important concepts in prr 342: simultaneous a/s selection

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Important Concepts in PRR 342: Simultaneous A/S Selection

Prepared for ERCOT WMS Meeting

October 28, 2002

Julie Gauldin

PUCT Market Oversight Division

http://www.puc.state.tx.us/

PRR 342 - Prepared for ERCOT WMS Meeting October 28, 2002 2

Introduction PRR 342 modifies the ancillary service bid selection

process so that the selections of Regulation Up, Responsive Reserves and Non-Spinning Reserves occur simultaneously.

PUCT Order in Docket No. 23220 states: “ERCOT shall amend the Protocols such that it will procure ancillary services through use of simultaneous optimization for assignment of resources to A/S products, and will set prices for each ancillary service to the corresponding shadow price.”

Simultaneous selection is also consistent with the FERC NOPR on SMD.


Simultaneous Optimization Key Concepts Main objective of simultaneous selection:

Prevent price reversals, whereby the MCPC for a lower quality services is higher than the MCPC for a higher quality service.

Price reversals provide incorrect price signals which provide incentives for inefficient use of resources.

Agreed-upon “quality” ranking: Regulation Up (RegUp)

Responsive Reserves (RRS)

Non-Spinning Reserves (NSRS)


Key Changes in PRR from the Version Passed by PRS MOD would like to understand any potential negative impact of

these changes. Payment to Suppliers

Each selected bid is paid the MCPC of the service for which it was selected or the MCPC of any higher quality service for which it was bid, whichever is higher.

Bid Content: One offer price The highest quality service to which the bid applies

“Bid Flow Down” A bid for a higher quality service will automatically be considered

to be used for any lower quality services.


Linear Program Formulation Objective Function

Maximize Economic Value Minimize As Bid Costs As Bid Costs = ∑(bid price for selected A/S)*(quantity procured for

selected A/S) (sum over all struck bids) Key Constraints

(1) Meet required amount of RegUp (2) Meet required amount of RRS (3) Meet required amount of NSRS (4) Don’t exceed bid amounts

Key Assumption (“Bid Flow Down”) A bid for a higher quality service will automatically be considered to

be used for a lower quality service.


Linear Program Formulation, cont.

Determination of MCPCs:

MCPC for RegUp will be equal to shadow price of constraint (1) This represents the cost of procuring another incremental unit of RegUp

MCPC for RRS will be equal to shadow price of constraint (2) This represents the cost of procuring another incremental unit of RRS

MCPC for NSRS will be equal to shadow price of constraint (3) This represents the cost of procuring another incremental unit of NSRS

Payment to Suppliers

Each selected bid is paid the MCPC of the service for which it was selected or the MCPC of any higher quality service for which it was bid, whichever is higher.


Example 1 : Setup Requirements (Assume no RegUp):

RRS => 500 MW needed NSRS => 500 MW needed

Bids: For RRS or NSRS:

600MW @ $10/MW 100MW @ $15/MW 200MW @ $100/MW

For NSRS only: 200MW @ $5/MW 300MW @ $20/MW


Example 1 : Auction Results Under Current ERCOT Procedure RRS cleared first:

All 500MW procured from $10/MW bid MCPC for RRS = $10/MW – paid to selected bid

NSRS cleared next (remaining RRS bids can be used here) 200MW procured from $5/MW bid 100MW procured from $10/MW bid 100MW procured from $15/MW bid 100MW procured from $20/MW bid MCPC for NSRS = $20/MW – paid to selected bids


The Effect of Price Reversals: Over Time, Bids “Flee” to Lower Quality Services

Original bids: For RRS or NSRS:

300MW @ $10/MW 100MW @ $15/MW 200MW @ $100/MW

For NSRS only: 200MW @ $5/MW 300MW @ $20/MW

Revised bids after observing high NSRS MCPC: For RRS or NSRS:

300MW @ $10/MW 100MW @ $15/MW 200MW @ $100/MW

For NSRS only: 200MW @ $5/MW 300MW @ $10/MW 300MW @ $20/MWNew MCPC for RRS: $100, for NSRS: $10

Price reversals incentivize inefficient use of resources


Example 1 : Auction Results Under Simultaneous Optimization RRS procurements:

400MW procured from $10/MW bid 100MW procured from $15/MW bid MCPC for RRS = $20/MW – paid to selected bids

NSRS procurements: 200MW procured from $5/MW bid 200MW procured from $10/MW bid 100MW procured from $20/MW bid MCPC for NSRS = $20/MW – paid to selected bids

