NPRR605  Ancillary Service Make-Whole Payments Under a Watch

This NPRR requires ERCOT to implement a Make-Whole Payment for Qualified Scheduling Entities (QSEs) that are unable to hedge the cost of serving Load due to a reassignment of capacity from energy to Ancillary Services that could occur under a Watch. Starting June 1, 2014, the Real-Time Locational Marginal Price (LMP) will be capped at $9,000 (including the Option B+ adder), and Day-Ahead offers will be capped at $7,000. If a Market Participant believes there is a certainty that Real-Time LMPs will go to the cap, it is unlikely to offer all its generation at a $2,000 discount in the Day-Ahead Market (DAM) to the price it has to pay for its Loads and energy trades exposure in Real-Time. This includes Ancillary Services. A generator would choose to receive $9,000 Real-Time LMPs over $7,000 Day-Ahead Market Clearing Prices for selling Ancillary Services. This could lead to a situation whereby ERCOT cannot procure enough Ancillary Service to meet its Ancillary Service Plan. It can issue a Supplementary Ancillary Service Market (SASM), but this has the same problem in that the SASM offer cap is $7,000, which could be lower than Real-Time energy price. Thus the only alternative left to ERCOT to meet its North American Electric Reliability Corporation (NERC) requirements of spinning reserves is to Reliability Unit Commitment (RUC) units for Ancillary