2005 IEEE/PES Transmission and Distribution

Conference & Exhibition: Asia and Pacific

Dalian, China

EVOLUTION OF ERCOT MARKET

Jun Yu, Senior Member, IEEE, Shuye Teng, Member, IEEE, and Joel Mickey

Abstract--The process of restructuring wholesale electric grid was operated by control area utilities who owned most of
power markets in the United States has so far been very the generation units and transmission facilities and controlled
successful overall and is now entering a new phase of either fine- access to the grid. Control areas did all of the transaction
tuning or fundamental re-reforms of the markets. The scheduling. There was almost no energy exchange between
restructured ERCOT electric power market has attracted special
attention due to its particular characteristics such as its adoption
control areas other than emergency support. Each utility
of Zonal Portfolio Model and its choice of a bilateral and company had its own generation units, transmission system,
ancillary service market without a spot energy market. Battling and distribution system to provide electricity service to its
rigorously with problems and challenges constantly encountered customers. The load was captive to its transmission provider.
along the way and continuously seeking for better and more ERCOT began to study the changes needed to create an
efficient resolutions to improve its market, ERCOT continues to independent security center in 1992 when Energy Policy Act
stay in the spotlight of the power industry restructuring arena. (EPA) was passed by the Federal government. In 1995, a
This paper gives a brief but comprehensive introduction to major step toward a fully competitive market in the ERCOT
market operations in ERCOT, which embodies all the market region was taken when the Texas Legislature amended the
policies and important changes that ERCOT has adopted since
its market opening in 2001. This paper also discusses some
Public Regulatory Act (PURA) to deregulate the wholesale
operational challenges and market inefficiencies in ERCOT, the generation market and increase competition among wholesale
ongoing discussions of market redesign, and the current status of electricity producers.
the evolution of the ERCOT market. In the end, ERCOT market On September 11, 1996, as the first electricity utility
is compared with California market regarding system conditions, industry ISO created in the U.S., ERCOT was founded to
market structure, and market operations. facilitate wholesale competition, maintain system reliability,
Index Term--Zonal Market, Nodal Market, Ancillary Service, promote efficient use of transmission system by all market
Day-ahead Market, Reliability Unit Commitment, Congestion participants, and coordinate transmission planning. Wholesale
Revenue Right, Deregulation, Market Clearing Price, competition has started since then and a successful bilateral
Replacement Reserve, Congestion Management market is gradually formed in ERCOT. Bilateral transaction
is just between the buyer and the seller. However, both the
I. INTRODUCTION buyer and the seller need to submit to ERCOT some specific
The Electric Reliability Council of Texas (ERCOT) is one information about their transaction, i.e., MW amount and
of the ten regional reliability councils under the North source and sink locations, for ERCOT to conduct studies to
American Electric Reliability Council (NERC). ERCOT is determine whether any transaction might cause congestion. If
also the Independent System Operator (ISO) responsible for congestion was foreseen, ERCOT would cut some
grid and market operations in the ERCOT region. The transactions to resolve the predicted congestion.
ERCOT market serves approximately 85 percent of Texas On May 21, 1999, the Texas Legislature passed Senate Bill
State’s electric load and oversees the grid operation of 7 (SB7). This legislation required the creation of a competitive
approximately 78,000 MW of generation, over 60,000 MW of retail electricity market giving customers the ability to choose
peak load, and over 37,000 miles of transmission lines. their retail electric providers starting on January 1, 2002. A
The history of ERCOT can be tracked back to 1940s. At fair and competitive wholesale market need to be built to
the beginning of World War II, a number of electric utilities in facilitate retail competition. On July 31, 2001, a competitive
Texas banded together to support the war effort. This group wholesale market managed by ERCOT was launched. At the
became known as the Texas Interconnected System (TIS). same day, the 10 control areas in ERCOT region was
TIS’s members realized the reliability advantages of consolidate into one single control area operated by ERCOT.
developing an interconnected grid and remaining On January 1, 2002, ERCOT opened its retail market to
interconnected as their electrical loads grew and larger competition. More than 5 million electricity customers have
generating units were installed. the right to choose their power suppliers. After almost four
In 1960s, NERC is established as an industry overseer of years of single control area operations and market
reliable electric service throughout North America. In 1970s, competition, ERCOT continues to maintain a strong track-
ERCOT was formed by TIS to comply with the formation of record of reliability and market operations success under the
NERC’s organizational structure. In 1981, all TIS’s function competitive framework. Just as other electricity markets
has been transferred to ERCOT and the functions of ERCOT evolve through changes to their initial designs, ERCOT has
were strengthened from security monitor to coordination of been continuously enhancing its market design to improve
interconnected operations between the control areas. grid operations and wholesale market performance, reduce
During the whole evolution period until 1996, ERCOT costs to end customers, and further increase the reliability of
the ERCOT grid.
ERCOT commenced single control area operations with a
The authors are with Electric Reliability Council of Texas, Taylor, TX
76574 USA (e-mail: [email protected], [email protected], [email protected]). zonal market structure. Annually, ERCOT determines the
commercially significant transmission paths where power

