Day-Ahead Market (DAM) Clearing Process follow-up from February WMS

1. Day-Ahead Market (DAM) Clearing Process follow-up from February WMS Matt Mereness, ERCOT Manager DAM & CRR

2. Outline of Discussion from WMS regarding DAM OD 2/6/13 Two action items from WMS in Feb • What was the amount of load resource proration • Details and requirements of DAM Optimization Other observations • A/S linked offer summary • A/S trends since Feb 6 • MIP trend since NPRR322 implemented Feb 12 Appendix • Basic example of DAM Optimization in A/S shortage • Reminder of A/S trades and self-arrangement positions

3. Q1- WMS Load Proration Question for HE1 OD 2/6/13 • Question from WMS of how many Load Resources and MW were prorated in DAM for HE01 on Feb 6 • Answer is that no Loads were prorated for HE01 • Some loads not fully awarded due to COP for Resources (HSL below Offer amount so only awarded up to HSL)

4. Q2- DAM DesignDAM design and objective function in protocols Protocols 4.5.1(4) The DAM uses a multi-hour mixed integer programming algorithm to maximize bid-based revenues minus the offer-based costs over the Operating Day, subject to security and other constraints, and ERCOT Ancillary Service procurement requirements. (a) The bid-based revenues include revenues from DAM Energy Bids and Point-to-Point (PTP) Obligation bids. (b) The offer-based costs include costs from the Startup Offer, Minimum Energy Offer, and Energy Offer Curve of any Resource that submitted a Three-Part Supply Offer, DAM Energy-Only Offers and Ancillary Service Offers.

5. Q2- DAM DesignDocumentation • DAM Requirements document from Go-Live posted at http://nodal.ercot.com/docs/pd/mms/index.html#req • From Appendix 1, DAM clearing mathematical function (see next slide for market clearing objective function) • Energy and A/S Prices both driven by shadow prices for next MW

6. Q2- DAM Design

7. Q2- DAM DesignDAM clearing process and analysis • DAM engine – Unit commitment creates potential commitment patterns/solutions, then sends to network security analysis. • Based on the results, adjusts commitment pattern • Continues to iterate until all violations are resolved and the solution meets all parameters, including the MIP threshold • As previously noted, the MIP gap/threshold represents the area wherein multiple possible solutions that meet the constraint set become equivalent and indistinguishable to the DAM engine • Once an acceptable solution is found and DAM converges, the final prices are calculated in a pricing run • All awards and prices sent to Price Validation Tool analysis and investigated and validated in parallel by DAM Operator • See appendix for basic market clearing and pricing example

8. Other Observations:A/S Linked Offer Summary Majority of online AS offers from generators (~75%) were not linked with Non-Spin on Feb 6 • Example is 50 MW capacity offering $10 RegUp and $8 RRS. Perhaps the QSE would also be willing to sell Non-Spin at $8 from the same capacity, but that is not reflected in the offer • No A/S substitution • More linked offers from online resources may have helped the non-spin scarcity in Hour 1

9. Other ObservationsA/S Offer trends since Feb 6 OffNon-Spin TREND

10. Other observations:MIP threshold since NPRR322 • MIP threshold is necessary because DAM is not a straight marginal dispatch problem • DAM solution is a combination of binary and continuous variables • Binary variable decisions (turning on a generation resource, awarding a fixed quantity block bid, etc.) are subject to an imperfect solutions within the MIP gap • Purpose of the DAM Make-Whole payment in the case of valid Three-Part Offers • Looks at total profit for the OD, however; doesn’t help if DAM extends the commitment by an hour when turning off sooner was more optimal, for instance • Continuous variable decisions (such as awarding an energy bid curve) are not subject to it and will always be consistent with the clearing prices • Binary variables for recent DAMs: approx 240 TPOs plus 50 fixed quantity bid/offers times the hours contained therein

11. Other Observations:MIP threshold • How MIP gap is calculated: • As each iteration completes, the engine runs a mini auction where all the binary variables become continuous (e.g., that a resource with a 200 MW LSL can be awarded just 0.1 MW) • This removes the lumpiness from the solution and provides a baseline to compare to the real solution • So the “optimal” solution that is used for comparison is one that is not feasible nor attainable, but it gives an indication of the current solution quality.

12. Other Observations:MIP Threshold Refinement since NPRR322 on Feb 12 MIP TREND

13. APPENDIX

14. Example with Linked AS Capacity Simplified example to illustrate price effect from linking AS capacity in AS Offers:

15. Reminder of Mechanics of AS Trades = QSE AS Obligation - Self-Arranged AS submitted AS amount ERCOT buys in DAM for QSE = + QSE AS Responsibility Total DAM AS Offer awards Total SASM AS Offer awards Self-Arranged AS + AS sold in Trades - AS bought in Trades