1. ERCOT Wholesale Market Basics Module 2 Market Operations

2. 2 ERCOT Wholesale Market Basics Topics Essential Concepts Ancillary Services Congestion Management Module 2

3. 3 ERCOT Wholesale Market Basics Topic 1: Essential Concepts Module 2

4. 4 ERCOT Wholesale Market Basics Market Structure, Wholesale Concepts and Roles Day-Ahead and Operating Day Concepts Essential Concepts Module 2

5. 5 ERCOT Wholesale Market Basics Wholesale Market: Zonal Congestion Management Unbundled Transmission Bilateral Market Requirements: QSE Representation Balanced Schedules Portfolio & Unit-Specific Dispatch Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles

6. 6 ERCOT Wholesale Market Basics Qualified Scheduling Entities (QSEs) submit Balanced Schedules, Ancillary Services Bids and a Resource Plan (if applicable) to ERCOT. Load Serving Entities (LSEs) provide electric service to retail and wholesale customers. LSEs include Retail Electric Providers, Competitive Retailers, and Non-Opt In Entities that serve load. Resource Entities (REs) own or control a resource. ERCOT manages any real-time imbalances during the Operating Period between forecasts and actual demands by deploying balancing energy to QSEs qualified to represent Resources. Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles

7. 7 ERCOT Wholesale Market Basics ERCOT is here to ensure reliability by: Resource capacity planning Real-time transmission management Procure balancing energy Issue deployment instructions to units, as needed ERCOT is similar to an Air Traffic Controller Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles

8. 8 ERCOT Wholesale Market Basics Qualified Schedule Entities functions: Submit Balanced Schedules Submit Ancillary Services Bids Resource Command and Control Settle with ERCOT QSE All Resource Entities and LSEs must be represented by a QSE Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles

9. 9 ERCOT Wholesale Market Basics Bilateral Transactions: A trade agreement between two entities Bilateral transactions are scheduled with ERCOT Examples: 1.QSE A sells a block of 50 Mwh (North Zone), to QSE B for Hour-Ending 1100-1300 2.QSE A sells 3 Mw of Responsive Reserve to QSE B for Hour-Ending 1400. Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles

10. 10 ERCOT Wholesale Market Basics Quantity of Resources and Obligations must Balance Bilateral Transactions must include Qty, QSE, Zone, Matched with Counterparty. Resources: Generation or purchases Obligations: Load or sales Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles Bilateral Transactions cont’

11. 11 ERCOT Wholesale Market Basics QSE Balanced Schedule – Portal Display Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles ERCOT does not require QSEs to be balanced within each Congestion Zone.

12. 12 ERCOT Wholesale Market Basics Balanced, but mismatched Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles

13. 13 ERCOT Wholesale Market Basics A QSE exporting from ERCOT through a DC Tie export schedule will include that DC Tie export schedule as an Obligation in its Balanced Schedule by using the identifier field indicating the appropriate DC Tie. Imports include the DC Tie import schedule as a Supply in its Balanced Schedule (as shown below). Direct Current Tie Transactions Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles

14. 14 ERCOT Wholesale Market Basics Two commercially operational DC-Ties between ERCOT and the Eastern Interconnection North (DC_N) located near Oklaunion East (DC_E) located near Monticello Three DC-Ties between ERCOT and Operating Authority in Mexico Comision Federal de Electricidad (CFE) Eagle Pass (DC_S) located near Eagle Pass Railroad (DC_R) located near McAllen Laredo (DC_L) located near Laredo Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles

15. 15 ERCOT Wholesale Market Basics QSE may set obligations equal to supply, and/or schedule BES via ERCOT to meet Obligations* QSE is NOT to schedule ERCOT ISO as an Obligation for Balancing Energy (only used for RMR) Resources: Generation or purchases Obligations: Load or sales Module 2 * Limited by QSE’s collateral with ERCOT Essential Concepts Market Structure, Wholesale Concepts and Roles “Relaxed” Balanced Schedules:

16. 16 ERCOT Wholesale Market Basics Resource Plans Each QSE representing a Resource or Load Acting as a Resource must submit a Resource Plan!! Let’s Check Under the Hood! Module 2 Essential Concepts Market Structure, Wholesale Concepts and Roles Plan of how Generation Resources will operate Due to ERCOT by 4:00 pm of the day-ahead period Used by ERCOT to determine resource adequacy Validated against scheduled Portfolio Generation