0-7803-9114-4/05/$20.00 ©2005 IEEE. 1

flow is prominent from one region to another. The regions
associated with these Commercially Significant Constraints Forward DA/Adjust Prior-Real- Real-Time
(CSCs) contain a clustering of generation and load busses and Time
are identified as the Congestion Zones for the ERCOT grid. Bilateral A/S Real-Time Regulation
In the beginning, zonal congestion cost was not directly Market Market Energy Deployment
assigned. Participants could make excessive profit by Market
submitting virtual schedules to create congestion. For the first TCR RPRS RRS
month of the market opened, inter-zonal congestion costs Market Market Deployment
totaled over 100 million dollars. As a result, the Public Utility
Commission of Texas (PUCT) enhanced its market monitor Fig. 1. ERCOT Current Market Structure
function to mitigate this gaming issue, but the problem was
Service market and RPRS market, (4) Real-Time Energy
not fully resolved until February 2002, when ERCOT
market, and (5) Real-Time Operations. ERCOT does not have
implemented inter-zonal congestion cost direct assignment.
a centralized forward energy market. Bilateral contracts can
Since then, ERCOT’s inter-zonal congestion costs are greatly
be signed between market participants at any time. The
reduced, totaled less than 100 million dollars for the last 3
bilateral contract length can be as long as 5 years or as short as
years.
several hours. ERCOT has an annual TCR auction market and
ERCOT did not have a pool type energy market in the
a monthly TCR auction market.
beginning. ERCOT requires participants submit balanced
Day Ahead is defined as the period from 12:00 AM to 6:00
energy schedules. Market participants can balance their
PM of the day prior to the operating day. The Adjustment
energy schedules using their own generation and load or
Period starts at 6:00 PM of the day prior to the operating day
through bilateral transactions with other participants. The
and ends one hour prior to the operating hour.
Real-Time Energy market is for reliability purpose only, by
In the Day Ahead/Adjustment period, market participants
balancing total generation and ERCOT’s load forecast. On
submit at day ahead their self-arranged Ancillary Service
November 1, 2002, ERCOT relaxed this balancing schedule
schedules as well as offers for Regulation Up, Regulation
requirement to provide its market participants more flexibility
Down, Responsive Reserve, and Non-Spin Reserve services.
and thus enhance market competivity. Participants can
ERCOT purchases in the Ancillary Service market any
schedule to purchase energy from the Real-Time Energy
shortage on behalf of those market participants who do not
market to supply their own load or to fulfill their bilateral sale.
self-arrange enough reserve to meet ERCOT’s requirement.
The amount of energy that is cleared at real time can be seen
ERCOT also purchases Replacement Reserve Service offers
increased after this change was implemented. However, the
from the planed off-line resource if the available on-line
increased amount is still trivial due to the volatility of the
resources are not enough to ensure system security.
market clearing price in Real-Time Energy market. Currently,
In the Prior-Real-Time period, ERCOT freezes all energy
energy purchased in Real-Time Energy market only makes up
schedules and offers one hour before the Real Time operation.
less than 5% of the total amount of energy consumed in
By one hour before the Real-Time Operation, ERCOT deploys
ERCOT.
Non-Spin Reserve if all the Energy Up offers in the market are
ERCOT originally adopted a market rule that clears
estimated to be insufficient to meet ERCOT’s latest load
Ancillary Service sequentially, i.e., in the order of Regulation
forecast or to resolve any Zonal Congestion constraints. The
Up service, Responsive Reserve service, and Non-Spin
Real-Time Energy market runs at 14 minutes before each 15-
Reserve service. On June 10, 2005, to improve its Ancillary
minute operating interval. By 10 minutes before the Real-
Service market efficiency, ERCOT implemented a
Time Operation, ERCOT purchases Energy Up/Down offers
simultaneous procurement method to buy all three Ancillary
to balance generation and load, with generation calculated
Services simultaneously.
based on all market participants’ generation schedules and
load based on ERCOT’s latest load forecast, and to resolve
II. ERCOT CURRENT MARKET STRUCTURE
any Zonal Congestion constraints and Local Congestion
Currently ERCOT has four types of market: Transmission constraints. Participants are notified of energy price and
Congestion Right (TCR) market, Ancillary Service market, deployment instructions 10 minutes before the operating
Replacement Reserve Service (RPRS) market, and Real-Time interval. In this paper, we consider Real-Time Energy market
Energy market. TCRs, Ancillary Services, and Energy are as a Prior-Real-Time activity so as to differentiate it from
traded either bilaterally or in pool markets. Overall, the Real-Time Operation.
ERCOT wholesale market is a bilateral and Ancillary Service In the Real-Time Operation period, ERCOT deploys
market with a very small volume spot energy market. ERCOT Regulation Up and Down to maintain system frequency within
does not have a centralized Day-Ahead Energy market. The two seconds in response to any small deviation from the
current ERCOT wholesale market structure is shown in Fig. 1. standard frequency and deploys Responsive Reserve to restore
The ERCOT market structure is better understood when we system frequency within the first few minutes in response to
look at it in time sequence. ERCOT wholesale market is any large deviation from the standard frequency.
operated in five phases: (1) Forward market which includes Bilateral Market
bilateral market and TCR market, (2) Day Ahead market ERCOT is a bilateral market. The majority of energy
which includes Ancillary Service market and RPRS market, consumed in ERCOT is traded through bilateral contracts. In
(3) Adjustment Period market which includes Ancillary the year of 2004, about 98% of energy consumed in ERCOT

