Recovery, Charges, and Settlement: NPRR1086 Updates

NPRR1086: Recovery, Charges, and Settlement for Operating Losses During an LCAP Effective Period ERCOT Public PRS Meeting July 21, 2021

PUCT Order in Project 51871 NPRR1086, Recovery, Charges, and Settlement for Operating Losses During an LCAP Effective Period, was filed by ERCOT in order to comply with the changes to substantive rule 25.505, Scarcity Pricing Mechanism, in Project 51871 2 PUBLIC

NPRR1086 ERCOT Comments (July 20, 2021) Following some additional discussion and review, ERCOT is recommending the following changes to NPRR1086: Added a missing sum function to OPLCAPTOT, in paragraph (1) of Section 6.8.3.1, Charges for Capacity Shortfalls During an LCAP Effective Period. Clarify under Section 6.8.1, Determination of Operating Losses During an LCAP Effective Period, the following: Fuel prices may include all variable costs associated with the purchase, transportation, and storage of fuel. The payment for operating losses applies only when the Real-Time Settlement Point Price for the Resource is equal to or exceeds the Low System-Wide Offer Cap (LCAP) per PUCT order in Project 51871. 3 PUBLIC

PUCT Order in Project 51871: Review of the ERCOT Scarcity pricing Mechanism (g)(7) Reimbursement for Operating Losses when the LCAP is in Effect When the system-wide offer cap is set to the LCAP, ERCOT must reimburse resource entities for any actual marginal costs in excess of the larger of the LCAP or the real-time energy price for the resource. ERCOT must utilize existing settlement processes to the extent possible to verify the resource entity s costs for reimbursement. 4 PUBLIC

Calculations of Reimbursement for Operating Losses when the LCAP is in Effect Payment for operating losses during an LCAP Effective Period is calculated as follows: OPLPAMT i = (-1) * (OPL + ADJOPL) OPLAMT = operating losses payment ($) OPL = operating losses ($) ADJOPL = operating losses adjustment ($) i = 15-minute Settlement Interval For the Generation Resource OPL i = Max(0, (AMC - Max(LCAP, RTSPP)) * Min(RTMG, MEP)) AMC = AHR * WAFP + ROM MEP = AMF / AHR AMC = actual marginal cost ($/MWh) AHR = average heat rate (MMBtu/MWh) WAFP = weighted average fuel price ($/MMBtu) ROM = variable O&M ($/MWh) MEP = marginal energy production (MWh) AMF = actual marginal fuel (MMBtu) RTMG = Real-Time metered generation (MWh) 5 PUBLIC

Example 1: Fuel purchased to operate Resource at HSL and dispatched to HSL Input/Output (I/O) data required for calculation of the operating losses (OPL): I/O = (a + bx + cx^2 + dx^3) AHR = (I/O) / x x = output level (MW) OPL i= Max[0 , (AMC - Max(LCAP , RTSPP )) * Min(RTMG , MEP)] For the calculation of the actual marginal cost (AMC) and the marginal energy production (MEP), ERCOT will use the appropriate average heat rate (AHR). 6 PUBLIC

Example 1: Fuel purchased to operate Resource at HSL and dispatched to HSL (cont d) PRIOR TO LCAP PUCT order (FIP=$300/MMBtu, LCAP=50*FIP=$15,000/MWh): Total Fuel Purchased (MMBtu) Purchased Fuel 1 (MMBTU) Price Paid 1 ($/MMBtu) Purchased Fuel 2 (MMBTU) Price Paid 2 ($/MMBtu) WAFP ($/MMBtu) Total Fuel Cost ($) 1,093 400 100 250 387.43 1,193 $ 462,215 Interval int1 3,302 3,302 3,302 35 int2 3,302 3,302 3,302 35 int3 3,302 3,302 3,302 35 int4 3,302 3,302 3,302 35 RT-hourly REV Hourly OPLAMT Total Resource Payment $ $ (462,215) $ (462,215) Marginal Cost ($/MWh) EOC ($/MWh) RTSPP ($/MWh) RTMG (MWh) - Payments - Fuel Costs $ - LSL HSL 50 140 50 140 50 140 50 140 AFTER LCAP PUCT order (LCAP=$2,000/MMBtu): Total Fuel Purchased (MMBtu) 1,193 Purchased Fuel 1 (MMBTU) Price Paid 1 ($/MMBtu) Purchased Fuel 2 (MMBTU) Price Paid 2 ($/MMBtu) WAFP ($/MMBtu) Total Fuel Cost ($) 1,093 400 100 250 387.43 $ 462,215 Interval AMC ($/MWh) EOC = LCAP ($/MWh) RTSPP ($/MWh) RTMG (MWh) MEP (MWh) int1 3,302 2,000 2,000 35.0 35.0 int2 3,302 2,000 2,000 35.0 35.0 int3 3,302 2,000 2,000 35.0 35.0 int4 3,302 2,000 2,000 35.0 35.0 RT-hourly REV Hourly OPLAMT Total Resource Payment $ $ $ (280,000) (182,215) (462,215) Payments - Fuel Costs $ - OPLAMT ($) $ (45,554) $ (45,554) $ (45,554) $ (45,554) COMPARISON OF FUEL COST NOT RECOVERED: Prior LCAP NPRR: After LCAP NPRR: Delta $ $ $ - - - LSL HSL 50 140 50 140 50 140 50 140 Resource recovers fuel costs in both scenarios: Prior to LCAP PUCT order through clearing prices After LCAP PUCT order through a mix of clearing prices and operating losses (OPLAMT) 7 PUBLIC