17. 17 ERCOT Wholesale Market Basics Market Structure, Wholesale Concepts and Roles Day-ahead and Operating Day Concepts Essential Concepts Module 2

18. 18 ERCOT Wholesale Market Basics ERCOT Market Timeline Market Operations Adjustment Period: Precedes Operating Period Operating Period: Balancing Energy Clearing Occurs every 15 minutes Power Operations Day-Ahead Period: 6:00am to 6:00pm prior to Operating Day. Commercial Operations Initial Settlement 10 days after Operating Day Final Settlement 59 days after Operating Day True-up Settlement: 180 days after Operating Day And/or specific Protocol Criteria is met Module 2 Essential Concepts Day-ahead and Operating Day Concepts

19. 19 ERCOT Wholesale Market Basics Day-Ahead Period 6:00AM to 6:00PM on the day prior to the Operating Day (“flow” date) QSEs submit balanced schedules and ancillary services bids ERCOT clears Ancillary Services Markets, and publishes results Adjustment Period Time between the close of the Day-Ahead Market and the start of the Operating Period QSEs may modify their schedules and/or bids during this time Operating Period Includes the Operating hour (“flow hour”) and the hour prior to Operating hour (look-ahead studies) Module 2 Essential Concepts Day-ahead and Operating Day Concepts

20. 20 ERCOT Wholesale Market Basics Market Timeline & When QSE Schedules Become Binding DAY AHEAD ADJUSTMENT PERIOD OPERATING PERIOD 1300: A/S Schedules and A/S Bids LOCKED 1600: Bilateral Energy and Resource Plan snapshot End of Adjustment Period snapshot: Replacement Reserve, Resource Plan, Bilateral Energy At each Execution Of SPD Balancing Energy Market, Snapshot of QSE Resource Plan is taken. 1800: End of Day Ahead Period Adjustment period begins at 1800 the day before the operating period and ends one hour prior to operating hour HOUR 1: The operating period begins one hour prior to the operating hour HOUR 2: Operating hour Two hour time period Resource Plans may be Updated at any time during the Balancing Energy Market Essential Concepts Day-ahead and Operating Day Concepts Module 2

21. 21 ERCOT Wholesale Market Basics Midnight Module 2 Essential Concepts Day-ahead and Operating Day Concepts

22. 22 ERCOT Wholesale Market Basics Day-Ahead Period Key Times 06:00 Forecast and A/S Obligations Information Published 11:00Deadline for Day-Ahead Scheduling (Bilateral, A/S) 11:15Deadline to resolve Day-Ahead Mismatches 13:00 Deadline for A/S Capacity Market Bids Deadline for Adjusted Day-Ahead Schedules 13:15Deadline to resubmit corrected updated schedules 13:30A/S Capacity results & MCPC 15:00Submit updated AS schedule including Self-Arranged and AS bids selected by ERCOT 16:00Deadline for Resource Plan submittal Replacement Reserve Bids System Lockdown for Day-Ahead Analysis 18:00Day-Ahead Period complete; start of Adjustment Period Module 2 Essential Concepts Day-ahead and Operating Day Concepts

23. 23 ERCOT Wholesale Market Basics Adjustment Period On the Operating Day, the Adjustment Period is anytime up to one hour prior to Operating (“flow”) Hour when QSEs can alter or remove existing schedules, or submit new schedules for the Operating Hour. Deadline for QSEs to submit schedules & changes is one hour prior to the “flow” hour. (i.e., deadline for HE1300 is 1100, because HE 1300 begins at 1200). Module 2 Essential Concepts Day-ahead and Operating Day Concepts

24. 24 ERCOT Wholesale Market Basics Operating Period is 2 Hours It starts immediately after the Adjustment Period. QSE schedules cannot be altered or removed. −First Hour – system lockdown – allows for system studies for the upcoming flow hour based on QSE schedules −Second Hour - is the Operating (“Flow”) Hour – real-time monitoring and security analysis Module 2 Essential Concepts Day-ahead and Operating Day Concepts

25. 25 ERCOT Wholesale Market Basics Topic 2: Ancillary Services Module 2 Essential Concepts Ancillary Services Congestion Management