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was either self-provided or through bilateral contracts. amount of each Ancillary Service, less the amount self-
Bilateral contract is purely financial. A buyer may not have arranged, for all operating hours of the next operating day.
any load. It can re-sell the contracted energy to another ERCOT adopts a simultaneous clearing method to procure all
participant through bilateral contract or to the ERCOT Real- upward Ancillary Services (URS, RRS, and NSRS)
Time Energy market. A seller may not have its own physical simultaneously to meet its Ancillary Service requirements
generation resource. It can buy its contracted energy from while minimizing total costs.
another participant through bilateral contract or even directly Due to system condition changes or participants’ defaults,
from the ERCOT Real-Time Energy market. Bilateral ERCOT may open one or more supplemental Ancillary
contract embodies a purely financial obligation transfer Service markets in the Adjustment period to acquire additional
between the contracted parties. ERCOT does not know the Ancillary Service capacity.
price of the contract. However, market participants need to Replacement Reserve Market
report the contracted MW amount as well as source and sink Also referred as Reliability Unit Commitment (RUC)
locations to ERCOT via their 15-minute-interval energy market in other U.S. markets, the ERCOT RPRS market
schedules. functions as a reliability tool in ERCOT to ensure that the
TCR Market system has enough online capacity at the right location to
TCRs are used by market participants in ERCOT market as serve its load. RPRS market performs a look-forward analysis
a financial instrument to hedge against marginal costs of of the ERCOT system and procures additional capacity from
resolving Zonal Congestions in both Energy market and RPRS Resources that are off-line or planned to be off-line in the
market. TCRs are also called Financial Transmission Rights requested hours to provide capacity from which energy would
(FTR) or Congestion Revenue Rights (CRR) in other U.S. be available to solve predicted system security violations,
markets. TCR does not represent any physical right to deliver including system capacity insufficiency, Zonal Congestion,
energy. Any participant has the right to access a Zonal and Local Congestion. For each RPRS Resource procured,
Congest Path (or CSC). A TCR is a financial right on a the market participant must submit offers into the Real-Time
specified directional Zonal Congestion Path for a particular Energy Market quantities that sum greater or equal to the High
hour in which the TCR holder has the right to receive a Operating Limit minus the Low Operating Limit of the
remuneration that is equal to the Shadow Price of the Zonal Resource receiving the RPRS instruction, in the zone of the
Congestion of that path. Currently the ERCOT market only RPRS Resource. A procured RPRS Resource must be brought
has flowgate TCR. It does not have any Point-to-Point TCR. online in the procured hour.
ERCOT auctions TCRs to its market participants both ERCOT RPRS market is cleared using a three-step
monthly and annually. ERCOT sells in its annual auctions approach: Step 1 solves Local Congestion, Step 2 solves
