Annex 1 is to (i) confirm that the implementation of the “Texas Nodal Market” in the ERCOT region will not be deemed a Market Disruption Event or an Additional Market Disruption Event under Covered Transactions, (ii) replace the MCPE referenced in a Covered Transaction with the appropriate reference price in the Texas Nodal Market, and (iii) provide that a party can seek payment/reimbursement in respect of a Covered Transaction based on a correction by ERCOT of its published prices if such correction is made within a period of time that is consistent with ERCOT’s procedures and guidelines.
- Annex 2 – Additional Provisions regarding ERCOT Charges to be Incorporated into Covered ISDA Master Agreements.
Annex 2 applies to an ISDA Master Agreement between two adhering parties that includes a North American Power Annex substantially in the form published by ISDA (a “Covered ISDA Master Agreement”, as defined in the Protocol). The purpose of Annex 2 is to address ERCOT's planned assessment of hourly and day-ahead Reliability Unit Commitment ("RUC") charges in the Nodal Market for firm physical deliveries that are scheduled after the relevant hourly or day-ahead scheduling deadline (as detailed in the Annex).
- Annex 3 – Additional Provisions regarding ERCOT Charges to be Incorporated into Covered EEI Master Agreements.
Annex 3 applies to an EEI Master Agreement between two Adhering Parties (a “Covered EEI Master Agreement”, as defined in the Protocol). The purpose of Annex 3 is the same as Annex 2, the only difference being that Annex 3 effects the specified amendments addressing RUC charges to Covered EEI Master Agreements (whereas Annex 2 applies only to Covered ISDA Master Agreements).
Who drafted the Protocol?
The Protocol is the result of extensive discussions that have involved members of ISDA’s Energy, Commodities & Developing Products Committee, ISDA Commodity Operations Working Group and the Edison Electric Institute’s Contract Drafting Committee. As with all ISDA documentation initiatives, the goal of the project was to produce standardized terms that have been reviewed and commented on by many different market participants reflecting different market perspectives.