26. 26 ERCOT Wholesale Market Basics Definitions and Requirements LSE Obligations and Supply Options Services Exclusively Arranged By ERCOT Merit-Order vs. Out of Merit Module 2 Ancillary Services

27. 27 ERCOT Wholesale Market Basics What are Ancillary Services, and why does ERCOT need them? Generation that is intentionally reserved, in the event it is needed (i.e., a plant that generates 50 Mw of its maximum of 100 Mw has 50 Mw of reserve capacity available) Reserve capacity can be utilized (converted to energy) to keep the lights on in the event of an unforeseen system disturbance “ Energy Insurance ” Module 2 Ancillary Services Definitions and Requirements

28. 28 ERCOT Wholesale Market Basics As a QSE that schedules load, why do I need to know about A/S? Market Participants serving load have an A/S Obligation as a “cost of doing business”. Similar to Auto Insurance: If you own a vehicle in Texas, Liability Insurance is a mandated cost that goes along with owning the vehicle. Ancillary Services Definitions and Requirements Module 2

29. 29 ERCOT Wholesale Market Basics Capacity Reserve Services that can be self arranged by QSEs : Regulation – provision of Resource capacity to ERCOT for continuous frequency control Responsive Reserve – unloaded Generation, or Load Resources capable of controlling consumption, which can be deployed within 15 seconds Non-Spinning Reserve – Off-line or reserved capacity, or Loads acting as a Resource, capable of deploying within 30 minutes for at least one hour Ancillary Services Definitions and Requirements Module 2

30. 30 ERCOT Wholesale Market Basics Balancing Energy Service: Awarded by ERCOT to bidding QSEs Used to balance system wide Load variations with generation Used to resolve transmission constraints and congestion Ancillary Services Definitions and Requirements Module 2

31. 31 ERCOT Wholesale Market Basics System Requirements Annual Procedure ERCOT establishes the methodology for determining A/S system requirements. It is reviewed and approved in the stakeholder process (TAC). Monthly Calculation System-wide requirement is calculated, based on statistical calculations and historical deployments. “2008-2009 ERCOT Methodologies for Determining Ancillary Service” posted under Key Documents. Module 2 Ancillary Services Definitions and Requirements

32. 32 ERCOT Wholesale Market Basics OK, what is my share of the ERCOT System Requirements? It is based on your load relative to total ERCOT load, or Load Ratio Share (LRS). If you have 10 Mw of Load, and ERCOT has 100 Mw of total load, your LRS is 10%. Your obligation will be 10% of each service that ERCOT requires. QSE Day-Ahead LRS Obligations are posted each morning by 6AM Ancillary Services Definitions and Requirements Module 2

33. 33 ERCOT Wholesale Market Basics Do I have a requirement if I am a QSE that has no load? No. If you only have bilateral transactions and no load, you will not incur any A/S Obligations, UNLESS…… …you have an EXPORT on the DC Tie. An export is considered load, so if you schedule an export, you can expect to see an A/S Obligation 14 days later. Ancillary Services Definitions and Requirements Module 2

34. 34 ERCOT Wholesale Market Basics Definitions and Requirements LSE Obligations and Supply Options Services Exclusively Arranged By ERCOT Merit-Order vs. Out of Merit Module 2 Ancillary Services

35. 35 ERCOT Wholesale Market Basics A/S Obligation – Load Ratio Share ERCOT calculates the “load-ratio share” (LRS) of each Load Serving Entity (LSE). QSE’s Load Ratio Share is the aggregate total of the LSE LRS that it represents. QSE’s A/S Obligation is its LRS of the Total ERCOT-wide requirement. Module 2 Ancillary Services LSE Obligations and Supply Options

36. 36 ERCOT Wholesale Market Basics Day-Ahead Obligation: Based on the Load Ratio Share of the Load from the Initial Settlement data, for the Operating Day that is 14 days before the day in which the Obligation is being calculated. After the Operating Day: The AS Obligation calculations are adjusted (trued-up) based on the most up-to-date Load Data for each settlement run. Module 2 Determination of LRS for Settlement Ancillary Services LSE Obligations and Supply Options

37. 37 ERCOT Wholesale Market Basics A FULL SERVICE QSE Markets and Schedules WATTSco power generation Wholesale Supplier and Scheduler for POWERMART and EZWatts, retailers Qualified to provide Ancillary Services Provide Power Marketing Services INTRODUCING!! Module 2 Ancillary Services Example – Load Ratio Share

