Money Transfer Due to Real-Time Irresolvable Constraint

Resmi SurendranERCOT

Hedging Instruments : Congestion Revenue Rights & PTP Bid in DAM

• Outside ERCOT : Bilateral Trade/Contract for Differences• Inside the market : PTP Obligation in CRR Auctions vs. DAM PTP Obligation

The purchase of Congestion Revenue Rights (CRRs) in the forward CRR market allows loads and generators to hedge delivery price risk in Day Ahead.Participation to DAM minimizes the exposure to RTSPP volatility. The purchase of PTP Obligation in DAM allows loads and generators to hedge the delivery price risk in RT.

Interaction between Markets

• The DA prices are based on the estimate of the expected RT energy costs. In long run, the DASPP and RTSPP should converge.

• The value of CRRs are based on the estimate of the expected congestion costs on the purchase path. – The net amount paid for CRR ownership in auction should converge to

the net amount received in DAM by account holder for their CRR. – The net amount paid for PTPs in DAM should converge to the net

amount received in RT by QSE for their PTP• Under ideal conditions ( Markets converged)

– CRR Auction Revenue = DAM CRR payout = DAM ptp charge = RT congestion rent1 (complete hedging)

– DAM SPP = RT SPP – CRR+DAM+RT settlements = settling everything in RT

Impact of Irresolvable Constraint

• When the constraint is not resolved in SCED, the Shadow Price increases to the max Shadow Price

• SPP at receiving end increases and SPP at sending end decreases in RT.

• Loads will settle RT imbalance at a higher price• Payment/ charge for PTP obligations and options in RT increases. • If the congestion is sustained

– DASPP and forward prices at the receiving end will increase – PTP cost and the CRR cost will increase

• Loads at the receiving end directly/indirectly pay for the congestion.

Observations– The higher Load Zone price due to congestion will likely be

reflected in the forward price for energy at the Load Zone. – Loads receive from CRR Auction revenue1, DAM balancing

account and RT revenue neutrality based on their ERCOT wide LRS 2 and not based on how much they paid for their load. Hence , the amount might not be enough to compensate for the congestion rent amount paid by each load.

– The effect of the revenues from CRR Auction is to hedge the congestion costs associated with the delivery of the energy. However, this action cannot be viewed as resulting in a hedge against the increase in the purchase price of energy arising from constraint violation.

– Loads at the receiving end will have to settle RT imbalance at a higher price

Example 1 – RTM only

Assume no DAM and no CRR. All the

energy bought/sold in real-time

No DAM, No CRR : All energy settle d in RT Settlement Market Settlement Type G1 G2 L1 L2 TOTALCRR Auction Settlement Charge for CRR purchased in CRR Auction or PCRR 0 CRR Auction Settlement CRR Auction Revenue Distribution 0 DAM Settlement Day-Ahead Energy Charge or Payment 0 DAM Settlement Charge for PTP Obligation bought in DAM 0 CRR Settlement Day-Ahead CRR Payment or Charge 0 CRR Settlement CRR Balancing Account Distribution 0 RT Settlement Real-Time Energy Imbalance Charge or Payment (55,000) (125,000) 50,000 250,000 120,000 RT Settlement Real-Time PTP obligation payment RT Settlement Real-Time Revenue Neutrality Allocation (100,000) (20,000) (120,000) Net Charge or Payment (55,000) (125,000) (50,000) 230,000 0

Example 2 – RTM & DAM with price converge

Assumption•DASPP & RTSPP converge•QSE fully hedge in DAM, i.e. the RT energy flow is the same as DAM awards

Note: 1)Zero energy imbalance to be settled in real-time. All the energy is settled in day-ahead.2)DASPP & RTSPP converges, the net settlement amount is the same as settled in RT.

No CRR, just DA & RT, price converged and fully hedge Settlement Market Settlement Type G1 G2 L1 L2 TOTALCRR Auction Settlement Charge for CRR purchased in CRR Auction or PCRR 0 CRR Auction Settlement CRR Auction Revenue Distribution 0 DAM Settlement Day-Ahead Energy Charge or Payment (55,000) (125,000) 50,000 250,000 120,000 DAM Settlement Charge for PTP Obligation bought in DAM 0 0 0 0 0 CRR Settlement Day-Ahead CRR Payment or Charge 0 CRR Settlement CRR Balancing Account Distribution 0 0 (100,000) (20,000) (120,000)RT Settlement Real-Time Energy Imbalance Charge or Payment 0 0 0 0 0 RT Settlement Real-Time PTP obligation payment 0 0 0 0 0 RT Settlement Real-Time Revenue Neutrality Allocation 0 0 0 0 0 Net Charge or Payment (55,000) (125,000) (50,000) 230,000 0

Example 3 – RTM + DAM; price converge; fully hedge in DAM with PTPBID

Assumption•DASPP & RTSPP converge•L2 buy 200 MW PTPBID from zone1 to zone2. No energy bid by L2 in DAM.