Example 2: Fuel purchased to operate Resource at HSL but SCED keeps the unit at LSL PRIOR TO LCAP PUCT order (FIP=$300/MMBtu, LCAP=50*FIP=$15,000/MWh): Total Fuel Purchased (MMBtu) Purchased Fuel 1 (MMBTU) Price Paid 1 ($/MMBtu) Purchased Fuel 2 (MMBTU) Price Paid 2 ($/MMBtu) WAFP ($/MMBtu) Total Fuel Cost ($) 1,093 400 100 250 387.43 1,193 $ 462,215 Interval int1 3,302 3,302 3,302 12.5 int2 3,302 3,302 3,302 12.5 int3 3,302 3,302 3,302 12.5 int4 3,302 3,302 3,302 12.5 RT-hourly REV Hourly OPLAMT Total Resource Payment $ $ (165,077) $ (165,077) Marginal Cost ($/MWh) EOC ($/MWh) RTSPP ($/MWh) RTMG (MWh) - Payments - Fuel Costs 297,138.02 $ <== Fuel cost not recovered LSL HSL 50 140 50 140 50 140 50 140 AFTER LCAP PUCT order (LCAP=$2,000/MMBtu): Total Fuel Purchased (MMBtu) 1,193 Purchased Fuel 1 (MMBTU) Price Paid 1 ($/MMBtu) Purchased Fuel 2 (MMBTU) Price Paid 2 ($/MMBtu) WAFP ($/MMBtu) Total Fuel Cost ($) 1,093 400 100 250 387.43 $ 462,215 Interval AMC ($/MWh) EOC = LCAP ($/MWh) RTSPP ($/MWh) RTMG (MWh) MEP (MWh) int1 5,792 2,000 2,000 12.5 35.0 int2 5,792 2,000 2,000 12.5 35.0 int3 5,792 2,000 2,000 12.5 35.0 int4 5,792 2,000 2,000 12.5 35.0 RT-hourly REV Hourly OPLAMT Total Resource Payment $ $ $ (100,000) (189,607) (289,607) Payments - Fuel Costs 172,607.90 $ <== Fuel cost not recovered OPLAMT ($) $ (47,402) $ (47,402) $ (47,402) $ (47,402) COMPARISON OF FUEL COST NOT RECOVERED: Prior LCAP NPRR: After LCAP NPRR: Delta 297,138.02 $ 172,607.90 $ (124,530.12) $ LSL HSL 50 140 50 140 50 140 50 140 <== Reduced Exposure for recovering fuel cost 8 PUBLIC

Capacity Short Uplift examples LCAPSFRS (%) = LCAP Shortfall Ratio Share OPLPAMTTOT ($) = Total Operating Losses Payment LCAPSF (MW) = LCAP Shortfall OPLCAPTOT (MWh) = Operating Loss Capacity Total (sum of RTMGs) OPLPAMTTOT is a negative number (payment from ERCOT) so a max is used in the formula to allocate the lesser of the two possible uplift amounts to the QSE. 9 PUBLIC

Allocation for Example 1 Operating Loss Payment Amount $45,554 Operating Loss Capacity Total 35 MWh (sum of RTMGs paid for losses) LCAP Shortfall amount 40 MW (10MWh for the 15-minute interval) LCAP Shortfall Ratio Share 6.67% Max(cap short ratio share * loss payments, cap short MWh * loss payments / sum of RTMGs) Max( 6.67% * -$45,554, 10MWh * -$45,554 / 35 MWh) Max (-$30,369 -$13,015) $13,015 is uplifted to cap short QSE 10 PUBLIC

Allocation for Example 2 Operating Loss Payment Amount $47,402 Operating Loss Capacity Total 12.5 MWh (sum of RTMGs paid for losses) LCAP Shortfall amount 40 MW (10MWh for the 15-minute interval) LCAP Shortfall Ratio Share 6.67% Max(cap short ratio share * loss payments, cap short MWh * loss payments / sum of RTMGs) Max( 6.67% * -$47,402, 10 MWh * -$47,402 / 12.5 MWh) Max(-$31,601, -$37,922) $31,601 is uplifted to cap short QSE. 11 PUBLIC