38. 38 ERCOT Wholesale Market Basics Example: Day-Ahead A/S Obligation for 4/26/08 represents POWERMART [88] and EZWatts [55], LSEs. On April 12, 2008 (14-days ago) the aggregated load for these two LSEs came to: April 12 Load LRS Module 2 Ancillary Services Example – Load Ratio Share

39. 39 ERCOT Wholesale Market Basics A/S Obligation – For Example! For intervals “hour-ending” 1000 through 1200 the A/S obligations are determined by taking the LRS times each ERCOT-wide obligation, rounded to a whole MW. Module 2 Ancillary Services Example – Load Ratio Share

40. 40 ERCOT Wholesale Market Basics A/S Obligation – For Example! - represents LSE_ 88 and LSE_ 55 - A/S Obligation = sum of the obligations of LSE_ 88 and LSE_ 55 : 26-Apr-04 Module 2 Ancillary Services Example – Load Ratio Share

41. 41 ERCOT Wholesale Market Basics Posted by 6 AM one day prior to the Operating Day Obligation is under “Required MW” column Legend: DRS: Down Regulation Service NSRS: Non Spin Reserve Service RRS: Responsive Reserve Service URS: Up Regulation Service Module 2 Portal View of Day-Ahead Obligations Ancillary Services LSE Obligations and Supply Options

42. 42 ERCOT Wholesale Market Basics What are my options for buying and scheduling Ancillary Services to fulfill my obligation? QSEs can Self-Arrange: a. Using its own resource b. Purchase from another QSE (A/S Bilateral Trade) QSEs can purchase from ERCOT at the Day-Ahead MCP for Capacity (MCPC) Note: Per Protocol Section 4.3.1: QSEs that intend to purchase their obligation from ERCOT MUST schedule a bilateral PURCHASE from ERCOT. Module 2 Ancillary Services LSE Obligations and Supply Options

43. 43 ERCOT Wholesale Market Basics Ancillary Services Sellers A/S providers must be qualified by ERCOT to provide each A/S Must keep awarded capacity in reserve Must meet performance metrics (perform when called upon) A/S Module 2 Ancillary Services LSE Obligations and Supply Options

44. 44 ERCOT Wholesale Market Basics Ancillary ServiceStatusDeploymentReason Regulation UpOn-LineImmediateSmall changes in Frequency Regulation DownOn-LineImmediateSmall changes in Frequency Responsive ReserveOn-LineWithin a few minutesSignificant deviation in Frequency Non-Spinning Reserve Off-Line Or On-Line Within 30 Minutes >92 degrees, < 30 degrees, or contingency of resource loss Target Frequency: 60 Hz Other Attributes: Day-Ahead Capacity Market Selected in Merit Order Module 2 Option to Self-Arrange Ancillary Services LSE Obligations and Supply Options

45. 45 ERCOT Wholesale Market Basics QSE AERCOT Day-Ahead Capacity Result Award * $ Hourly MCPC “I will reserve X Mw (awarded qty) of generation” QSE AERCOT Mw * $ MCPE (BES) Deployment on Operating Day ERCOT-instructed Mw Module 2 A/S Cash Flows Ancillary Services LSE Obligations and Supply Options

46. 46 ERCOT Wholesale Market Basics If NO Deployments are issued by ERCOT QSE “A” KEEPS the capacity payment Also similar to paying auto insurance premium, but not having a claim before the policy expires QSE AERCOT Day-Ahead Capacity Result Award * $ Hourly MCPC “I will reserve X Mw (awarded qty) of generation” Module 2 Ancillary Services LSE Obligations and Supply Options

47. 47 ERCOT Wholesale Market Basics ERCOT charges load QSEs for non- self-arranged obligations ERCOT remains revenue-neutral! QSE A (e.g. Resource) ERCOT How does ERCOT get the money to pay for Capacity? $$ Capacity (MW) QSE Z (Load) Capacity (MW) Module 2 Ancillary Services LSE Obligations and Supply Options

48. 48 ERCOT Wholesale Market Basics Definitions and Requirements LSE Obligations and Supply Options Services Exclusively Arranged By ERCOT Merit-Order vs. Out of Merit Module 2 Ancillary Services

