1. August 2012 QMWG DAM Clearing Behavior for Fixed Quantity Blocks Carrie Tucker Supervisor, Day-Ahead Market

2. 2 August 9, 2012 Description When a fixed quantity Day-Ahead Market (DAM) offer or bid is the next economic offer/bid to clear, it is possible for the bid to clear above the bid price or the offer to clear below the offer price –Current implementation is that fixed quantity blocked bids/offers do not set the clearing price (see next slide) –The next non-blocked bid or offer in the stack sets the price This bid/offer is “skipped” during the pricing run –Generally this is relatively close, but if the DAM is clearing at the steep part of the curve the difference could be substantial –Example of Feb 3 DAM with tight supply: A QSE bid to buy over 200 MW fixed quantity for $350. The block was awarded at $593.

3. 3 August 9, 2012 Frequency Fixed quantity blocked bids clearing above bid price: –1,358 occurrences (in hours) since go-live –Average difference $1.95, MW-weighted average $3.43 –Maximum difference $243.44 Fixed quantity blocked offers clearing below offer price: –175 occurrences (in hours) since go-live –Average difference $0.91, MW-weighted average $0.55 –Maximum difference $28.76 Roughly one million fixed quantity block transactions have been submitted since go-live –Of those that were awarded, less than 0.2% exhibited this clearing behavior

4. 4 August 9, 2012 History TPTF discussed this design extensively, which is documented as Appendix 7 of the stakeholder-approved DAM requirements document (found at http://nodal.ercot.com/docs/pd/mms/index.html#req). http://nodal.ercot.com/docs/pd/mms/index.html#req Our Mixed Integer Programming clearing method and the marginal pricing principle does not guarantee the recovery of bid/offer costs for the fixed- quantity block bids/offers. An alternative model was explored, but it did not provide satisfactory results and would not have been in compliance with nodal protocols. The dispatch and prices would be mismatched. Fixed quantity blocks are price takers when cleared and do not set the price. Linear programming produces the clearing prices and MW dispatch in accordance with existing protocols (4.5.1(4)).

5. 5 August 9, 2012 Options for discussion ERCOT is willing to sponsor a NPRR to make this risk more transparent Stakeholders may wish to discuss other NPRR options such as removing fixed quantity blocks altogether or creating some sort of recovery mechanism Use of variable quantity or curve type bids/offers does not have the same risk