December 2, 2011

QMWG

Summary of Potential Issues with NPRR385 Price Floor

ERCOT

2

NPRR 385 Negative Price Floor Proposal

• NPRR385 proposes the implementation of an administrative Real-Time Settlement Point Price floor of negative $251/MWH for Resource Nodes, Hubs and Load Zones.

• Since NPRR385 was filed there have been numerous discussions of potential issues that this presentation attempts to capture and provide some historical analysis

3

Issues Raised Related to NPRR385

• EDF and others expressed the concern that implementing an LMP negative price floor in RT Settlement can motivate inappropriate economic behaviors. – For example, it is possible to execute a bid/offer strategy between DAM and

RT that allows a trade entity to extract money from the ERCOT Markets with essentially no risk (refer to the EDF example posted to the RDTF list server)

– There have been both DAM and Real-Time prices below -$251 (see Appendix for Real-Time Price history)

• Concern about the application of the negative price floor at the Load Zone and Hub Settlement Points in RT.– These Settlement Points are highly liquid Settlement Points for

transactions including those in the DAM and, most likely, in commercial transactions that may not be conducted through ERCOT.

• Consideration of changes to Control Room procedure to assist in relief from negative LMPs– ERCOT drafting procedure for consideration

4

Issues Raised Related to NPRR385

• Consideration of setting Shadow Price Cap based on both positive and negative price events–

– Shadow Price Caps are applicable whenever a constraint is binding. Constraint Shadow Prices are limited by the Cap value.  Consequently, the LMP affected by a binding export constraint will be affected by the value of the Shadow Price Cap utilized in the RN RTLMP calculation.

• Consideration of setting a Separate Shadow Price Cap for “Generation Export” Constraints– This alternative is the same as the above but implies a need to identify a

class of “Generation Export” constraints that can be assigned a Shadow Price Cap unique to the negative price event.

• Consideration of applying the same LMP cap (−$251.00) in both the CRR/DAM/RT to enforce an arbitrage free requirement between these markets.  – Implementation of a negative LMP floor in the CRR Auctions, DAM and RT

will require reviews of impacts to system and potential market behavior• Consideration of using an appropriate Settlement adjustment to limit the

exposure to negative prices based on the a threshold amount for the RT-LMP and the Resource’s down ramp rate limitations.

5

APPENDIX

6

Negative SPP in RTM @ Load Zones and Hubs12/1/2010 – 10/04/2011

7

Summary of Negative RT-SPP Less Than −$251/MWH by Generation Resource Type

Terms

SI 15 minute Settlement Interval

CLIG Coal Lignite

CCGT90 Combine Cycle GT greater than 90 MW

CCLE90 Combined Cycle GT less than or equal to 90 MW

GSSSUP Gas Steam Super-Critical

GSREH Gas Steam Reheat

SCGT90 Simple Cycle GT greater than 90 MW

SCLE90 Simple cycle less than or equal to 90 MW

WGR Wind Generation Resource

RN Resource Node