1. Exceptional Fuel Costs in LMP
ERCOT
Ino González
RCWG
Jan 25, 2017

2. TAC Open Action Items TAC - Open Action Items from Previous Meeting(s)
Responsible Party
2/27/14 – Review Operating Procedure that ERCOT uses to determine when they need RUC (specifically RUC for bad weather)
ERCOT
4/24/14 – Evaluate concerns with bringing RUC units earlier than required because of start-up failures
ROS/WMS
5/29/14 – Review post NPRR589 SASM Performance
9/25/14 – Voltage Reduction – assess cost issues and applicability to loads as well as market impacts
12/18/14 – Consider alternative implementation options for automation of NPRR664, Fuel Index Price for Resource Definition and Real-Time Make-Whole Payments for Exceptional Fuel Cost Events.  (Report back to TAC in March 2015)
WMS
12/18/14 – Review of determination of RRS Under 2015 Ancillary Service Methodology and NERC BAL-003
5/28/15 – Review revision process to maintain synchronized EEA language between Nodal Operating Guides and Protocols
PRS/ROS
5/28/15 – Review ways to improve SASM (ERCOT to support with analysis)
WMS/ERCOT
1/28/16 – Annual RUC Reporting – report on market impact component of RUC.
2/25/16 – ERCOT to bring to April TAC meeting a matrix of potential action items incorporating issues identified by DREAMTF and ERCOT whitepaper.
2/25/16 – Regional Haze Discussion – Joint ROS/WMS Workshop
ROS/WMS/ERCOT

3. Approach to Recovering Exceptional Fuel Costs
Approved Nodal Revision Requests (Current Protocols)
NPRR 664: Fuel Index Price for Resource Definition and Real-Time Make-Whole Payments for Exceptional Fuel Cost Events:
Includes a Waha index price
Fuel price Resource-specific
Fuel price used in Start-up and Minimum Energy costs and Real-Time Mitigation Caps
Intraday or same-day gas might not be reflected in LMP
Provision for Real-Time Make-Whole Payment for Exceptional fuel costs
Implementation impact between $200k to $300k
Estimated Project duration 8 to 12 months
NPRR 714: Real-Time Make-Whole Payment for Exceptional Fuel Cost
Impact between $60k to $70k
Estimated Project duration 4 to 8 months
Current manual process

4. Exceptional Fuel Costs in Real-Time Mitigated Offer Cap
General Form of the Mitigated Offer Cap (MOC)
The general equation of the MOC is calculated as:
The greater of:
[Generic Heat Rate * FIP, {IHR * (FIP + FA) + O&M} * Multiplier]
Where,
FIP = Index price for natural gas
IHR = Incremental heat rate
FA = fuel adder ($0.50 or actual Resource-specific approved rate)
O&M = Approved variable O&M
Multiplier = Based on Capacity Factor

5. Exceptional Fuel Costs in Real-Time Mitigated Offer Cap
Proposal for modifying the Mitigated Offer Cap
The Mitigated Offer Cap (MOC) can be modified such that it incorporates exceptional fuel costs to ensure LMPs reflect the incremental cost of intraday fuel (if included in EOC).
The MOC can be modified as follow:
The greater of:
[Generic Heat Rate * FIP,
{IHR * Max [(FIP + FA), WAFP] + O&M} * Multiplier]
Where,
WAFP($/MMBtu) = For the affected period, fuel cost based on the actual exceptional fuel prices, weighted by applicable volumes.

6. Exceptional Fuel Costs in Real-Time Mitigated Offer Cap Example
Sample calculation
Assumptions:
Index fuel price = $3/MMBtu
FA = $1.80/MMBtu (actual approved value not standard, which is $0.50/MMBtu)
Weighted average fuel price for the period (WAFP) = $25.00/MMBtu
Generic Heat Rate = 14.5MMBtu/MWh
Incremental Heat Rate (IHR) = 13 MMBtu/MWh
O&M = $3/MWh
Capacity Factor Multiplier = 1.201
1Based on capacity factor per protocol section (e) Mitigated Offer Cap

7. Exceptional Fuel Costs in Real-Time Mitigated Offer Cap Example
Calculations:
Substituting into MOC equation,
MOC = Max [Generic Heat Rate * FIP, {IHR * Max [(FIP + FA), WAFP] + O&M}* Multiplier]
Or,
MOC = Max [14.5 * 3, {13 * Max [( ), 25] + 3} * 1.2]
And,
MOC = Max [43.5, 393.6] = $393.6/MWh

8. Submitting Exceptional Fuel Costs
QSEs currently submit various Resource Parameters into the Market Management System (MMS) via the MMS UI or MMS API/xml.
The weighted average intraday fuel price could be directly filed to ERCOT along with other Resource Parameters using the same MMS process.
Logic can be developed directly in MMS to ensure that the correct fuel prices are utilized in the Mitigated Offer Cap and that the submitted fuel price exceeds a defined threshold.
Exceptional fuel price submissions may be subject to additional restrictions, such as allowable duration or minimum volume.

9. Documentation and Verification
Within thirty days after submitting actual fuel prices, QSEs must provide proof to ERCOT of intraday or same-day fuel purchases. ERCOT, at its sole discretion, will review fuel price submissions to ensure fuel was purchased during intraday and to verify the purchase price submitted to ERCOT. QSEs must submit via a Service Request the following documentation:
QSE Name
QSE Duns Number
Applicable Resource Code
Effective Operating Day
Time period during the effective Operating Day fuel prices were applicable
Contracts between QSE/Resource Entity and fuel supplier, including supply contracts, transportation, storage, balancing and distribution agreements.
Fuel purchase invoices that include volume levels for the period of purchase
Additional data as requested by ERCOT
The accuracy of submitted actual fuel prices must be attested to by a duly authorized officer or agent of the QSE representing the Resource.
The verifiable cost manual would need to be modified to describe the ERCOT verification process

10. Risks of Proposal
QSEs could submit incorrect fuel prices due to human error, potentially leading to erroneous LMPs. This could be mitigated by having a cap on the submitted exceptional fuel, or default duration for the applicability.
If QSEs do not provide sufficient documentation justifying the increased fuel price, ERCOT will notify the IMM and may limit the QSE representing the Resource ability to submit actual fuel costs in the future for the specific Unit. Additionally, ERCOT will send a Market Notice to all Market Participants informing them about the exceptional fuel cost event, the name of the Resource and its QSE.
Note: To support in the evaluation process, the Verifiable Cost Manual and the Protocols may need to include a clear definition of what constitutes intraday market fuel exposure.

11. Benefits of Proposal
May eliminate the need to implement NPRR 664: Fuel Index Price for Resource Definition and Real-Time Make-Whole Payments for Exceptional Fuel Cost Events.
NPRR714 only allows Resources that have paid an actual fuel price of (ERCOT Index + FA + $2) to be able to submit. With the proposed methodology, QSEs may potentially receive additional compensation since they are allowed to submit a Weighted Average Fuel Price (WAFP) if their actual fuel costs exceeds, e.g., 10% of the ERCOT index price plus the fuel adder.
Eliminates the need to implement NPRR 714: Real-Time Make-Whole Payment for Exceptional Fuel Cost.
LMPs may more closely reflect the true marginal cost of fuel.
Does not impact LMPs when there is no Real-Time mitigation.
Ensures that Resources provide proof of actual fuel purchases and that these meet the guidelines described in the Verifiable Cost Manual and the Protocols, on an ex- post basis.

12. Next Steps ?