60% of the total amount of TCRs available for any given system capacity insufficiency and Zonal Congestion, and Step
Zonal Congestion Path. The remaining amount of TCRs is 3 calculates Zonal Market Clearing Price for RPRS market.
auctioned in monthly auctions. Both annual and monthly Transmission congestion constraints include both pre-
auctions are single-round and single-clearing-price auctions. contingency constraints and first-contingency constraints. A
All TCR holders will pay for its awarded TCRs at the Market mixed-integer programming based Security Constrained Unit
Clearing Price of the TCR of that Zonal Congestion path. Commitment (SCUC) method is used in both Step 1 and Step
Ancillary Service Market 2. The commitment process (Step 1 and 2) only considers a
The ERCOT Ancillary Service market runs at Day Ahead Resource’s Start-up cost and Minimum Energy cost.
and procures four kinds of Ancillary Services required for the Incremental Energy cost, i.e., the portion of Operational cost
next operating day, namely Regulation Up service (URS), above Minimum Energy cost, is not included in RPRS
Regulation Down service (DRS), Responsive Reserve service procurement cost. Step 1 adopts a full network model and
(RRS), and Non-Spin Reserve service (NSRS). Ancillary runs SCUC to produce, based on Resources’ generic costs, an
Services are self-provided or offered by market participants in optimal solution which procures additional capacity to ensure
portfolio and procured and deployed by ERCOT to support the that there are enough online resources to cover ERCOT’s load
transmission of energy from resource to load while Forecast plus Ancillary Service reserve requirement and to
maintaining system reliability. Before 6:00 AM of Day resolve any transmission constraints. The reason that
Ahead, ERCOT will analyze the next day’s expected load Resources’ generic costs are used is that ERCOT believes that
conditions and develop a Day Ahead Ancillary Services Plan there is not enough competition at Local Congestion level and
that identifies the amount of each Ancillary Service needed to thus market power mitigation measures should be taken when
maintain system reliability for each hour of the next day. resolving Local Congestion. Therefore, results from Step 1
ERCOT allocates Ancillary Service obligation to all are cost-based rather than offer-based. From grid operation’s
participants in proportion to their historic actual load. A point of view, Step 1 has solved all potential system security
participant can self-arrange its portion of Ancillary Service issues and thus the RPRS market should be closed after Step
obligation with its own resources or purchase it from other 1. However, ERCOT adopts a zonal type of market.
entities through bilateral transactions. If a participant’s self- Participants submit RPRS offers to solve Zonal Congestions.
arrangement does not fulfill its obligation, ERCOT will As enough competition exists at Zonal Congestion level, a
procure the remaining amount on its behalf in the ERCOT system has to be designed accordingly to clear the zonal
Ancillary Service market. ERCOT opens an Ancillary Service RPRS market and generate market prices for zonal RPRS
market in the Day Ahead Period to procure the total required services procured from the market. Therefore, Step 2 is
designed for market operations and Step 3 for settlement of

