1. ERCOT Market Education Market Role in Emergency Operations OTS 2016

2. PUBLIC Module Objectives 2 Upon completion of this module, you will be able to: Identify the role of the Market in a declared EEA List three steps ERCOT may take to procure additional Ancillary Services in Real-time. Predict the settlement outcomes for a Resource Committed by RUC. Identify the process and implications for opting out of the RUC commitment. Recognize the economic value of Real-Time Capacity Reserves.

3. PUBLIC Energy Emergency Alert 3 The Energy Emergency Alert (EEA) provides orderly pre-determined procedures for operating under short supply conditions. At times, it may be necessary for ERCOT to reduce System Demand because of a temporary decrease in available supply.

4. PUBLIC Market Role in Reliability Operations 4 So how do the Markets contribute to reliable operations immediately before and during an EEA? The same way they always do!

5. PUBLIC Market Role in Reliability Operations 5 The ERCOT market systems are designed to... Manage reliability Match generation with demand Operate transmission system within established limits Operate the system at least cost

6. PUBLIC Market Role in Reliability Operations 6 Even in an EEA, the protocols require Use of market processes to the fullest extent practicable without jeopardizing the reliability of the ERCOT System

7. PUBLIC Market Role in Reliability Operations 7 But before we get to an EEA... ERCOT may need additional Ancillary Services ERCOT may need additional Capacity for SCED Reliability Unit Commitment (RUC) Self-commitment through pricing signals

8. Ancillary Services Insufficiencies

9. PUBLIC AS Insufficiencies in Adjustment Period & Real-Time 9 In Adjustment Period & Real-Time: AS Insufficiencies detected by AS Capacity Monitor ERCOT must issue Watch Plan to address the situation depends on time insufficiency is discovered AS Insufficiency Watch

10. PUBLIC AS Insufficiencies in Adjustment Period & Real-Time 10 In General... If time, conduct a SASM Next, use HRUC to commit Resources with status of OFF Lastly, assign to Resources with status of ON SASM HRUC Assign

11. Reliability Unit Commitment

12. PUBLIC Reliability Unit Commitment 12 Purpose of Reliability Unit Commitment (RUC) It ensures: Enough capacity is committed to serve the forecasted load Committed capacity is in the right locations

13. PUBLIC If ERCOT commits a Resource through RUC... 13 Operational Considerations Update COP – ONRUC Must start/run resource if available May not provide ancillary services Financial Considerations ERCOT provides QSE with a payment guarantee May provide “Make-Whole Payment” ERCOT ensures Energy Offer Curve is priced at or above $1500

14. PUBLIC RUC Make-Whole Payment 14 What if revenues are less than cost? Make-Whole Payment Minimum Energy Costs Start-up Costs Revenues Received $ Costs Incurred Real-Time Revenues Incremental Energy Costs RUC Guaranteed Amount Revenues = RTSPP * Metered Generation Costs come from Three Part Supply Offer

15. PUBLIC RUC Make-Whole Payment 15 What if revenues are greater than cost? Minimum Energy Costs Start-up Costs Real-Time Revenues Incremental Energy Costs $ Revenues Received Costs Incurred

16. PUBLIC RUC Make-Whole Payment 16 What if revenues are greater than cost? Minimum Energy Costs Start-up Costs Revenues Received $ Costs Incurred Clawback Charge Real-Time Revenues Incremental Energy Costs But how does ERCOT determine how much to clawback?

17. PUBLIC RUC Clawback Charge 17 Clawback Factors depend on the circumstances: Three-Part Supply Offer in DAM No Three-Part Supply Offer in DAM RUC Clawback Factor for RUC hours 50%100% RUC Clawback Factor for QSE hours 0%50%

18. PUBLIC RUC Clawback Charge 18 If an Energy Emergency Alert is in effect: Three-Part Supply Offer in DAM No Three-Part Supply Offer in DAM RUC Clawback Factor for RUC hours 0%50% RUC Clawback Factor for QSE hours 0%50%

19. PUBLIC A QSE may opt out of RUC settlement 19 Operational Considerations Update COP – ONOPTOUT Must start/run resource if available May provide ancillary services Financial Considerations No RUC Make-Whole Payments No Clawback Charges No requirement for energy to be priced at or above $1500

