INSULATING PRICE RESPONSIVE LOAD FROM RUC CAPACITY SHORT CHARGE

1. INSULATING PRICE RESPONSIVE LOAD FROM RUC CAPACITY SHORT CHARGE Mark W. Smith J. Kay Trostle August 2008 DSWG

2. BACKGROUND ON THIS ISSUE

3. What Is The Problem? • Consumers who want to meet some or all of their energy needs through the real-time market could be subject to unpredictable and potentially severe penalties (RUC Capacity Short Charge). • This could limit or eliminate loads’ ability to benefit financially from altering consumption in response to real-time prices

4. What Is The RUC Capacity Short-charge? • A charge to QSEs when ERCOT completes a Reliability Unit Commitment (RUC) study and finds (1) insufficient generation to meet projected demand and (2) payments otherwise available to Resources that are ordered to come on-line will not provide sufficient compensation.

5. The RUC Capacity Short Charge 5.7.4.1 RUC Capacity-Short Charge The dollar amount charged to each QSE, due to capacity shortfalls for a particular RUC, for a 15-minute Settlement Interval, is the QSE’s shortfall ratio share multiplied by the total RUC Make-Whole Payments, including amounts for RMR Units, to all QSEs for that RUC, subject to a cap. The cap on the charge to each QSE is two multiplied by the total RUC Make-Whole Payments, including amounts for RMR Units, for all QSEs multiplied by that QSE’s capacity shortfall for that RUC process divided by the total capacity of all RUC-Committed Resources during that Settlement Interval for the RUC process.

6. What Does ERCOT Rely On In Determining If There Is A Capacity Shortage? • Current operating plans for generating capacity • Generation Resources committed through the DAM • Resources committed to provide AS • Resources committed through previous RUCs • All of which is compared to the anticipated demand • Load Forecast Error will therefore heavily influence the frequency and amount of RUC procurement by ERCOT

7. How does ERCOT determine the QSE’s load for RUC purposes? • The RUC Shortfall in MW for a QSE is determined using actual real-time metered load at the settlement point during the intervals RUC’d units are deployed • The same settlement interval metered data is utilized for purposes of the RUC Snapshot at time of RUC procurement as a time of RUC deployment

8. How is the RUC Capacity Short Charge Assigned? • ERCOT identifies QSEs who have “not brought enough capacity to the table” • ERCOT assigns those “short” QSEs a share of the total costs of bringing additional Resources on-line • The RUC Make-Whole payment is subject to a cap if ERCOT commits more capacity in the RUC process than necessary to make up the capacity shortfall.

9. Who Is Responsible For Over-commitments Of Capacity By ERCOT? • ERCOT’s short-term load projections can err on the high side, i.e., QSE’s schedule may not be the cause of the over-commitment • Example – unanticipated change in weather • ERCOT has sole control of the RUC process and there is no way to predict an over-commitment error • Similarly, the amount of the short charge penalty is not predictable

10. Will Loads Have Advance Notice Of RUC Deployments? Yes. Loads will have anywhere from 15 minutes to several hours advance notice of an interval in which one or more RUC’d units are to be deployed. When a RUC is run and a capacity procurement occurs, that will be instantly posted on the ERCOT website and publicly available to all.

11. Does Advance Notice Of RUC Deployment Solve The Problem? Not necessarily. Don’t know how frequently the capacity short charge will occur Don’t know the likely magnitude of the charges Not knowing is in itself a disincentive to demand response in real time If RUC procurements occur with excessive frequency, loads cannot afford to be un-hedged.

12. Impact Of Penalty? Depends on frequency/magnitude of RUC charges Customers may avoid demand response in real-time in order to avoid RUC capacity short charges Loads may be forced into the Day-Ahead Market or into bilateral contract Fluctuating loads forced to over-procure in day ahead or in bilateral contract. Exacerbated by 1 hour procurement interval and 15 minute RUC interval. A credit is obtained for unused energy, but the price obtained in unknowable.

13. Options For Encouraging Demand Response In Real-Time 1. ELIMINATE THE RUC ALTOGETHER 2. EXEMPT PRICE-RESPONSIVE LOADS FROM RUC 3. ELIMINATE THE 2X PENALTY 4. APPLY A RUC CAPACITY SHORT CHARGE “CIRCUIT BREAKER” 5. IMPLEMENT NEW MECHANISMS TO ENCOURAGE PRICE RESPONSIVE LOAD

14. 1. Eliminate The RUC INVOLVES UPLIFTING ALL SHORT INTERVALS IGNORES THE MORE IMPORTANT PURPOSES INTENDED BY THE RUC PROCESS UNLIKELY TO OBTAIN CONSENSUS

15. 2. Exempt Price-Responsive Loads From RUC REQUIRES IDENTIFYING LOADS MAY REQUIRE TELEMETRY WOULD REQUIRE ERCOT MONITORING WOULD REQUIRE CHANGES IN SOFTWARE TIMING PROBLEM – WOULD NOT BE IMPLEMENTABLE BY NODAL START DATE

16. 3. Eliminate The 2X Penalty • EASY FIX – 5.7.4.1 RUC Capacity-Short Charge The dollar amount charged to each QSE, due to capacity shortfalls for a particular RUC, for a 15-minute Settlement Interval, is the QSE’s shortfall ratio share multiplied by the total RUC Make-Whole Payments, including amounts for RMR Units, to all QSEs for that RUC, subject to a cap. The cap on the charge to each QSE is two multiplied by the total RUC Make-Whole Payments, including amounts for RMR Units, for all QSEs multiplied by that QSE’s capacity shortfall for that RUC process divided by the total capacity of all RUC-Committed Resources during that Settlement Interval for the RUC process.   • DOES NOT REQUIRE ANY PROGRAMMING CHANGES. THE PENALTY IS A PLUG IN VARIABLE THAT CAN BE SET AT ANY NUMBER

17. 4. Implement a RUC Capacity Short Charge “Circuit Breaker” To protect against unexpected results regarding the amount and frequency of RUC charges, ERCOT should consider implementing a dollar and frequency cap on RUC capacity short charges allocated to QSEs following the opening of the Nodal market, beyond which the RUC costs would be uplifted in their entirety on a load ratio share basis pending the crafting of a more reasonable solution

18. 5. Implement New Mechanisms To Encourage Price Responsive Load DSWG should explore additional mechanisms for encouraging price responsive load One possible example - allowing interruptible loads to be RUC’d at a capacity surrogate price Another example – Implementation of negawatt bidding

19. DISCUSSION OTHER OPTIONS? NEXT STEPS?