1. Money Transfer Due to Real-Time Irresolvable Constraint Resmi Surendran ERCOT

2. Hedging Instruments : Congestion Revenue Rights & PTP Bid in DAM Outside ERCOT : Bilateral Trade/Contract for Differences Inside the market : PTP Obligation in CRR Auctions vs. DAM PTP Obligation The purchase of Congestion Revenue Rights (CRRs) in the forward CRR market allows loads and generators to hedge delivery price risk in Day Ahead. Participation to DAM minimizes the exposure to RTSPP volatility. The purchase of PTP Obligation in DAM allows loads and generators to hedge the delivery price risk in RT.

4. Interaction between Markets The DA prices are based on the estimate of the expected RT energy costs. In long run, the DASPP and RTSPP should converge. The value of CRRs are based on the estimate of the expected congestion costs on the purchase path. – The net amount paid for CRR ownership in auction should converge to the net amount received in DAM by account holder for their CRR. – The net amount paid for PTPs in DAM should converge to the net amount received in RT by QSE for their PTP Under ideal conditions ( Markets converged) – CRR Auction Revenue = DAM CRR payout = DAM ptp charge = RT congestion rent 1 (complete hedging) – DAM SPP = RT SPP – CRR+DAM+RT settlements = settling everything in RT

5. Impact of Irresolvable Constraint When the constraint is not resolved in SCED, the Shadow Price increases to the max Shadow Price SPP at receiving end increases and SPP at sending end decreases in RT. Loads will settle RT imbalance at a higher price Payment/ charge for PTP obligations and options in RT increases. If the congestion is sustained – DASPP and forward prices at the receiving end will increase – PTP cost and the CRR cost will increase Loads at the receiving end directly/indirectly pay for the congestion.

6. Observations – The higher Load Zone price due to congestion will likely be reflected in the forward price for energy at the Load Zone. – Loads receive from CRR Auction revenue 1, DAM balancing account and RT revenue neutrality based on their ERCOT wide LRS 2 and not based on how much they paid for their load. Hence, the amount might not be enough to compensate for the congestion rent amount paid by each load. – The effect of the revenues from CRR Auction is to hedge the congestion costs associated with the delivery of the energy. However, this action cannot be viewed as resulting in a hedge against the increase in the purchase price of energy arising from constraint violation. – Loads at the receiving end will have to settle RT imbalance at a higher price

7. Example 1 – RTM only Assume no DAM and no CRR. All the energy bought/sold in real-time No DAM, No CRR : All energy settle d in RT Settlement MarketSettlement TypeG1G2L1L2TOTAL CRR Auction SettlementCharge for CRR purchased in CRR Auction or PCRR 0 CRR Auction SettlementCRR Auction Revenue Distribution 0 DAM SettlementDay-Ahead Energy Charge or Payment 0 DAM SettlementCharge for PTP Obligation bought in DAM 0 CRR SettlementDay-Ahead CRR Payment or Charge 0 CRR SettlementCRR Balancing Account Distribution 0 RT SettlementReal-Time Energy Imbalance Charge or Payment(55,000)(125,000)50,000250,000120,000 RT SettlementReal-Time PTP obligation payment RT SettlementReal-Time Revenue Neutrality Allocation (100,000)(20,000)(120,000) Net Charge or Payment(55,000)(125,000)(50,000)230,0000

8. Example 2 – RTM & DAM with price converge Assumption DASPP & RTSPP converge QSE fully hedge in DAM, i.e. the RT energy flow is the same as DAM awards Note: 1)Zero energy imbalance to be settled in real-time. All the energy is settled in day-ahead. 2)DASPP & RTSPP converges, the net settlement amount is the same as settled in RT. No CRR, just DA & RT, price converged and fully hedge Settlement MarketSettlement TypeG1G2L1L2TOTAL CRR Auction SettlementCharge for CRR purchased in CRR Auction or PCRR 0 CRR Auction SettlementCRR Auction Revenue Distribution 0 DAM SettlementDay-Ahead Energy Charge or Payment(55,000)(125,000)50,000250,000120,000 DAM SettlementCharge for PTP Obligation bought in DAM00000 CRR SettlementDay-Ahead CRR Payment or Charge 0 CRR SettlementCRR Balancing Account Distribution00(100,000)(20,000)(120,000) RT SettlementReal-Time Energy Imbalance Charge or Payment00000 RT SettlementReal-Time PTP obligation payment00000 RT SettlementReal-Time Revenue Neutrality Allocation00000 Net Charge or Payment(55,000)(125,000)(50,000)230,0000

