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Review of Proposed Zonal Market Improvements

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The ERCOT Board of Directors convened on February 17, 2009, to discuss proposed enhancements to the zonal market identified by Potomac Economics. Following a review initiated in Q3 2008, three key recommendations were put forth: PRR 601 for better ramp rate utilization, PRR 776 for improved pricing during non-spinning reserve deployments, and PRR 791 for efficient pricing during system shortages. Implementing these recommendations promised substantial improvements in market efficiency and reliability, particularly during stress conditions.

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Review of Proposed Zonal Market Improvements

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  1. Review of Proposed Zonal Market Improvements ERCOT Board of Directors Meeting February 17, 2009 Dan L. Jones Potomac Economics Vice President Director, ERCOT IMM

  2. Background • Given the delay in the implementation of the nodal market, Potomac initiated in Q3 2008 a review of potential zonal market improvements • More than a dozen potential improvements were identified, many of which would involve substantial system modifications • Three recommendations with potentially low system impact and significant market efficiency improvements were presented to WMS • More efficient pricing during non-spinning reserve deployments (PRR 776) • More efficient pricing during system shortage conditions (PRR 791) • Improved dispatch efficiency by better ramp rate utilization (PRR 601)

  3. PRRs 601, 776 and 791 • Each of these PRRs will improve market efficiency • PRRs 601 and 776 will reduce the frequency of inefficient price spikes during non-shortage conditions • PRR 791 will increase the probability of efficient price spikes during shortage conditions (relative to actual market performance, but not relative to the expectations in P.U.C. Subst. R. 25.505) • Each of these PRRs will enhance system reliability • PRR 601 will: • reduce the frequency of portfolio ramp rate violations • increase the availability of dispatchable energy during times of system stress • PRR 776 will: • provide more timely access to non-spinning reserves • facilitate increased participation in the NSRS market by load resources (historical load participation in NSRS has been essentially zero) • provide ex ante pricing during NSRS deployments that will better facilitate supply and demand response (currently MCPEs during NSRS deployments are re-calculated and posted 1-3 days following the operating day) • PRR 791 will: • reliably produce prices during shortage conditions that provide incentives for supply and demand supporting short- and long-term reliability • reliably produce prices during shortage conditions as anticipated and within the bounds of the parameters established in P.U.C. Subst. R. 25.505

  4. IMM Position • Ideally, PRRs 601, 776 and 791 should all be implemented as soon as possible to capture the associated efficiency improvements and reliability enhancements for the duration of zonal market operations • Significant effort has been devoted to PRRs 776 and 791 to minimize implementation costs and system impacts • PRR 601 may be more challenging from a system impact perspective – for both ERCOT and QSE systems • If a decision is made to forego implementation of PRR 601, PRRs 776 and 791 should still be implemented

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