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ERCOT Observations on NPRR320. Problem Statement. NPRR 320 introduced in response to clearing time issues in February 2011 Auction The issues that caused the long clearing time of the February auction have been identified and appear to be unrelated to the number of bids
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ERCOT Observations on NPRR320 http://nodal.ercot.com 1
Problem Statement • NPRR 320 introduced in response to clearing time issues in February 2011 Auction • The issues that caused the long clearing time of the February auction have been identified and appear to be unrelated to the number of bids • NPRR 320 would, however, address two other concerns • Submitted bids may break the 200,000 bid barrier soon, thus causing bid rationing • ERCOT concerned that RN-RN Options may be systematically underpriced • Definitely needs more study http://nodal.ercot.com 2
Bids per Auction http://nodal.ercot.com 3
More bids expected in BOY Auction • Need to shape hedges over the year • More months • More CRR Account Holders http://nodal.ercot.com 4
CRR AH per Auction http://nodal.ercot.com 5
Bid Limit Will Likely be Broken Soon • Bid rationing would limit each account holder to ~1400 bids • Could make the Auction too thin for good pricing • Could limit peoples ability to hedge contracts/positions • Trend indicates that setting a minimum bid price/effective minimum clearing price would help http://nodal.ercot.com 6
CRR Market is an Auction • $0 is not always the appropriate minimum price for an auction. • There are CRRs that are inherently hard to price well in the CRR Auction • Electrically close with normal breaker status, electrically distant with occasional breaker status http://nodal.ercot.com 7
Free CRRs Obtained in Monthly Auctions • Increasing trend • Extremely high in February • Entirely RN->RN
Not Clear that prices are converging • Potential that this is systematic due to presence/no minimum price of RN->RN options • Possible CRR Options that need prices is roughly (# settlement points)^2*number of auction periods • 750,000 for monthly • 4,500,000 for balance of year • 9,000,000 for annual • Only 200,000 bids available per auction. • Possibly difficult to appropriately price 750,000 things with 200,000 bids. • Particularly with electrically close source/sink • Will get worse with balance of year auction (4,500,000 possible options) • Potentially much worse if 200,000 bid limit is exceeded and rationing is put in place. • Needs more investigation http://nodal.ercot.com 10
Possible Solutions… • Minimum price on RN->RN options • Enables flexibility to converge to proper minimum price quickly. • Consider Delaying Balance of Year and Annual Auctions until this issue has been resolved • Eliminate CRR RN-RN Options as a product • Reduces number of CRRs that need prices to ~52,000 for Monthly, 306,000 for balance of year, 612,000 for annual. • Eliminate hard to price CRRs • Don’t allow CRRs for “electrically close” RN-RN • Difficult to codify http://nodal.ercot.com 11