RCWG Update to WMS March 7, 2012

Draft NPRR, Caps and Floors for Energy Storage Resources Chair of ETWG gave high level overview ERCOT had questions re: how the verifiable costs were determined – will be discussed further Concerns raised about raising verifiable costs for storage while lowering them for other resources

Draft NPRR, Caps and Floors for Energy Storage Resources Policy issue identified – Because they are energy limited, how do we ensure that Energy Storage Resources are not included in RUC? Option 1: Set prices so high that RUC will never commit them? Option 2: Use an administrative measure such as a flag denoting them as ineligible for RUC? In depth discussions to begin March 23

NPRR385, Negative Price Floors REMINDER – Issues Identified by QMWG 1. Instances where ERCOT instructs a Resource to stay online at negative prices for reliability reasons. Already resolved but creates uplift. 2. Step change in topology due to forced outage causing large negative prices. 3. Step change in topology due to planned outage causing large negative prices.

NPRR385, Negative Price Floors – Alternative Solutions Price Floors In DAM and RT, prices to be determined at the time of SCED run – not at settlement. Floor would be set at -$251, which is just below lowest offer. Still need to determine whether it would be applied to HUBS and LZ calculations.

NPRR385, Negative Price Floors – Alternative Solutions Price Floors – Pros Addresses issues 2 and 3 Does not depend on any manual intervention by ERCOT operations If price floor is set at the SCED run when you set the prices say floor is a max of calc price or -$251. The market would know what to expect without any ambiguity as to manual interventions or pre-positioning. Would be good for hedging strategies – everyone knows price would never go below the floor.

NPRR385, Negative Price Floors – Alternative Solutions Price Floors – Pros Implementation might be made simpler if limited to Resource nodes only and performed at the calculation of the LMP of the Resource Node or Buss Doesn’t require any change to shadow price calculations Sometimes reliability requires that ERCOT must keep a unit online when prices are negative – at least their negative impact would be mitigated Having a price more consistent with reliability need

NPRR385, Negative Price Floors – Alternative Solutions Price Floors – Cons This is administrative pricing and not included in the optimization of the DAM or RT so the DAM awards could be impacted May create uplift – Load nodes will also be a negative price but there will be no money to pay them This was major discussion point at RCWG – EDF to give presentation on how it will create uplift Could also end up with not enough money to pay CRRs

NPRR385, Negative Price Floors – Alternative Solutions Stepping Down the Constraint Easing from a high constraint overload in downward increments in SCED within the NERC criteria for controlling a constraint Pros Addresses issues 2 and 3 May effectively mitigate very negative prices Having a price more consistent with reliability need

NPRR385, Negative Price Floors – Alternative Solutions Stepping Down the Constraint - Cons Process would have to be automated Complications in the logic in the process – either the actual automation or ERCOT discretion on the constraints themselves in terms of importance or significance of the constraint Actual visibility in terms of the operators not knowing what kind of response they are going to get with any of the constraints ERCOT worried about being out of compliance with NERC standards Would require additional operator training and possibly additional FTEs

NPRR385, Negative Price Floors – Alternative Solutions Impact Test Create a test that would identify generation pockets by noting large, positive shift factors and then temporarily modifying the shadow price caps in those instances Pros Addresses issues 2 and 3 Provides a systematic approach instead of manual intervention For certain scenarios, could potentially mitigate inflated load prices resulting in more appropriate prices in the load zone Cons Could possible require a long implementation time

NPRR385, Negative Price Floors – Alternative Solutions Allowing More Ramp Relaxing ramp rate sharing between SCED and regulation and allowing WGRs to ramp at least 20%/minute Pros Addresses 2 and 3 – but only to a limited degree Able to implement quickly Cons Only helpful for certain generators – those carrying Reg and WGRs

NPRR385, Negative Price Floors – Alternative Solutions VDI to Resource As soon as ERCOT identifies the constraint, prior to activating the constraint, ERCOT would send a VDI to the Resource to let them how many MWs they ultimately need to move in order to avoid negative price Pros Addresses 2 and 3 Would allow Resource to get to a lower output level much more quickly than SCED would allow Could be used in conjunction with Alternative # 2

NPRR385, Negative Price Floors – Alternative Solutions VDI to Resource - Cons Holds you to your offer curve ERCOT says not viable with current staff levels – would need one more operator on every shift It is not systematic – everyone might not be treated the same Difficulty would be determine where the unit needed to move – ERCOT would need new tools

NPRR385, Negative Price Floors – Alternative Solutions Time Limited Price Floor Limited to the time it takes the Resource to ramp down. Instead of changing the LMP – perform in settlements –keep the generator whole for difference between floor and negative price during “grace period”

NPRR385, Negative Price Floors – Alternative Solutions Time Limited Price Floor Pros Addresses 2 and 3 Potentially creates less uplift than alternative 1 Would maintain true pricing – would not change LMPs Would not impact ERCOT operations Cons Potentially creates more uplift Manual process for ERCOT settlements – settlements needs signal to use emergency payment that would always be -$251 rather than offer curve

NPRR385, Negative Price Floors – Alternative Solutions Looking for feedback from WMS… Choose one of the alternatives? Keeping working on other solutions?

Next Meeting – March 23 Dig into Storage NPRR Kick off NPRR432 Depreciation Schedule Discussions