49. 49 ERCOT Wholesale Market Basics Replacement Reserve Resources planned to be off-line, but available Deployed for Capacity Insufficiency, Local Congestion Black Start Widespread black out event Started without support of the power grid Contracted by ERCOT annually Module 2 Ancillary Services Exclusively Arranged By ERCOT

50. 50 ERCOT Wholesale Market Basics Reliability Must-Run (RMR) Resolves local system reliability Contracted by ERCOT Otherwise would not be an active resource Module 2 Ancillary Services Exclusively Arranged By ERCOT

51. 51 ERCOT Wholesale Market Basics Emergency Interruptible Load Service (EILS) Protocol Section 6.1.13 Special emergency service used as part of a Level 2 Energy Emergency Alert (EEA) to reduce Load and assist in maintaining or restoring system frequency (with the intention to prevent or shorten duration of conditions requiring the EEA) Provided by Loads capable of reducing their electricity consumption during an EEA For deployment, all QSEs providing EILS are instructed via a single Verbal Dispatch Instruction (VDI) Module 2 Ancillary Services Exclusively Arranged By ERCOT

52. 52 ERCOT Wholesale Market Basics Standing Contract Periods –February through May –June through September –October through January QSEs representing Load may elect to self-provide part or all of their EILS obligation ERCOT contracts for EILS capacity through EILS bids and self-provision offers –Paid as-bid (no clearing price) The amount of MW procured for an EILS contract period not to exceed 1,000 MW EILS Procurement Module 2 Ancillary Services Exclusively Arranged By ERCOT

53. 53 ERCOT Wholesale Market Basics Definitions and Requirements LSE Obligations and Supply Options Services Exclusively Arranged By ERCOT Merit-Order vs. Out of Merit Module 2 Ancillary Services

54. 54 ERCOT Wholesale Market Basics Ancillary Services can be awarded in one of two ways: Merit-Order Based on bids, “stacked” from least to most expensive Market Price for Capacity and Energy is produced Out-of-Merit Without respect to cost Needed for reliability, regardless of economics Also utilized when no market solution exists ERCOT NEEDS YOU! Module 2 Ancillary Services Merit-Order vs. Out of Merit

55. 55 ERCOT Wholesale Market Basics System Requirement – 2300 Mw 2300 1380 Self-Arranged Qty (from A/S schedules) ERCOT to procure 920 Mw via A/S Capacity Market Module 2 Day-Ahead A/S Capacity Market Selection Example Ancillary Services Merit-Order vs. Out of Merit

56. 56 ERCOT Wholesale Market Basics 920 ERCOT moves “up the bid stack” until it reaches the necessary qty. The price associated with that qty set the MCPC. ($2.10 in this example) Module 2 Ancillary Services Merit-Order vs. Out of Merit

57. 57 ERCOT Wholesale Market Basics Out-of-Merit Capacity (OOMC) Capability of providing additional Balancing Energy Service-more Resources on-line. Otherwise not selected because of the place (or absence) in the Merit Order bid stack Out-of-Merit Energy (OOME) Provision of balancing energy to solve local congestion, or when no market solution exists Module 2 Ancillary Services Merit-Order vs. Out of Merit

58. 58 ERCOT Wholesale Market Basics Balancing Energy (Merit Order) Energy deployed by ERCOT every 15 minutes Deployed when load forecast is higher or lower than scheduled OR Also deployed to resolve Congestion Market Clearing Price for Energy (MCPE) Module 2 Ancillary Services Merit-Order vs. Out of Merit

59. 59 ERCOT Wholesale Market Basics Option to Self Arrange OR Purchase from ERCOT No Option to Self Arrange: Exclusively provided by ERCOT Module 2 Summary Ancillary Services Merit-Order vs. Out of Merit

60. 60 ERCOT Wholesale Market Basics Who determines daily Ancillary Service requirements? ERCOT Who schedules Ancillary Services? QSE What entity does ERCOT allocate Ancillary Services obligations to? LSE What is the only instance a QSE may schedule ERCOT as an bilateral energy obligation? RMR ERCOT Wholesale Market Operations: Review Module 2

