Implementation of NPRR153

Carrie BivensSupervisor, Day-Ahead Market WMS May 8, 2013

WMSMay 8, 2013

Summary

• NPRR153 was a nodal parking deck item

• The purpose is to allow Generation Resources to offer their offline Non-Spin in fixed quantity blocks

– Currently only Load Resources can submit block offers for Ancillary Services

• It is a straightforward and minor system change to the MMS validation rules, with an impact analysis between $12 and $16k.

• During project planning, ERCOT recognized and studied that this NPRR could cause some potentially undesirable pricing outcomes and now seeks stakeholder guidance

WMSMay 8, 2013

Clearing Price Impact

• Fixed quantity blocks present a challenge to a marginal pricing scheme.

– This issue was discussed extensively as it relates to DAM energy bids/offers during the MMS requirements approval phase of nodal.

– Fixed quantity block offers do not set the clearing price and are essentially price-takers once selected in the commitment phase of DAM

• For DAM energy, it is a regular occurrence to be struck below offer price, but the price differences are usually minimal

• Upon implementation of NPRR153, fixed quantity Non-Spin offers could also clear below the offer price (and alternatively, fail to clear even when MCPC > offer price).

– A/S market is less liquid than energy market so the magnitude of the price drop is likely to be larger (next lower variable offer sets price)

– A/S products are linked together, so pricing impacts carry to other services

– As an offline non-spin award, it will not be eligible for DAM make-whole payment

WMSMay 8, 2013

Clearing Price Impact

• In an extreme case study performed by ERCOT, the MCPC could be $0 no matter the offer costs

– This outcome was simulated using a recent production case by converting all variable non-spin offers to block non-spin offers

• MCPCNon-Spin = Shadow Price of the Non-Spin requirement constraint

– If there are no committed variable offers to adjust with a small change in the Non-Spin requirement, then an incremental increase to the Non-Spin requirement would result in no change to the objective function

Non-spin req’t

Offer Price ($/MW)

Offer MW

WMSMay 8, 2013

Clearing Price Impact

• This is an existing potential issue for Load Resources but is not observed because:

– Currently LRs do not regularly offer Non-Spin, they only participate in the RRS market which has a 50% procurement limit

– Offers from Generation Resources routinely set the clearing price

WMSMay 8, 2013

Discussion of Options• Options:

1. Continue work on NPRR153 with existing block offer implementation

2. Choose to not implement NPRR153

3. An alternative implementation with a change in price-setting methodology (and revise Impact Analysis for NPRR153):

• Add a pricing run where the block of the marginal offer is removed for clearing purposes and it is allowed to set the price (economic dispatch is re-solved with the commitment pattern frozen and the offer as variable MW)

– Creates inconsistency between dispatch, price and offer/bid values

» Could lead to increased requests for make-whole consideration from both supply and demand side, once we begin publishing inconsistent results

– Co-optimization is impacted

» Generators would no longer be guaranteed an optimal dispatch among energy and A/S, once committed

– This pricing run would be necessary for all hours due to the situation of fixed quantity block offers that are also multi-hour blocked.

– More discussion and analysis would be needed if this option is desired

4. Other concepts or ideas?