Urgent Need to Fix Reliability Deployment Price Adder (RDPA)

1. Urgent Need to Fix Reliability Deployment Price Adder (RDPA) Shams Siddiqi, Ph.D. Representing Rainbow Energy Marketing Corporation (512) 619-3532 shams@crescentpower.net QMWG Meeting December 3, 2018

2. Serious Flaws with Current RDPA • ERCOT presentation points out SERIOUS FLAWS with the current implementation of the Reliability Deployment Price Adder (RDPA) • Urgent need to fix these flaws regardless of whether we implement NPRR904 or the draft NPRR that produces Locational RDPA (or let’s call it Reliability Adjusted LMP or RALMP). • The current RDPA is pretty much an arbitrary number since: • The LDL relaxation of all other resources can result in a high RDPA even if ERCOT-Directed Capacity (EDC) deployments have no impact. • The HDL relaxation of all other resources can result in a zero RDPA even if EDC deployments have huge impact. • RDPA is highly dependent on choice of Reference Bus.

3. Proposed Solution • Proposed solution to fix these fatal flaws is as follows: • Relax the EDC as described in the Protocols, but DO NOT relax LDL for any resource and HDL for any resource that is at HDL – only relax the HDL of resources that not at HDL (i.e. Base Point < HDL) [this is to address any ramping concerns if necessary]. • SCED Step 3: Except for offer curves for EDC which would be as described in the Protocols, use the Step 2 Mitigated Offer Curves (MOC) for all other resources and model all constraints as in Step 2. [If only slight or no changes in EDC dispatch results, then the outcomes of Step 3 should be identical to Step 2.] • SCED Step 4: For EDC only, cap their offers into Step 3 by the LMP at their Node from Step 3 (minus a small number) and rerun SCED with these new mitigated offers. [Explanation: say EDC offer in Step 2 is $1,500/MWh and shift factor of 0.1 on a constraint with shadow price cap of $3,000/MWh with System Lambda at $100/MWh. Then, Step 2 would dispatch EDC to 0 and have a EDC Node LMP of $400/MWh with the constraint violated. By setting the EDC offer curve to say $399/MWh, the EDC would then be dispatched in Step 3 up to the minimum MWs required to not violate the constraint and prices elsewhere would be reduced from Step 3 prices due to this increased EDC dispatch.]

4. Proposed Solution - RALMP • Eliminate excessive payments to generators that hurt or do not help resolve the constraint while paying too little to generators resolving the constraint – which are then paid makewhole payments. • Thus, determine Reliability Adjusted LMP (RALMP) for each Settlement Point based on SCED Step 4 prices – this eliminates unnecessary excessive payments to most generators while likely eliminating any EDC related makewhole payment (more likely to result in credits to load from clawback) and sends strong local price signals.

5. Example 1b – LDL Relaxation Only the LDL of G1 Relaxed with Ref. Bus 2-3 Ref. Bus Limit = 50MW L1 G1 L2 G2 L3 G3 RUC-Instructed Resource

6. Example 1b – LDL Relaxation Only the LDL of G1 Relaxed with Ref. Bus 1 Ref. Bus Limit = 50MW L1 G1 L2 G2 L3 G3 RUC-Instructed Resource

7. Example 1b – LDL Relaxation Only the LDL of G1 Relaxed with Load-Weighted Ref. Bus Limit = 50MW L1 G1 L2 G2 L3 G3 RUC-Instructed Resource

8. Ex.: Problems with Current RDPA • RDPA varies from $0.25/MWh for Ref. Bus 2-3 to $49.75/MWh for Ref. Bus 1 to $12.29/MWh for load-weighted Ref. Bus. • ERCOT uses load-weighted Ref. Bus – so $12.29/MWh that is paid by all load and paid to all generators. G2 and G3 make a pure profit windfall of $12.29/MWh while being on the “wrong” side of the constraint. G1 is paid $37.54/MWh – below its operating cost of $75/MWh – and thus receives a makewhole payment of $37.46/MWh. • Thus all load not only pays LMP+RDPA of $37.54/MWh but also a makewhole payment to G1=$37.46/MWh*200MW=$7,492.00 • There is NO local price signal – the price is the same throughout the system

9. Ex.: Proposal v. Current RDPA • Accurate Local price signal under Proposed Solution (independent of choice of Ref. Bus): • RALMP1=$75/MWh • RAMLP2-3=$25.50/MWh • With single load zone, RALMP-LZ=$37.54/MWh • With two LZs, the prices would be RALMP1 and RALMP2. • With RUC, there would be clawback of profit from G1 (credited to load) • Settlement (ignoring clawback): • Load=925*37.54=$34,725 • G1=-200*75=-$15,000 • G2&3=-725*25.50=$18,487.50 • Net=$1,237.50 • CRR1-2=50*(25.50-75)=-$2,475 • Shortfall=$1,237.50 • Shortfall under current RDPA=200*37.46=$7,492.00