1 Dead Bus Pricing Issue/CRR Performance Issue TAC 3 February, 2010

Dead Bus Pricing Issue CRRs and PTP Obligations were priced differently in different markets –Due to an unexpected interaction between the “Dead Bus” pricing logic and the network model, Models for forward markets should = models for settling markets –The CRR network model ~ The DAM network model –The DAM network model ~ the Real-Time network model Some Differences are unavoidable –Changes in line ratings due to temperature –Forced outages Critical that Pricing Location is the Same –If a product is sold at Permian Basin in the CRR auction it is a critical assumption that it will be priced at Permian Basin in the DAM market.

“Dead Bus” Pricing in the DAM Electrically dead locations cannot get priced in the normal way. If a Pricing Location is dead, system looks to get prices from other specially designated locations in the station –“Electric Buses” –DAM NP4.5.1 (9) –RT NP6.6.1 If all Electrical Buses in station are dead, the system uses the price of the system marginal energy cost. –Sometimes called “System Lambda” ERCOT discovered that some pricing locations were getting consistently priced at the “System Lambda” and this was leading to uplift and not fully paying CRRs

Example – Permian Basin Unit 5 in DAM Open Breaker Pricing Location at Dead Electrical Bus Electrical engineers think of these dots as buses, but they weren’t specially designated “Electrical Buses” in the model The only “Electrical Bus” in the model was dead; hence the system picked up “System Lambda” as the price Lines to other station

Revenue Neutrality Effects This can effectively cause overselling of the CRR and/or DAM market. CRR overselling leads to reduced payment to CRR holders DAM overselling leads to Real Time Revenue Neutrality charges

“Dead Bus” Pricing Logic Revenue Implications – CRR to DAM CRR from Permian Basin Unit 6 to Permian Basin Unit 5 –The Permian Basin Unit 5 bus is live in the CRR model. –The CRR price is calculated as the difference between the prices within a station. –They are very low cost (many times free). Permian Basin Unit 5 is dead in the DAM model. –The Permian Basin 5 station is such that if the unit is off-line there are no live Electrical Buses in the station. –Permian Basin Unit 5 is priced at “System Lambda” –May pay off significantly (depends on system conditions). –This payment will not be supported by congestion rent Causes lower payments to CRR Account Holders

“Dead Bus” Pricing Logic Revenue Implications – DAM to RT PTP Obligation from Permian Basin CT 1 to Permian Basin Unit 6 –The Permian Basin Unit 6 bus is live in the DAM model. –The PTP OBL price is calculated as the difference between the prices within a station. –They are very low cost (many times free). Permian Basin Unit 6 is dead in the Real Time model. –The Permian Basin 6 station is such that if the unit is off-line there are no live Electrical Buses in the station. –Permian Basin Unit 6 is priced at “System Lambda” –May pay off significantly (depends on system conditions). –This payment is unsupported by congestion rent May cause RT Revenue Neutrality Uplift Initial Estimates are that this caused ~$5M of RT Revenue Neutrality uplift for December

Solutions Add more Electrical Buses to model such that generator breaker switches cannot de-energize all Electrical buses in a Resource station –These were added in model load on the night of 1/31/2011 –609 “Electrical Buses” / 140 Substations Submit NPRR preventing CRR and PTP Obligation bids within a station.

Example – Permian Basin Unit 5 in DAM Open Breaker Pricing Location at Dead Electrical Bus Designate these as “Electrical Buses” With these “Electrical Buses” in the model the system will pick up the appropriate price Lines to other station

CRR Performance Issue The Run time of the CRR auction for February 2011 was very long Root Causes for increased length –Much larger number of bids/binding constraints Removing $ /MWh bids from the bid set cut the clearing time by 97% but only reduced auction revenue by 4% –Cycling of Tie-Breaking logic –Need for multiple “passes” of auction to account for SPS/RAPs

CRR Performance Solutions Implementable for March 2011 Auction –Different hardware/hardware settings –Different tie-breaking parameters –Configure model such that SPS/RAPs all included in model from outset –Our analysis indicates that these actions taken together will have very significant effect on run-time of the CRR auction Future actions under investigation –Implement Bid Fee (Should reduce # of bids) –NPRR to restrict max bid size to 500MW (reduces tie breaking issue) –Implement DAM SPS/RAPs logic in code –Install newer version of CRR clearing engine