Analysis of August 13, 2015: ORDC, RRS & PRC Changes Shams Siddiqi, Ph.D. Crescent Power, Inc. (512) November 13, 2015

2 Lessons from August 13, 2015 Align RRS req. to PRC triggers to allow Market Solution  Avoidable price distorting reliability action  SCED was instructed and did maintain 2300MW RRS behind HASL  Plenty of non-responsive capacity available including almost 1000MW QSGR  PRC=2500MW is equivalent to about MW of responsive capacity  Did not allow market mechanisms (SCED) to solve problem – SCED instructed to maintain only 2300MW as RRS – if SCED had to maintain 2800MW RRS, it would dispatch other capacity (including QSGR if needed) in order to do that – sends right market price signal and avoids unnecessary resource commitment  Set Min RRS at 2750MW to allow market mechanisms to work and for PRC levels to reflect true scarcity  SCED will dispatch energy (including from expensive QSGR providing on-line NSRS) in order to follow load and try to maintain 2750MW RRS  If SCED is unable to maintain 2750MW RRS (PRC<2500MW), then it’s appropriate to deploy off-line NSRS – ORDC prices should be very high at this stage  Also, it is then very appropriate to declare EEA1 if SCED is unable to maintain PRC=2300MW (about MW responsive capacity) and the system is not projected to be recovered above 2300 MW within 30 minutes

November 13, Inconsistencies in EEA1 and ORDC ORDC price adder should be very high when deploying off-line NSRS and near offer cap during EEA1:  Deployment of off-line NSRS depresses energy prices while currently not signaling scarcity in ORDC adder  Energy Emergency Alert (EEA) triggers out-of-market reliability action by ERCOT signaling true scarcity  EEA1 is triggered at PRC<2300MW which is roughly equivalent to RTOLCAP of 3600MW – “X” needs to be in this range [inconsistency: X is set using PRC discounted responsive-only MW levels but measured using RTOLCAP]

November 13, PRC Calc & RRS are Outdated Problems with current PRC calculation:  Still applies 20% HSL Responsive Capacity regardless of actual Responsive Capability of units  Does not take into account the equivalence ratio between NCLRRRS and GENRRS (i.e. FFR and PFR) Problems with current RRS determination:  Still applies 20% HSL RRS Capacity limit regardless of actual Responsive Capability of units  Still applies 50% limit on amount of NCLRRRS when true constraint is minimum 1240MW of GENRRS

November 13, Changes Required to ORDC ORDC does not reflect Scarcity:  Near EEA1 yet ORDC price adder far from SWOC  EEA1 signals true scarcity of capacity on the system and triggers out- of-market action by ERCOT  Under RT Co-optimization, demand curve at HE 1500 on 8/13/15 would be 2750MW RRS (applying RRS floor amount) and 369MW of RUS at offer cap - this is equivalent to “X”=3119MW for this hour (“X” would vary with sum of RRS and RUS requirements)  Since RTOLCAP was 3628MW or higher during this hour, setting X=3119MW may still not reflect scarcity  Modify calculation in ORDC where the price adder plus system lambda approaches offer cap when total PRC is less than 2500MW and is at offer cap when PRC is less than 2300MW:

November 13, Suggested Changes Let Market Mechanism (SCED) maintain adequate PRC so that PRC triggers reflect true scarcity:  Set minimum RRS requirement equal to 2750MW Make ORDC consistent with BAL and RTC:  Set “X” equal to sum of RRS and RUS requirements  Modify calculation in ORDC where the price adder plus system lambda approaches offer cap when PRC is less than 2500MW and is at offer cap when PRC is less than 2300MW Optional: Improve RRS and PRC calculation:  Apply actual unit Responsive Capability (eliminate 20% limit)  Take into account equivalence ratio between NCLRRRS and GENRRS  Remove 50% limit on NCLRRRS and apply min 1240MW of GENRRS constraint

November 13, Impact of X=RRS with floor+RUS