CMWG Report Constraint Competitiveness Tests

1. CMWG ReportConstraint Competitiveness Tests 10/18/06

2. CMWG Action Assignment Requirement: Nodal Protocol Section 3.19 “Unless the Board approves changes, the “Competitive Constraints” are the contingency/limiting Transmission Element pairs that represent the Commercially Significant Constraints (CSCs) and Closely Related Elements (CREs), as those terms were defined in the ERCOT Protocols, immediately prior to Texas Nodal Market Implementation Date. The ERCOT Board may approve changes to the Competitive Constraints from time to time, whether before the Texas Nodal Market Implementation Date or after. An appropriate subcommittee approved by TAC (“TAC Subcommittee”) may develop an alternative list through the analysis described below for determining Competitive Constraints.” Action: TAC assigned this issue to WMS which subsequently requested CMWG review and consideration

3. CMWG TASKS Section 3.19(3): The TAC Subcommittee (WMS) shall perform the following analysis with the goal of developing an objective standard for determining Competitive Constraints: • (a) Contingency analysis – based on reasonable generation dispatch that would lead into a set of elements to be studied. • (b) Element Competitiveness Index (ECI) analysis - using the parameters described in Section 3.19.1, Annual Competitiveness Test; Section 3.19.2, Monthly Competitiveness Test; and Section 3.19.3, Daily Competitiveness Test. • (c) Initial analysis of the CSCs and CREs and additional proposed contingency/limiting Transmission Element pairs for possible modifications to their status as Competitive Constraint or non-competitive constraints will be completed prior to the Texas Nodal Market Implementation Date and subsequent analysis will be on-going. • (d) At a minimum, the ECI should be performed at least once per month and the results compared to the fixed competitive Transmission Element list. Based on the comparison, the TAC Subcommittee may evaluate alternative methodologies or alternative Competitive Constraints.

4. Why is this Important? • TNT drafted & the Commission approved a unique real time ex ante price mitigation process referred to as the “Texas 2-Step” • The process involves a 2-pass SCED application • In the first pass only constraints classified as competitive are active and capable of setting prices • In the second pass both the competitive and non-competitive constraints are active – the implemented prices that result from this step will reflect caps determined in pass 1. • For this process to be successful, the market must have a proven process for classifying constraints as either competitive or noncompetitive. • ECI is one such process but it is as yet not fully proven

5. Current Status & CMWG Plans • CMWG met 10/16 to review the ECI Analysis Methodology • ERCOT’s MMS Team reported their intent to submit to TPTF, as part of the MMS Business Requirements Documentation, a requirements document to address the Constraint Competitive Test (CCT) provisions in Section 3.19.1 through 3.19.3 in the form of the ECI. • CMWG scheduled its next meeting for November 1, 2006 for the purpose of: • Reviewing the ERCOT CCT Business Requirements Document • Discussing the need for the development of an ECI analysis based study tool as a precursor to the validation of the ECI Analysis described in Sections 3.19.1, Annual Competitiveness Test; 3.19.2, Monthly competitiveness Test; and 3.19.3, Daily Competitiveness Test. • Discuss future plans to address issues a) through d) in Section 3.19(3)