No CRR, just DA & RT, price converged & fully hedge with PTPbid Settlement Market Settlement Type G1 G2 L1 L2 TOTALCRR Auction Settlement Charge for CRR purchased in CRR Auction or PCRR 0 CRR Auction Settlement CRR Auction Revenue Distribution 0 DAM Settlement Day-Ahead Energy Charge or Payment (45,000) (125,000) 50,000 0 (120,000)DAM Settlement Charge for PTP Obligation bought in DAM 0 0 0 240,000 240,000 CRR Settlement Day-Ahead CRR Payment or Charge 0 CRR Settlement CRR Balancing Account Distribution 0 0 (100,000) (20,000) (120,000)RT Settlement Real-Time Energy Imbalance Charge or Payment (10,000) 0 0 250,000 240,000 RT Settlement Real-Time PTP obligation payment (240,000) RT Settlement Real-Time Revenue Neutrality Allocation 0 0 0 0 0 Net Charge or Payment (55,000) (125,000) (50,000) 230,000 0

Example 4 – RTM + DAM + CRR with price converge

Assumption•DASPP & CRR auction clearing price is the same•L2 buy 100 MW CRR from zone 1 to zone 2•DASPP & RTSPP converge•QSE fully hedge in DAM

Note: 1)Zero energy imbalance to be settled in real-time. All the energy is settled in day-ahead.2)Zero CRR balancing account. All the DAM congestion rent refund to CRR account holder.3)From example 1-4, if the price converges. Participation in different market will yield the same results.

DA & RT & CRR, price converged & fully hedge Settlement Market Settlement Type G1 G2 L1 L2 TOTALCRR Auction Settlement Charge for CRR purchased in CRR Auction or PCRR 120,000 120,000 CRR Auction Settlement CRR Auction Revenue Distribution (100,000) (20,000) (120,000)DAM Settlement Day-Ahead Energy Charge or Payment (55,000) (125,000) 50,000 250,000 120,000 DAM Settlement Charge for PTP Obligation bought in DAM 0 0 0 0 0 CRR Settlement Day-Ahead CRR Payment or Charge (120,000) (120,000)CRR Settlement CRR Balancing Account Distribution 0 0 0 0 0 RT Settlement Real-Time Energy Imbalance Charge or Payment 0 0 0 0 0 RT Settlement Real-Time PTP obligation payment 0 0 0 0 0 RT Settlement Real-Time Revenue Neutrality Allocation 0 0 0 0 0 Net Charge or Payment (55,000) (125,000) (50,000) 230,000 0

Example 5 – RTM + DAM; price not converge but fully hedge in DAM

Assumption•DASPP & RTSPP are different•QSE fully hedge in DAM

Note: 1)Zero energy imbalance to be settled in real-time. All the energy is settled in day-ahead.2)Since the DASPP is lower than RTSPP in zone 2, the L2 pay less with DASPP compared to RT

DA & RT, price NOT converged but fully hedge Settlement Market Settlement Type G1 G2 L1 L2 TOTALCRR Auction Settlement Charge for CRR purchased in CRR Auction or PCRR 0 CRR Auction Settlement CRR Auction Revenue Distribution 0 DAM Settlement Day-Ahead Energy Charge or Payment (55,000) (12,500) 50,000 25,000 7,500 DAM Settlement Charge for PTP Obligation bought in DAM 0 0 0 0 0 CRR Settlement Day-Ahead CRR Payment or Charge 0 CRR Settlement CRR Balancing Account Distribution 0 0 (6,250) (1,250) (7,500)RT Settlement Real-Time Energy Imbalance Charge or Payment 0 0 0 0 0 RT Settlement Real-Time PTP obligation payment RT Settlement Real-Time Revenue Neutrality Allocation 0 0 0 0 0 Net Charge or Payment (55,000) (12,500) 43,750 23,750 0

Example 6 – RTM + DAM; price not converge; partially hedge in DAM

Note: 1)L2 gets charged 150 MW at DASPP, and 50 MW energy imbalance at RTSPP2)G1 receives payment 1050 MW at DAPP, and 50 MW energy imbalance at RTSPP

Assumption•DASPP & RTSPP are different•QSE not fully hedge in DAM, i.e. L2 only buy 150 MW in DAM•G1 sell 1050 MW in DAM

DA & RT, price NOT converged & partial hedge Settlement Market Settlement Type G1 G2 L1 L2 TOTALCRR Auction Settlement Charge for CRR purchased in CRR Auction or PCRR 0 CRR Auction Settlement CRR Auction Revenue Distribution 0 DAM Settlement Day-Ahead Energy Charge or Payment (52,500) (12,500) 50,000 18,750 3,750 DAM Settlement Charge for PTP Obligation bought in DAM 0 0 0 0 0 CRR Settlement Day-Ahead CRR Payment or Charge 0 CRR Settlement CRR Balancing Account Distribution 0 0 (3,125) (625) (3,750)RT Settlement Real-Time Energy Imbalance Charge or Payment (2,500) 0 0 62,500 60,000 RT Settlement Real-Time PTP obligation payment RT Settlement Real-Time Revenue Neutrality Allocation 0 0 (50,000) (10,000) (60,000) Net Charge or Payment (55,000) (12,500) (3,125) 70,625 0

SettlementsBOD ReportRevenue Neutrality Slide

Payments made to Resources for Energy not sold in DAM

Cost to Load for Energy not bought in DAM

Net RTM cost of DAM purchases (pmt) or sales (chg) in DAM

Payments for RTM energy that was hedged in DAM or CRR Auction

Net of all Imbalances is cost of System Congestion

Netting of all inputs (Revenue Neutrality) is the cost of Un-hedged System Congestion

Payments for DC Tie Imports

BOD ReportCongestion Management Slide

BOD ReportEnergy Settlement Slide

Settlements