NPRR-574

Raiden Commodities LPPatrick de Man

WMS 11/13/2013

GenXYZ Modifying Offer Curves

• Strategically executed for self-benefit• Appears random to the market• At least on 15 days during the summer• Without any economic rationale

• Generally, conditions are:• High load days• SCED tight ~2,000

Offer Curve Modification ExampleSCED LSL HSL Output MW8 P8 MW9 P9 MW10 P10 MW11 P11 MW12 P12

15:00 185 320 311 254.00 23.86 269.00 23.87 311.00 23.88 312.00 350.00 323.00 350.01

16:00 184 320 311 232.00 22.12 233.00 4,900.00 319.00 4,900.01 320.00 4,999.99 321.00 5,000.00

17:00 184 320 232 233.00 22.12 234.00 4,900.00 317.00 4,900.01 318.00 4,999.99 319.00 5,000.00

18:00 185 320 232 256.00 23.86 271.00 23.87 311.00 23.88 312.00 350.00 323.00 350.01

• All available units of this QSE (including Lignite): similar modifications• What market conditions changed to warrant this modification?• Pricing out of the market: down-balancing when LMP<$4900• In normal world this would be called Economic Withholding1) • However, this QSE is in the clear because of the “Small Fish Swim Free” rule• Impacts:

• Pushing LMP clear higher• ICE HB_NORTH BalDay and Next Day contract (HE7-22) trading higher• Forward contracts: e.g. Summer 2014 trading up

1) In ERCOT it was too, at least up to 2007: Report on Investigation of the Wholesale Market Activities of TXU from June 1 to September 30, 2005, Potomac Economics, Ltd., ERCOT Independent Market Monitor, March 2007

Examples• July 12, 2013 (7 units)

• GenXYZ bought several thousand MW HB_HOUSTON in DAM for HE16 – H18• Offer curve changes for HE16 – HE18• $77 print in attempt to gain on DAM position

• August 12, 2013 (11 units)• Curve change at 15:00 = price spike $889• Look-Ahead holds at $4900 for the hour• Confusion in futures market. Trading up to $130 only to settle $48

• September 3, 2013 (6 units)• Jack County tripped (615MW 3:30pm + 615MW 4.30pm)• Curve Change 16:00 = price spike $365• GenXYZ set the LMP clearing price for 4 intervals: $4900; HE7-22 cleared $199

• Also on: 6/12 (5), 6/13 (7), 6/20 (5), 6/27 (5), 6/28 (7), 6/29 (9), 7/3 (5), 7/16 (6), 7/18 (7), 7/23 (12), 7/31 (4), 8/7 (12), 8/13 (12), 8/23 (10)

• How is this a competitive and efficient market?• Obviously, assumptions underlying “Small Fish” rule are flawed

Summary

• After witnessing summer’s horror show: something is broken here• Clearing firms:

• Spooked by ERCOT (fake) volatility: looking to exit ERCOT products• Increasing margins significantly in all power markets, pushing small traders out of the

market; liquidity drying up• Calpine proposed NPRR-321: identical language as NPRR-574• But now: Big generators prefer status quo. Why?• Like in NEISO there should be some limitations and benchmarking• When are offer curve modifications acceptable?• Offer curve modification to reflect forward grid conditions is anti-competitive• “Small Fish” Rule flaw: if SCED is 2000, moving 1000MW is 50% of available

capacity: you can control pricing