Vendor Definition of DAM Commitment Shams Siddiqi, Ph.D. shams@crescentpower.net (512) 263-0653 October 8, 2007

Outline of Presentation Problems with Vendor definition of “DAM Commitment” and its Solution Serious problem but Easy to fix – does not require any change to the Protocols Problems with using a single FIP/FOP percentage for both Startup and Minimum Energy caps Minor problem but may require a Protocol change to fix Missing FOP in Energy Offer Curve cap Minor problem requiring Protocol change October 8, 2007

Definition of “DAM Commitment” Vendor definition is “any award of Energy Offer Curve even if that offer is not part of a Three-part Offer” Correct definition is “award of Three-part Offer (eligible for Make-whole Payment)” Not defined explicitly anywhere, but correct definition implied in Protocols No change in Protocols or Requirements docs required for correct definition – however, may want to add as note in Requirements doc October 8, 2007

Protocols on “DAM Commitment” 4.4.9.1 (3) A QSE may submit an Energy Offer Curve without also submitting a Startup Offer and a Minimum-Energy Offer for the DAM and during the Adjustment Period, but only Three-Part Supply Offers are used in the RUC process. A QSE that submits an Energy Offer Curve without also submitting a Startup Offer and a Minimum-Energy Offer is considered not to be offering the Resource into the RUC, but that does not prevent the Resource from being committed in the RUC process like any other Resource that does not submit an offer in the RUC. 4.4.9.3 (5) For any hour that is a RUC-Committed Interval or a DAM-Committed Interval for a Resource, a QSE for that Resource may not change an Energy Offer Curve, except as specified in (a) and (b) below: Linked Energy and Ancillary Service offers are only allowed with Energy Offer Curves (and not with DAM Energy-only Offers) October 8, 2007

Problems of Vendor definition Say a unit is in the money and you want the DAM to choose the last 50MW as either Energy or AS (whichever is more profitable) If QSE submits Energy Offer Curve (EOC) with linked AS offers and QSE is awarded in DAM, QSE cannot change the EOC (so QSE’s 500MW unit would be offered at cap) Only way around this is to offer entire unit in DAM and buy back 450MW This is problematic because – (1) it has large credit implications; (2) may be perceived as a “wash trade”; and (3) may have tax implications for some October 8, 2007

Solution to “Commitment” Issue Adopt the correct definition of DAM Commitment: “Award of Three-part Offer that is eligible for Make-whole Payment” October 8, 2007

Single FIP/FOP % Problem 4.4.9.2.1 Startup Offer and Minimum-Energy Offer Criteria (f) Percentage of FIP to the extent that the startup and minimum energy will be supplied by gas to determine the offer cap; and (g) Percentage of FOP to the extent that the startup and minimum energy will be supplied by oil to determine the offer cap. Coal unit could startup using Oil but run using coal Solution: Separate FIP/FOP percentages for Startup and Minimum Energy October 8, 2007

Missing FOP in Energy Offer Cap 4.4.9.3.3 Energy Offer Curve Caps for Make-Whole Calculation Purposes Only has FIP in calculating Caps; but FIP/FOP percentage specified when submitting Energy Offer Curves Solution: Include “Fuel Index Price (FIP) or Fuel Oil Price (FOP), as specified in the Energy Offer Curve” language in 4.4.9.3.3 similar to language in Mitigated Offer Cap 4.4.9.4.1 October 8, 2007