1. http://nodal.ercot.com 1 Tests for Reasonable LMPs & Price Validation Tool Overview October 27, 2009 NATF

2. 6 Month LMP Posting http://nodal.ercot.com 2

3. 6 Month LMP Posting 5.1 (4)As early as practical, ERCOT shall begin posting of LMPs to Market Participants based on test Resource offer curves submitted to ERCOT by the QSEs to measure the accuracy and stability of the SCED. The minimum time for this posting should be at least six months but may be longer as approved by the TPTF. Note: Early 2008 both tests for reasonableness and metrics were presented to TPTF ERCOT Nodal Transition Plan v2.0 References: http://nodal.ercot.com 3

4. Tests for Reasonable LMPs 1.If LMP > offer price (mitigated, proxy) at maximum limit (HDL) for a Resource, then unit should be dispatched at maximum limit (HDL) 2.If LMP < offer price (mitigated, proxy) at minimum limit (LDL) for a Resource, then unit should be dispatched at minimum limit (LDL) 3.If LMP = offered price (mitigated, proxy) at dispatched MW point for a Resource, then Resource is marginal 4.Base Points are between HDL and LDL 5.Shadow Price is zero for a transmission constraint which is not binding 6.Shadow Price is non-zero for a transmission constraint which is binding 7.SPP Recalculation Test #4 Dispatch Consistency Test #1 SPP Recalc. Test #2 Shadow Price Check http://nodal.ercot.com 4

5. Overview of Price Validation Tool http://nodal.ercot.com 5

6.  Market prices are validated for DAM, SCED and SASM;  Price Validation is done for:  DAM for each hour of the next operating day.  SCED for each dispatch interval and each settlement interval.  Each hour of the SASM if a SASM is run. Overview of the Price validation tool (PVT) http://nodal.ercot.com 6

7. Core price validation testsTestsSub-testsDAMSCEDSASM PriceRecalculation Nodal LMP PtP Obligation Price CRR Options Price 15-minute SPP Shadow Price Check Shadow Price Is Zero? Transmission Constraint Is Binding? Marginal Units Check Energy Marginal Units Ancillary Service Marginal Units Dispatch Consistency Tests Generation Base Point Ancillary Services PtP Obligation CRR Options Energy Only Offers Energy Only Bids http://nodal.ercot.com 7

8. Core tests of the price validation (continued)TestsSub-testsDAMSCEDSASM High Level Tests Check if the SPP posting occurs every 15 minutes Check if SPP for all settlement points are posted LMPs 1-interval threshold limits 2-interval changes 3-interval oscillations Shadow prices 1-interval threshold limits 2-interval changes Shift factors 2-interval changes Base points 3-interval oscillations http://nodal.ercot.com 8

9. Tests of the Price Validation Settlement Point Type Description Resource Node RNResource Node for normal resource PCCRNPhysical Resource Node for combined cycle units LCCRNLogical Resource Node for combined cycle plant PUNPrivate Area Network Resource Node Load Zone LZCongestion Load Zone LZ_DCDCTIE Load Zone Hub HUHub SHERCOT_345KV_HUBBUSES_AVG AHERCOT_HUB_AVG http://nodal.ercot.com 9 1. 15-minute SPP Recalculation

10. What? What? This test will verify that at each time interval, the shadow price for a transmission constraint is correctly calculated based on the binding status of the transmission constraint. How? How? i) If the transmission constraint is binding  Shadow price is nonzero. ii) If the transmission constraint is not binding  Shadow price is zero. ERROR_FLAGBATCH_IDCONSTRAINT_NAMELIMIT POWER _FLOW SHADOW_PRICE 0 304769 *BCSPS_DIB138 SRB138478 1329.17 1 304769 BGLK4A-L_NORTMC166 0 0 304769 DCPSRKC5_TURTCR138 VERDCR138128 504.76 0 304769 DCPSRKC5_DPW138 GYR1381781660 2 304769 FTSW2A-BARL2A338300345.12 http://nodal.ercot.com 10 2. Shadow price check Tests of the Price Validation

11. What? What? This test will verify that the correct number of marginal resources or Transmission Constraint Management (TCM) penalty prices are setting price in each interval given the number of binding or overloaded transmission constraints. How? How? i) If there are n transmission constraints binding  at least (n + 1) marginal resources setting price. ii) If there are n overloaded transmission constraints  at least n transmission constraint shadow prices that are set to that constraint’s TCM penalty price. Output? Output? All instances in which the correct number of marginal resources and TCM penalty prices cannot be identified will be flagged for further review. http://nodal.ercot.com 11 3. Marginal Units Check Tests of the Price Validation

12. What? What? This test will verify that committed resources are scheduled correctly based on the resource’s offer price, the LMP at its location. (1) Base Points are between HDL and LDL (2) If LMP > offer price at maximum limit (HDL) for a Resource, then unit should be dispatched at maximum limit (HDL) (3) If LMP < offer price at minimum limit (LDL) for a Resource, then unit should be dispatched at minimum limit (LDL) (4) If LMP = offered price at dispatched MW point for a Resource, then Resource is marginal http://nodal.ercot.com 12 4. Dispatch Consistency Check Tests of the Price Validation

13. $/MWh MWh LDLHDL LMP $/MWh MWh LDLHDL LMP $/MWh MWh LDLHDL LMP X Marginal Unit Base Point http://nodal.ercot.com 13 4. Dispatch Consistency Check Tests of the Price Validation

14. Example: Identify extreme high prices, low prices, and large changes in prices from interval to interval. (Note: this is just a warning flag) Threshold (1 interval) Interval to interval (2 intervals) Oscillating (3 intervals) LMPs Shadow prices Shift factors Base points threshold limit Threshold = 30 $/MWhr interval to interval Threshold = 20 $/MWhr oscillating Threshold = 15 $/MWhr Tests of the Price Validation 5. High Level Tests

15. http://nodal.ercot.com 15 Thanks! Questions?