61. 61 ERCOT Wholesale Market Basics Topic 3: Congestion Management Module 2

62. 62 ERCOT Wholesale Market Basics Definitions and Key Concepts Zonal vs. Local Congestion Transmission Congestion Rights Congestion Management Module 2

63. 63 ERCOT Wholesale Market Basics Managing traffic on the electric grid When safe operating limits on the transmission system are projected to be exceeded. ERCOT will take action as the physical flow approaches transfer limits. –Resources are re-dispatched QSEs may take actions to mitigate cost impact of congestion. Module 2 Congestion Management Definitions and Key Concepts

64. 64 ERCOT Wholesale Market Basics Four Congestion Zones Five CSCs 1.South to North 2.North to South 3.North to Houston 4.West to North 5.North to West Zones and CSCs North West South Houston Module 2 Congestion Management Definitions and Key Concepts

65. 65 ERCOT Wholesale Market Basics Constraint: A transmission element or group of elements that limit the free flow of energy. Constraints are typically thermal, voltage stability, and angular stability limitations. These constraints are the result of defined contingencies such as the trip of a generating unit or transmission circuit. Module 2 Congestion Management Definitions and Key Concepts

66. 66 ERCOT Wholesale Market Basics Commercially Significant Constraint (CSC): A constraint in the ERCOT Transmission Grid that is found to limit the free flow of energy a commercially significant degree. Module 2 Congestion Management Definitions and Key Concepts Closely Related Element (CRE): Those transmission facilities that have shift factor impacts similar to those associated with a particular Commercially Significant Constraint (CSC), and for which there exists a limited amount of Boundary Generation Resources between it and the particular CSC, so that the zonal deployment of Balancing Energy Service is effective in mitigating Zonal Congestion.

67. 67 ERCOT Wholesale Market Basics Congestion: The situation that exists when scheduled power flows, when netted, are projected to exceed the capability of a Transmission element or set of elements. Congestion Zone: A grouping of busses that create a similar Shift Factor on CSCs. CSC Limit: Maximum flow allowed across a CSC to maintain reliable operation Module 2 Congestion Management Definitions and Key Concepts

68. 68 ERCOT Wholesale Market Basics Shift Factor (SF): Measure of power flow impact on a transmission element Schedule Impact (SI): The MW impact that bilateral energy schedules have on a CSC. Shadow Price (SP): The marginal price of the constraint ~ it indicates the change in the overall cost, in $/MW. TCR’s: Transmission Congestion Rights are a financial instrument that enables QSEs to hedge against the risk of incurring congestion charges. Module 2 Congestion Management Definitions and Key Concepts

69. 69 ERCOT Wholesale Market Basics Definitions and Key Concepts Zonal vs. Local Congestion Transmission Congestion Rights Congestion Management Module 2

70. 70 ERCOT Wholesale Market Basics Congestion must be managed, and it costs Dollars! Even when the flow on the constraint is brought down below the limit by redispatch, we are in a congestion situation Keep line flows under the limits, or System may become unstable Equipment may be damaged Module 2 Congestion Management Zonal vs. Local Congestion

71. 71 ERCOT Wholesale Market Basics Zonal Congestion a.k.a. INTER-zonal congestion Occurs between congestion zones Resolved using Zonal Balancing Energy (in Merit Order) Types of Congestion North West South Houston Module 2 Congestion Management Zonal Congestion

72. 72 ERCOT Wholesale Market Basics Zone B Zone A 10MW 2 MW Zonal Shift Factor B-A Zone 0.2South -0.3North 10MW 3 MW Aggregate Generation B-A CSC Zonal shift factor is the average effect that changing generation in a zone has on a particular CSC constraint Module 2 Congestion Management Zonal Congestion

73. 73 ERCOT Wholesale Market Basics Local Congestion a.k.a. INTRA-zonal congestion Occurs within a congestion zone Cannot be resolved with Zonal balancing energy Must be resolved with Unit-specific deployments Types of Congestion North West South Houston Module 2 Congestion Management Local Congestion

74. 74 ERCOT Wholesale Market Basics ZONE 10MW 5 MW Resource Shift Factor bus -0.2 Unit 1 0.1 Unit 2 Specific Resource Intra-Zonal Resource specific shift factor is used with Bid Premiums to resolve Local Congestion Module 2 Congestion Management Local Congestion Unit 1 Unit 2 Bid Premium is Generic Cost determined for Specific Resource Type (CC, CT, WGR) 1MW

75. 75 ERCOT Wholesale Market Basics Zonal Congestion Direct Assignment to ALL QSEs with schedules impacting congested CSCs Cost = Schedule Impact on each CSC * Shadow Price Local Congestion Total ERCOT cost Uplifted at Load Ratio Share All QSEs with load pay for local congestion if it exists anywhere Module 2 Congestion Management Zonal vs. Local Congestion Who pays for Congestion?

