July 15, 2011 Reliability Deployments Task Force Meeting ERCOT Studies and Proposal on Reliability Energy Pricing John Dumas Director Wholesale Market Operations

2 Outline of Discussion ERCOT Usage of Non-Spinning Reserves ERCOT Usage of RUC Pricing Effects when Non-Spin deployed Proposal on how to minimize impacts to prices July 15, 2011

3 Outline of Discussion ERCOT Usage of Non-Spinning Reserves ERCOT Usage of RUC Pricing Effects when Non-Spin deployed Proposal on how to minimize impacts to prices July 15, 2011

4 ERCOT Usage of Non-Spin July 15, 2011 Approximately 55 Non-Spin deployments between go-live Dec 1, 2010 – June 30, 2011 Most deployments lasted between 1 and 3 hours. The February 2 deployment lasted 53 hours, but all other deployments were less than 12 hours.

5 ERCOT Usage of Non-Spin (continued) July 15, 2011 On average, ERCOT operator utilizing smaller Non-Spin MW deployments over time

6 ERCOT Usage of Non-Spin (continued) July 15, 2011 The LSL amount injected by offline non-spin start-up varies

7 Outline of Discussion ERCOT Usage of Non-Spinning Reserves ERCOT Usage of RUC Pricing Effects when Non-Spin deployed Proposal on how to minimize impacts to prices July 15, 2011

8 Analysis of RUC Commitments (May/June 2011) RUCs May/June analyzed to determine levels committed ERCOT Operator reason for RUC commit: –For Capacity/Ramping Issues, Congestion/Voltage, or the reason was unlisted (If both Congestion and Capacity was listed, the reason used was Capacity/Ramping) July 15, 2011 RUC Executed in May and June (Commitments for Hours Ending Only) HRUCDRUCCombination of DRUCs and HRUCs Avg. Hourly Sum of Additional HSL/LSL from Resource Commitments 501/155164/ MW HSL / 213 MW LSL (Total) Avg. Hourly Sum of Additional HSL/LSL from Resource Commitments (Listed Reason was Capacity/Ramping Issues) 173/5017/5 190 MW HSL / 55 MW LSL (Capacity/Ramp) Less than 0.5% of peak load Avg. Hourly Sum of Additional HSL/LSL from Resource Commitments (Listed Reason was Congestion/ Voltage) 319/103147/ MW HSL / 156 MW LSL (Congestion/Voltage) Avg. Hourly Sum of Additional HSL/LSL from Resource Commitments (No Reason was Listed) 9/20/0 9 MW HSL / 2MW LSL (Not specified)

9 Analysis of RUC Commitments (May/June 2011) There were total 2,436 RUC unit hours with Energy Offer Curves in May and June. –About 2/3 of RUC committed resources with Energy Offer Curves remained at LSL as price takers 1,604 unit hours at LSL, with 832 unit hours moved above LSL Average MW above LSL = 14 MW for RUC interval Implies that RUC energy offer curves are not economic to SCED July 15, 2011

10 ERCOT Usage of Non-Spinning Reserves ERCOT Usage of RUC Pricing Effects when Non-Spin deployed Proposal on how to minimize impacts to prices Outline of Discussion July 15, 2011

11 Non-Spin Deployment impacts on prices July 15, 2011 The red line below reflects the average HUBAVG LMP across all Non-Spin deployments showing a $50 average system price reduced by $10-15 after non-spin deployed/stabilized. - Data below for Dec 1- May 28 Non-Spin Deployments (47instances) Graph shows the HUBAVG LMP from 30 minutes prior to Non-Spin deployment to one hour after Non-Spin deployment for all Non-Spin deployments except the February 2 deployment, which was excluded due to the extended period of $3001 LMP following deployment.

12 ERCOT Usage of Non-Spinning Reserves ERCOT Usage of RUC Pricing Effects when Non-Spin deployed Proposal on how to minimize impacts to prices Outline of Discussion July 15, 2011

13 Proposal on how to minimize price impacts ERCOT has considered how to minimize or remove pricing impacts to prices from deployment of reliability services ERCOT’s recommendation will : –Compensate for the effect that the block of injected LSL energy from non-spin resources has on prices, and –Create reliability energy offer curves that are near the end of the aggregate market offer curves. July 15, 2011

14 Proposal on how to minimize price impacts ERCOT’s proposed solution at a high level is: 1- Create reliability energy offer curves as follows: At the end-of Adjustment period, ERCOT calculates the price at 90% of the total capacity for the COP Online Quick Start Offer Curves in the upcoming Operating Hour (90% or agreed to %). This will be the offer floor for the Non-Spin segment of the EOC. Offer Curves are modified by SCED –For Offline Non-Spin by applying the offer floor from LSL to HSL –For Online Non-Spin by applying offer floor to the segment of the curve from (HSL – sum of all AS responsibility) to HSL In this manner, ERCOT will give a dispatch economic order preference to market resources –Non-spin energy is inserted in the offer stack above competitive offers July 15, 2011

15 Proposal on how to minimize price impacts ERCOT’s proposed solution at a high level is: 2- Prevent the block of energy at LSL injected by reliability resource from decreasing the prices Introduce a price adder with an extra step in SCED to offset/wash-out the potential price reversal –Will compute prices without LSL impact of offline non-spin –Will compute normal dispatch solution with prices and base points –Difference in the two computations becomes the dynamic adder to all prices »LMP = system lambda –SF*(shadow price) + dynamic adder July 15, 2011

16 Summary and other considerations… In summary: –Mitigates the effect of LSL energy block deployment on prices –Allows the market to determine the prices dynamically no administrative pricing –The mechanics of solving congestion do not change –Maintains existing operational deployment procedure, thus no degradation of reliability ERCOT has not evaluated: –Technical feasibility and/or performance impacts to SCED –Protocol development required –Project cost and timeline for potential delivery not considered July 15, 2011