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Resource Cost Working Group April 5, 2017 WMS Update

This resource cost working group update discusses the background, options, and proposed solutions for mitigating exceptional fuel events in real-time. It also addresses the treatment of fuel cost components in the fuel adder and proposes a long-term solution to the coal index price.

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Resource Cost Working Group April 5, 2017 WMS Update

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  1. Resource Cost Working Group April 5, 2017 WMS Update

  2. Real-Time Mitigation During Exceptional Fuel Events Background: • On certain days in February and March 2014 (Polar Vortex), some Resources were mitigated in real-time to below their actual cost due to large differences between FIP and their actual gas price • NPRR664 implemented a manual Real-Time Make-Whole Payment process for exceptional fuel events that expired May 1, 2015 • Also provided for a resource-specific Fuel Index Price (FIPR) of HSC, Waha or weighted-average • NPRR714 extended the manual process for Make-Whole with a sunset date of 6/1/17

  3. Real-Time Mitigation During Exceptional Fuel Events Background (continued): • TAC assignment to investigate alternatives to NPRR664 • Prefer exceptional fuel costs in LMPs to avoid make-whole and uplift, but also concerned with incorrect LMPs • RCWG/WMS have discussed several options without reaching consensus • Option 1: Continue with existing Real-Time Make-Whole Payment • Option 2: Pursue “Exceptional Fuel Cost flag” concept • Option 3: Increase MOC’s during Cold Weather Events • ERCOT has proposed a new revised option

  4. Real-Time Mitigation During Exceptional Fuel Events • ERCOT proposed new option • During an exceptional fuel event, QSEs could submit a weighted average intraday fuel price (WAFP) to ERCOT, similar to TPO submittals • ERCOT would use the WAFP in the MOC calculation • After the event, QSEs would provide documentation of the WAFP to ERCOT for verification, including attestation by an officer • ERCOT developing NPRR and will submit to PRS • RCWG expects to review the NPRR when assigned by WMS

  5. Fuel Cost Components in the Fuel Adder Issue: • TAC assignment to WMS to RCWG • Review appropriate treatment of fixed costs such as pipeline capacity charges and penalties in the Fuel Adder Background: • Fuel Adder is used in calculation of Mitigated Offer Caps and RUC Make-whole payments • Default is $0.50/MMBtu, but a Resource can elect to submit an “actual” fuel adder, subject to verification by ERCOT • Fuel costs can include a number of non-commodity components, such as costs for transportation, storage, etc.

  6. Fuel Cost Components in the Fuel Adder Status: • RCWG has thoroughly discussed the issue and did not reach consensus on a recommendation for changes to the Fuel Adder. • Although there were concerns expressed with the potential for fixed-costs in the Fuel Adder, there were also concerns with broader market design issues. • And no market participant has put forth an NPRR or VCMRR proposing changes to fuel cost components in the Fuel Adder at this time. • RCWG considers this action item Complete, subject to WMS agreement

  7. Long-Term Solution to Coal Index Price • VCMRR014 provided an interim solution • $1.10 fuel adder for coal and lignite resources that is added to the $1.50 Solid Fuel Price • Sunsets 6/1/18 • RCWG reviewed ERCOT’s revised draft NPRR for Coal Fuel Index Price • “CFIP” Coal Fuel Index Price: “Delivered to ERCOT” index price based on PRB 8400 coal plus rail transportation • $0/MMBtu fuel adder for coal and lignite • ERCOT planning to submit the NPRR to PRS

  8. NPRR 816 Clarification of Definitions of FIP and FOP • NPRR 816 modifies FIP and FOP definitions to support procurement of FIP and FOP indices from more than one vendor • RCWG discussed the NPRR and determined that the existing protocol language appears sufficient • ERCOT considering withdrawing the NPRR

  9. WMS Open Action Items for RCWG

  10. APPENDIX

  11. Exceptional Fuel Costs in Real-Time Mitigated Offer Cap • Proposal for modifying the Mitigated Offer Cap • The Mitigated Offer Cap (MOC) can be modified such that it incorporates exceptional fuel costs to ensure LMPs reflect the incremental cost of intraday fuel (if included in EOC). • The MOC can be modified as follow: • The greater of: • [Generic Heat Rate * FIP, • {IHR * Max [(FIP + FA), WAFP] + O&M} * Multiplier] • Where, • WAFP($/MMBtu) = For the affected period, fuel cost based on the actual exceptional fuel prices, weighted by applicable volumes.

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