76. 76 ERCOT Wholesale Market Basics Power Flow Analysis Procurement of services Dispatch resources Post information What ERCOT does to control traffic Module 2 Congestion Management Zonal vs. Local Congestion

77. 77 ERCOT Wholesale Market Basics Known transmission conditions Expected transmission conditions for the next day Resource Plans for next day Bilateral Schedules for next day Congestion Studies – Day-Ahead Module 2 Congestion Management Zonal vs. Local Congestion

78. 78 ERCOT Wholesale Market Basics Procurement of RPRS and OOMC (Capacity and Local Congestion) Deployment of LBES and OOME Congestion Studies – Day Ahead and before each Operating Hour The Studies Result in: Module 2 Congestion Management Zonal vs. Local Congestion

79. 79 ERCOT Wholesale Market Basics Real-time Are created by Simultaneous Feasibility Test (SFT) software LocalOC3 NOT USED Limit may be changed in adjustment or operating period based on impending congestion conditions LocalOC2 Real-time Limit may be changed in adjustment or operating period based on impending congestion conditions Setting of 9999 indicates constraint not active Zonal CSC / CRE OC1 Monthly Based on planning studies taking into account planned outages, flow patterns Basis of TCRs and CSC congestion notifications Suppressed in favor of OC1 in Real-time Balancing Zonal CSC OC0 FrequencyDescriptionApplicabilityLimit Module 2 Types of Constraints Congestion Management Zonal vs. Local Congestion

80. 80 ERCOT Wholesale Market Basics Module 2 What the ERCOT Operator Sees: Congestion Management Zonal Congestion

81. 81 ERCOT Wholesale Market Basics Module 2 What the Operator Does Congestion Management Zonal Congestion

82. 82 ERCOT Wholesale Market Basics When zonal transmission constraints are NOT in effect: The BES bid curves submitted by QSEs are used to establish a single bid stack. The ERCOT EMS uses this stack to competitively select up or down balancing energy, whichever is needed in the next interval for zonal balancing. Stack’m UP! Module 2 Balancing Energy Deployments (BES) Congestion Management Zonal vs. Local Congestion

83. 83 ERCOT Wholesale Market Basics North South MW $ $ $ One consolidated bid stack for Balancing Energy MCPE Module 2 MCPE - No Congestion Congestion Management Zonal vs. Local Congestion

84. 84 ERCOT Wholesale Market Basics When zonal transmission constraints ARE in effect: The BES bid curves are separated out into prospective zonal bid stacks for the EMS to competitively select up or down balancing energy to unload the inter-zonal congestion. The resulting zonal BES deployment is the incremental MW increase (UBES) or decrease (DBES) each QSE awarded BES needs to move their portfolio of resources as deviation from their planned schedule. Nort h Zone Sout h Zone Module 2 Balancing Energy Deployments (BES) Congestion Management Zonal vs. Local Congestion

85. 85 ERCOT Wholesale Market Basics North South MW $ $ MCPE North MCPE South MCPESPC S-N Note – MCPEs and MCPESPCs are capped at offer cap ($2,250) Module 2 MCPE – Zonal Congestion Congestion Management Zonal vs. Local Congestion

86. 86 ERCOT Wholesale Market Basics Limit = 500 MW 200 MW 300 MW 100 MW OVERLOAD “Generate at 200” 200 MW Question: How does ERCOT select the unit? Module 2 Congestion Management - Local Congestion Management Zonal vs. Local Congestion

87. 87 ERCOT Wholesale Market Basics In real time, ERCOT manages Local Congestion using unit-specific deployments. Units selected are based on Operator Directed or by Step 2 of SPD Solution. SPD selects using generic Bid Premiums and Real- Time Shift Factor. Units selected are paid as OOM Energy if Operator Directed or Local Balancing Energy if SPD Solution. Charge uplifted to QSEs on a Load Ratio Share Basis. Module 2 Recap Congestion Management - Local Congestion Management Zonal vs. Local Congestion

