1. April, 2008 Maximum Shadow Price

2. April, 2008 Protocol Requirement: 6.5.7.1.11 Transmission Constraint Management (2)ERCOT shall establish a maximum Shadow Price for each constraint as part of the definition of contingencies. The cost calculated by SCED to resolve an additional MW of congestion on the constraint is limited to the maximum Shadow Price for the constraint. ERCOT shall develop a policy for setting maximum Shadow Prices for approval through the PRR process.

3. April, 2008 Need for Maximum Shadow Price: Maximum Shadow Price limits the cost of resolving the constraints. i.e for a given energy offer curve, it prevents dispatching Resources with Shift Factor below a certain level. for a given Shift Factor, it prevents dispatching Resources with offer above a certain price. i.e. indirectly putting a upper limit on the energy offer and lower limit on the shift factor of the resources selected for re-dispatching to resolve the constraint. The relative value of the Maximum Shadow Price determines the priority order in which the constraints will be violated by SCED if needed.

4. April, 2008 Effects of Maximum Shadow Price value: It is the coefficient of the slack variable corresponding to the constraint in the SCED objective function. i.e. it is the maximum allowed increase in production cost for resolving 1MW of the constraint. Objective = Min ( Cost of generation dispatch + Sum ( Max Shadow Price * Slack variable) LMP at any electrical bus is Energy Component = Shadow price of Power Balance constraint + Congestion Component = - sum ( Shift Factor * Shadow Price for the constraint )

5. April, 2008 Zonal Vs Nodal : The nodal prices could be much higher than what we get in zonal. Some of the factors are In Zonal Only Zonal Congestion affects the price Shift Factors are fixed and low Ramp Rate can be violated Ramp Rate is not reserved for AS In Nodal All constraints will affect price There will be electrical buses with +1 and others with -1 HDL/LDL constraints can not be violated SURAMP = Normal ramp rate – regulation responsibility / 5

6. April, 2008 Finding the right value: Difficulties in finding the right value: If the value is too low then most constraints will be violated in SCED. If it is too high then –Resources with very low shift factor will be moved for solving the constraint and –drastic increase in price could happen for negligible increase in reliability. We need to resolve the constraints passed to SCED since only those constraints that need to be resolved are passed to SCED.

7. April, 2008 Constraint Processing: TCM –Constraints are passed to SCED only if they are approved by the operator. Several processes help determine the severity of the constraint RTCA –SPS/RAP implementation –SPS / RAPs associated with the monitored element/ contingency are implemented and color coded if the violation can be resolved by the SPS / RAPs DRAP –Develops generation dispatch patterns for resolving constraints. –Violations lower than load shed limit that can be removed by generation dispatch during the next SCED cycle are color coded

8. April, 2008 Constraint Processing: Operators should only pass the post contingency violations that can not be resolved by RAP/SPS/DRAP. RAPs should be implemented before a base case violation is passed to SCED. SPSs will be implemented automatically when the contingency happens RTCA – SPS/RAP DRAPTCMSCED Operator

9. April, 2008 Calculating the value: Typical maximum heat rate in ERCOT – 16 MMBTU/MWhr Average fuel Index Price – $7.00 per MMBTU Typical maximum Energy Offer Curve – $112 / MWhr (16*7) If SCED needs to move a Resource with 0.03 Shift Factor when Energy Offer Curve is equal to or less than $111 / MWhr, then the maximum Shadow Price should be $3700 (111/0.03)

10. April, 2008 For simplicity reasons ERCOT proposes to assign default maximum Shadow Price to monitored elements based on voltage level along with assigning higher or lower values based on operational experience. Default value for different kV levels 69kV – 2800 (~ 111/0.04) 138 kV – 3700 (~ 111/0.03) 345 kV – 5600 (~112/0.02) Proposed Maximum Shadow Price :

11. April, 2008 Variation from default values: In current EDS market trial, the Maximum Shadow Prices are hard coded based on the voltage level of monitored element. We are working on a design in which the values can be changed from the default values and stored at a monitored element level. ERCOT plans to do periodic evaluation of the Maximum Shadow Price and adjust it accordingly. ERCOT, with input from CMWG, will present an NPRR that will define the methodology for setting the Maximum Shadow Price and for periodic review of these Maximum Shadow Prices.

12. April, 2008 Special Cases : Voltage Collapse / Base Case Violation Voltage Collapse / Base case violation needs to be resolved for system reliability To move resources with Shift Factor >0.05 even at SWCAP, the Max Shadow Price should be 60000 (3000/.05) But this could result in very high price.

13. April, 2008 Example: Consider an electrical bus with 5 lines and a load connected to it. If the 3 lines are violated at the base case and SCED is unable to resolve these constraints and Maximum Shadow Price for base case is set to 60000 then the LMP at the electrical bus will be of the magnitude of 3*60000 = 180000. [ Energy Cost – (-1* 60000 + -1 * 60000 + -1 * 60000)]

14. April, 2008 A reasonable value of maximum Shadow Price ($6000) for Voltage Collapse and Base Case violation was developed after discussion with market monitor For SCED to move a Resource up with energy offer of $112/MWhr and Shift Factor >0.02 and to move a Resource down at $-10/MWhr with no shift factor to the constraints, the max shadow price should be (112 - - 10)/0.02 ~ 6000 Special Cases : Voltage Collapse / Base Case Violation

15. April, 2008 Special Cases : Power Balance Power Balance constraint should never be violated and hence the maximum shadow price for it should be a relatively high number. It is set to $100,000 in the current EDS market trial environment. Effect: If the Power Balance constraint is violated then the prices will be of the order of $100,000.

16. April, 2008 Next steps : CMWG will meet on April 28 th and will discuss the CCT process, the CSCs for 2009 and the development of maximum shadow price cap(s) used in SCED. NPRR will be developed based on the discussion.