20. Real-Time Pricing Considerations

21. Real-Time Ancillary Service Imbalance Real-Time Pricing1 2

22. PUBLIC Real-Time Pricing Methodology Scarcity pricing – higher energy prices during periods where energy reserves are scarce ERCOT is an energy-only market Sufficient pricing for new investment Appropriate price signals

23. PUBLIC Real-Time Pricing Methodology Time Price of Energy ($ MWh) SWCAP SCED can set Scarcity Pricing under the right conditions

24. PUBLIC Real-Time Pricing Methodology But there is additional value for Real-time Reserves Sufficient real-time reserves help avoid load-shedding events There is value in avoiding load-shedding events Value of real-time reserves = Value of avoiding load-shed Therefore, we may deduce...

25. PUBLIC Real-Time Pricing Methodology ERCOT implemented an Operating Reserve Demand Curve on June 1, 2014 Created a Real-time Price Adder to reflect the value of available reserves Reflects Value of Lost Load (VOLL) Based on Loss of Load Probability Value of Lost Load (VOLL) is administratively set to $9000.

26. PUBLIC Operating Reserve Demand Curve VOLL

27. PUBLIC Real-Time Pricing Methodology Time Price of Energy ($ MWh) $9000 SCED can set Scarcity Pricing under the right conditions Reserve Price Adder improves Scarcity Pricing

28. PUBLIC Reserve Pricing Methodology But not all reserves are created equal... Some are available to SCED immediately Some can be made available to SCED in 30 minutes What are some examples of each?

29. PUBLIC Reserve Pricing Methodology ERCOT System RTORPAReal-Time On-Line Reserve Price Adder RTOFFPAReal-Time Off-Line Reserve Price Adder … calculated each SCED interval Real-Time Reserve Price Adders RTORPA –Available during the next 30 minutes RTOFFPA – Available during the next 60 minutes

30. PUBLIC Real-Time Pricing Methodology LMPs are location-specific. Reserve Price Adders represent the value of reserves ERCOT-wide. Resource Nodes Load Zones Hubs Settlement Point Prices (SPPs) SCED produces LMPs LMPs are combined with Reserve Price Adders to form Real-Time Settlement Point Prices

31. Real – Time Pricing Considerations Real-Time Ancillary Service Imbalance Real-Time Pricing1 2

32. PUBLIC Real – Time Ancillary Services Imbalance 32 The Basic Idea: ( ) On-line Reserve Price (-1) – On-Line Reserve SUPPLIES On-Line Reserve OBLIGATIONS ( ) Off-line Reserve Price – Off-Line Reserve SUPPLIES Off-Line Reserve OBLIGATIONS + x x Calculated ERCOT-wide per QSE

33. PUBLIC Real – Time Ancillary Services Imbalance 33 SCENARIO How’s it settled? Energy Produced Real-Time Generator Paid at Real-Time SPP ? HSL Paid in Real-Time AS Imbalance Price: On-line Reserve Price ?

34. PUBLIC Real – Time Ancillary Services Imbalance 34 SCENARIO AS Capacity Energy Produced Real-Time Generator Paid at Real-Time SPP ? HSL Paid in DAM or SASM Price: MCPC ? How’s it settled?

35. PUBLIC Real – Time Ancillary Services Imbalance 35 SCENARIO AS Capacity AS Deployed Energy Produced Real-Time Generator Paid at Real-Time SPP ? HSL Charged in Real-Time AS Imbalance Price: On-line Reserve Price ? How’s it settled?

36. PUBLIC Real – Time Ancillary Services Imbalance 36 SCENARIO Energy Consumed Real-Time Controllable Load Resource Charged the Real-Time SPP ? HSL LSL Paid in Real-Time AS Imbalance Price: On-line Reserve Price How’s it settled?

37. PUBLIC Module Summary 37 You should now be able to: Identify the role of the Market in a declared EEA List three steps ERCOT may take to procure additional Ancillary Services in Real-time. Predict the settlement outcomes for a Resource Committed by RUC. Identify the process and implications for opting out of the RUC commitment. Recognize the economic value of Real-Time Capacity Reserves.