88. 88 ERCOT Wholesale Market Basics Scheduling, Pricing and Dispatch = SPD Executes every 15 minutes to deploy Balancing Energy Calculated CSC flows and Shadow Prices Calculated flow for OC3 constraints Portfolio Balancing Awards and resource specific instructions Zonal MCPEs Inputs Outputs Telemetered Generator MW output Shift factors Balancing Energy Bids Forecasted load QSE Energy Schedules QSE Resource Plan data OC1 and OC3 constraint limits ERCOT Market Operating System * Note: Real time (Physical) line limits are not inputs to SPD I’m SPU D Module 2 Congestion Management Zonal vs. Local Congestion

89. 89 ERCOT Wholesale Market Basics 1.Solve for CSC Constrained System Imbalance with zonal BES 2.Solve for Local Congestion with local BES 3.Resolve for System Imbalance with BES * SPD Solution STEPS ERCOT Market Operating System * Note: Final Market Clearing Price of Energy is published after Step 3 Module 2 Congestion Management Zonal vs. Local Congestion

90. 90 ERCOT Wholesale Market Basics Portfolio vs. Unit-Specific Deployment QSEs shall first meet the specific resource deployment and then meet the BES deployment instruction. In the event that a QSE is unable to provide the BES due to a specific resource deployment then the QSE will follow the notification procedures established in Section 5, Dispatch. Module 2 Congestion Management Zonal vs. Local Congestion

91. 91 ERCOT Wholesale Market Basics Definitions and Key Concepts Zonal vs. Local Congestion Transmission Congestion Rights Congestion Management Module 2

92. 92 ERCOT Wholesale Market Basics Transmission Congestion Rights (TCRs) Financial instruments –Can be a hedge against congestion charges To participate in auctions requires TCR registration and qualification. TCR Holders are not represented by QSEs Revenues from TCR auctions go to QSEs representing load. Module 2 Congestion Management Transmission Congestion Rights

93. 93 ERCOT Wholesale Market Basics The maximum power that may be transferred across a transmission corridor while maintaining reliability Calculated on an annual basis Updated monthly TTC for each CSC establishes the number of Transmission Congestion Rights (TCRs) to be auctioned Module 2 Total Transfer Capability Congestion Management Transmission Congestion Rights

94. 94 ERCOT Wholesale Market Basics Certain TCR Holders are eligible for Pre- assigned Congestion Rights (PCRs) TCR Auction Allocation – Annual: (40% of TTCs) minus PCRs – Monthly: (60% of TTCs) minus PCRs Module 2 Congestion Management Transmission Congestion Rights TCR Auction

95. 95 ERCOT Wholesale Market Basics ERCOT sells TCRs TCR auction revenues to QSEs with load Winning TCR bidder pays ERCOT and receives TCR. TCR Price = Clearing price X Number of Hours in period Module 2 TCR Auction Settlement Congestion Management Transmission Congestion Rights TCR Holders are Limited to 25% Ownership per CSC

96. 96 ERCOT Wholesale Market Basics Total Transfer Capability MW SI * SP = Amount Collected from CSC Congestion charges Amount Paid to clear congestion Amount Paid to TCR Holders Scheduled Qty MW Module 2 Real-time Congestion Settlement Congestion Management Transmission Congestion Rights

97. 97 ERCOT Wholesale Market Basics Total Transfer Capability MW SI * SP = Amount Collected from CSC Congestion charges Amount Charged to clear congestion Amount Paid to TCR Holders Scheduled Qty MW Module 2 Real-time Congestion Settlement Congestion Management Transmission Congestion Rights

98. 98 ERCOT Wholesale Market Basics Who pays for Local Congestion? QSEs at LRS Who pays for Zonal Congestion? QSEs with impacted schedules What is a TCR? Transmission Congestion Right What are the three steps to awarding Balancing Energy? 1) System Load Balance; Inter-zonal Congestion 2) Local Congestion 3) Re-balance Load and Inter-zonal Congestion ERCOT Wholesale Market Operations: Review Module 2

99. 99 ERCOT Wholesale Market Basics Questions Module 2