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MCPE and Offer Cap/Floor Consistency, etc. Dan L. Jones Vice President Director, ERCOT IMM Potomac Economics ERCOT TAC/WMS Meeting Austin, Texas June 13, 2008. Background.

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Mcpe and offer cap floor consistency etc

MCPE and Offer Cap/Floor Consistency, etc.

Dan L. Jones

Vice President

Director, ERCOT IMM

Potomac Economics

ERCOT TAC/WMS Meeting

Austin, Texas

June 13, 2008


Background
Background

  • The objective in establishing the values for CSC shadow price caps (SPCs) has been to produce MCPE outcomes that remain within the bounds of the applicable offer cap

    • The initial SPCs were set at $2,500/MW when the offer caps were $1,000/MWh.

    • The strongest zonal shift factor difference is approx. 0.40.

    • It is no coincidence that 0.40 x $2,500 = $1,000

  • In 2007, the offer caps were raised to $1,500/MWh. Although we recognized the disconnect between the increased offer caps and the new offer caps, no change to the SPCs was proposed in 2007.

  • In 2008, the offer caps were raised to $2,250/MWh.

    • In January 2008, increased SPCs were proposed to realign the SPCs with the offer caps that were soon to be well in excess of the $1,000/MWh offer cap that formed the basis for the original SPCs.


5 600 mw spcs
$5,600/MW SPCs

  • The SPCs of $5,600/MW were proposed to align with the new $2,250/MWh offer caps effective March 1, 2008

    • Again, it is no coincidence that 0.40 x $5,600 = $2,240.

    • Although the offer caps have increased to $2,250, the offer floor in the ERCOT Protocols remains at ($1,000)/MWh.

    • Because of the new asymmetry in the offer caps and floors, it was observed that, although the new SPCs would result in maximum MCPEs generally within the bounds of the offer caps under all conditions experienced to date in the ERCOT market (more on this later), the new SPCs could result in MCPEs much lower than the offer floor (e.g., < ($2,000)/MWh.

    • An MCPE floor of ($1,000)/MWh was proposed to address this circumstance, but the WMS declined to endorse this recommendation


Mcpes well in excess of the offer caps
MCPEs Well in Excess of the Offer Caps

  • In May 2008, there were a handful of intervals in which two zonal constraints were simultaneously binding, one or more of which was unresolved.

    • To my knowledge, such conditions have never before existed in the ERCOT wholesale market.

    • Under these circumstances, the existing shadow price caps can result in MCPEs in the range of $4,500/MWh

    • Under more severe circumstances not yet experienced, some zonal MCPEs could exceed $6,000/MWh.

  • While such circumstances were known to mathematically possible, they were not contemplated based on experience.

  • Observing these extraordinary outcomes that are inconsistent with the original objective of producing MCPEs that remain within the bounds of the offer caps, we began analyzing solutions over a week ago to address these circumstances.


Proposed solution
Proposed Solution

  • Reduce the SPCs from $5,600 to $5,000/MW

    • The 0.40 zonal shift factor difference can be somewhat stronger in some months for some constraints.

    • Increasing gas prices have significantly increased the non-congestion component of all zonal MCPEs.

    • Both of these factors can lead to MCPEs greater than the offer caps even when only one zonal constraint is binding and unresolvable with the $5,600/MW SPC.

  • Impose an MCPE cap of $2,250/MW and a MCPE floor of ($1,000)

    • The caps and floors will only potentially come in to play when there is zonal congestion, and only when the MCPE would have otherwise exceeded $2,250/MWh or been less than ($1,000)/MWh.

    • The cap will most likely only be applied when there are two or more simultaneously binding constraints, one or more of which is unresolvable.

    • The floor may be applied when only one binding constraint exists.

    • These changes will not cause any resource to be dispatched at a price lower than its offer price.

    • Any time that an MCPE is subject to a cap or floor, ERCOT will be required to adjust the shadow prices to align with the adjusted MCPEs.


N s constraint nodal simulation
N-S Constraint Nodal Simulation

  • This is only a simulation of unresolvable congestion under nodal SCED. Actual results will vary.

  • It is fairly difficult to create a constraint that nodal dispatch cannot resolve.

  • Prices are high across the South and Houston Zones, but the $2,000+ prices are limited to a very small region.







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