9. Example 3 – RTM + DAM; price converge; fully hedge in DAM with PTPBID Assumption DASPP & RTSPP converge L2 buy 200 MW PTPBID from zone1 to zone2. No energy bid by L2 in DAM. No CRR, just DA & RT, price converged & fully hedge with PTPbid Settlement MarketSettlement TypeG1G2L1L2TOTAL CRR Auction SettlementCharge for CRR purchased in CRR Auction or PCRR 0 CRR Auction SettlementCRR Auction Revenue Distribution 0 DAM SettlementDay-Ahead Energy Charge or Payment(45,000)(125,000)50,0000(120,000) DAM SettlementCharge for PTP Obligation bought in DAM000240,000 CRR SettlementDay-Ahead CRR Payment or Charge 0 CRR SettlementCRR Balancing Account Distribution00(100,000)(20,000)(120,000) RT SettlementReal-Time Energy Imbalance Charge or Payment(10,000)00250,000240,000 RT SettlementReal-Time PTP obligation payment (240,000) RT SettlementReal-Time Revenue Neutrality Allocation00000 Net Charge or Payment(55,000)(125,000)(50,000)230,0000

10. Example 4 – RTM + DAM + CRR with price converge Assumption DASPP & CRR auction clearing price is the same L2 buy 100 MW CRR from zone 1 to zone 2 DASPP & RTSPP converge QSE fully hedge in DAM Note: 1)Zero energy imbalance to be settled in real-time. All the energy is settled in day-ahead. 2)Zero CRR balancing account. All the DAM congestion rent refund to CRR account holder. 3)From example 1-4, if the price converges. Participation in different market will yield the same results. DA & RT & CRR, price converged & fully hedge Settlement MarketSettlement TypeG1G2L1L2TOTAL CRR Auction SettlementCharge for CRR purchased in CRR Auction or PCRR 120,000 CRR Auction SettlementCRR Auction Revenue Distribution (100,000)(20,000)(120,000) DAM SettlementDay-Ahead Energy Charge or Payment(55,000)(125,000)50,000250,000120,000 DAM SettlementCharge for PTP Obligation bought in DAM00000 CRR SettlementDay-Ahead CRR Payment or Charge (120,000) CRR SettlementCRR Balancing Account Distribution00000 RT SettlementReal-Time Energy Imbalance Charge or Payment00000 RT SettlementReal-Time PTP obligation payment00000 RT SettlementReal-Time Revenue Neutrality Allocation00000 Net Charge or Payment(55,000)(125,000)(50,000)230,0000

11. Example 5 – RTM + DAM; price not converge but fully hedge in DAM Assumption DASPP & RTSPP are different QSE fully hedge in DAM Note: 1)Zero energy imbalance to be settled in real-time. All the energy is settled in day-ahead. 2)Since the DASPP is lower than RTSPP in zone 2, the L2 pay less with DASPP compared to RT DA & RT, price NOT converged but fully hedge Settlement MarketSettlement TypeG1G2L1L2TOTAL CRR Auction SettlementCharge for CRR purchased in CRR Auction or PCRR 0 CRR Auction SettlementCRR Auction Revenue Distribution 0 DAM SettlementDay-Ahead Energy Charge or Payment(55,000)(12,500)50,00025,0007,500 DAM SettlementCharge for PTP Obligation bought in DAM00000 CRR SettlementDay-Ahead CRR Payment or Charge 0 CRR SettlementCRR Balancing Account Distribution00(6,250)(1,250)(7,500) RT SettlementReal-Time Energy Imbalance Charge or Payment00000 RT SettlementReal-Time PTP obligation payment RT SettlementReal-Time Revenue Neutrality Allocation00000 Net Charge or Payment(55,000)(12,500)43,75023,7500

12. Example 6 – RTM + DAM; price not converge; partially hedge in DAM Note: 1)L2 gets charged 150 MW at DASPP, and 50 MW energy imbalance at RTSPP 2)G1 receives payment 1050 MW at DAPP, and 50 MW energy imbalance at RTSPP Assumption DASPP & RTSPP are different QSE not fully hedge in DAM, i.e. L2 only buy 150 MW in DAM G1 sell 1050 MW in DAM DA & RT, price NOT converged & partial hedge Settlement MarketSettlement TypeG1G2L1L2TOTAL CRR Auction SettlementCharge for CRR purchased in CRR Auction or PCRR 0 CRR Auction SettlementCRR Auction Revenue Distribution 0 DAM SettlementDay-Ahead Energy Charge or Payment(52,500)(12,500)50,00018,7503,750 DAM SettlementCharge for PTP Obligation bought in DAM00000 CRR SettlementDay-Ahead CRR Payment or Charge 0 CRR SettlementCRR Balancing Account Distribution00(3,125)(625)(3,750) RT SettlementReal-Time Energy Imbalance Charge or Payment(2,500)0062,50060,000 RT SettlementReal-Time PTP obligation payment RT SettlementReal-Time Revenue Neutrality Allocation00(50,000)(10,000)(60,000) Net Charge or Payment(55,000)(12,500)(3,125)70,6250

13. Settlements BOD Report Revenue Neutrality Slide Payments made to Resources for Energy not sold in DAM Cost to Load for Energy not bought in DAM Net RTM cost of DAM purchases (pmt) or sales (chg) in DAM Payments for RTM energy that was hedged in DAM or CRR Auction Net of all Imbalances is cost of System Congestion Netting of all inputs (Revenue Neutrality) is the cost of Un-hedged System Congestion Payments for DC Tie Imports

14. BOD Report Congestion Management Slide BOD Report Energy Settlement Slide Settlements