Simultaneous selection provides incentives for efficient use of resources


Example 2 : Setup

Requirements RegUp => 150 MW needed

RRS => 400 MW needed

NSRS => 300 MW needed

Bids: For RegUp, RRS, or NSRS:

150MW @ $30/MW

150MW @ $25/MW

100MW @ $10/MW

80MW @ $5/MW

Bids, cont: For RRS or NSRS:

110MW @ $20/MW

50MW @ $15/MW

50MW @ $10/MW

75MW @ $9/MW

For NSRS only:

100MW @ $14/MW

75MW @ $13/MW

75MW @ $10/MW

75MW @ $5/MW


Bid ID

MW$/

MWReg Up

RRS NSRSMW picked for RegUp

MW Picked for RRS

MW Picked for NSRS

Total MW Picked

1 150 30 1 1 1 - - - -

2 150 25 1 1 1 - 85 - 85

3 100 10 1 1 1 70 30 - 100

4 80 5 1 1 1 80 - - 80

5 110 20 0 1 1 - 110 - 110

6 50 15 0 1 1 - 50 - 50

7 50 10 0 1 1 - 50 - 50

8 75 9 0 1 1 - 75 - 75

9 100 14 0 0 1 - - 75 75

10 75 13 0 0 1 - - 75 75

11 75 10 0 0 1 - - 75 75

12 75 5 0 0 1 - - 75 75

Example 2 : Solution


Example 2: Solution, cont. MWs awards are actually the same using either

sequential or simultaneous selection MCPCs under sequential selection:

RegUp = $10/MW RRS = $25/MW NSRS = $14/MW

MCPCs under simultaneous selection: RegUp = $25/MW RRS = $25/MW NSRS = $14/MW


Questions on Simultaneous Optimization?


Application of Competitive Solution Method The steps & logic used to apply the

Competitive Solution Method would be unchanged from those proposed for the current A/S selection procedure.

The mechanisms for applying each step are revised to fit with simultaneous selection.


Step 1a: Test the sufficiency

of the bid stacks

< 115%

?

yesStep 3:

Compute MCP Limit

Step 1b: Test the impact of pivotal

bidders

Pivotal bidders impact MCPC?

no

no

yes

STOP: No mitigation needed

STOP: Set Mitigated MCP = min [MCP Limit,

Unmitigated MCP]

Application of Competitive Solution Method

Step 2: Post Indicative MCP &

Extend Day-ahead Market

Pass Competitive Suff. Test

now?

yes

no

Co

mp

etitive

Su

fficien

cy Te

st

(This diagram doesn’t show the OOM mechanism used for cases of insufficient bid stack.)


Step 1a: Test the sufficiency of the bid stacks:

Is RegUp Bid Stack < 1.15*(RegUp Requirement)?

Is (RegUp+RRS) Bid Stack (net of RegUp Requirement) < 1.15*(RRS Requirement)?

Is (RegUp+RRS+NSRS) Bid Stack (net of RegUp+RRS Requirement) < 1.15*(NSRS Requirement)?

If any of these is true, then the 115% test fails.



Application of Competitive Solution Method Step 1b: Determination of Pivotal Bidders

Will removal of all offers from a single bidder result in a deficiency in RegUp, (RegUp+RRS), or (RegUp+RRS+NSPR)?

Step 1b: Test the impact of pivotal bidders Remove offers of pivotal bidder(s) and subtract pivotal

bidders’ awards from corresponding requirements.

Re-solve optimization.

If MCP(s) change from the original values, then pivotal bidders do impact the MCPC.


Competitive Solution Method

Step 3: Compute MCP Limits

Remove offers of pivotal bidder and subtract pivotal bidders’ awards from corresponding requirements.

Remove highest priced 5% from remaining bids

Re-solve simultaneous optimization and determine MCP limits = 1.5*(shadow prices for modified problem)


Step 1a: Test the sufficiency

of the bid stacks

< 115%

?

yesStep 3:

Compute MCP Limit

Step 1b: Test the impact of pivotal

bidders

Pivotal bidders impact MCPC?

no

no

yes

STOP: No mitigation needed

STOP: Set Mitigated MCP = min [MCP Limit,

Unmitigated MCP]


Step 2: Post Indicative MCP &

Extend Day-ahead Market

Pass Competitive Suff. Test

now?

yes

no

Co

mp

etitive

Su

fficien

cy Te

st

(This diagram doesn’t show the OOM mechanism used for cases of insufficient bid stack.)


Questions?

important concepts in prr 342: simultaneous a/s selection

Documents

bid price

higher quality service

supplierseach selected

bid costsas bid costs

bid content

mw bid100mw

mw bidmcpc

bid appliesbid flow