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Zonal Congestion management in the RPRS market. In the At the end of the two-step Congestion Management process,
post-processing of Step 1, only those Resources that are market participants will receive from ERCOT instructions that
procured to help resolve Local Congestion are kept as local include both Zonal Portfolio Energy instructions and Resource
procurements. Other Resources procured in Step 1 are Specific Local Energy instructions. Energy dispatch
released and are treated in Step 2 the same as other Resources instructions, MCPEs, and Shadow Prices are posted at 10
which are not procured in Step 1. Local Congestion costs, i.e., minutes before the operating interval.
payments to local procurements, which cannot be directly
assigned, are uplifted to load. In Step 2, SCUC runs again and III. OPERATIONAL CHALLENGES & MARKET
produces, based on Resources’ offer prices, an optimal INEFFICIENCIES
economic solution which procures additional Resources to With a total of five Congestion Management Zones, the
ensure that there is enough online capacity to meet ERCOT’s
ERCOT Zonal Portfolio model offers its market participants
load forecast and Ancillary Service requirement while solving
great flexibility in managing their portfolio schedules and
any Zonal Congestion. Step 2 cannot generate Market
bilateral contracts. However, this seemingly simple market
Clearing Price for RPRS capacity (MCPC) as a by-product of
the clearing process because Startup cost and Minimum model brings the ERCOT system operator great challenges to
Energy cost are block costs and the mixed-integer program operate the system. The zonal model also has the problem of
cannot generate a rational marginal RPRS cost. Therefore, not being able to provide price signals that are granular and
Step 3 is designed to convert the mixed-integer problem with accurate enough to encourage efficient market operations. It
block costs to a linear problem with incremental costs to is estimated that zonal model may cost annually 76 million US
calculate MCPC, which is used only for settlement of Zonal dollars or $0.2/MWh more than nodal model in ERCOT.
RPRS services. Participants whose online capacity cannot The primary challenge that the ERCOT system operator has
cover their load will be charged at MCPC. A participant’s been dealing with is Congestion Management of both Zonal
capacity can be its own generation Resources or what it (CSC) and Local Congestion constraints. The concept of
purchases from other participant(s) through bilateral energy Zonal Average Shift Factor is adopted for the purpose of
contracts. Zonal Congestion costs are directly assigned. solving Zonal Congestion. All Generation Resources and
Participants whose energy schedules cause Zonal Congestion Loads within the same Congestion Zone has the same Zonal
are subjected to Zonal Congestion charge. Any remaining Average Shift Factor for a given CSC. The system uses Zonal
costs that cannot be direct assigned will be uplifted to load. Average Shift Factor to calculate the impact of each
Real-Time Energy Market participant’s portfolio energy schedules and portfolio
The ERCOT Real-Time Energy market includes two sub- deployments in a Congestion Zone on any given CSC. The
markets: Zonal Portfolio Congestion Management market and system selects portfolio offers based on offer prices and Zonal
Local Unit Specific Congestion Management market. Average Shift Factors and produces the least-cost dispatch to
The function of the Zonal Portfolio Congestion maintain power balance and resolve CSC congestions. The
Management market is to purchase Portfolio Energy Up and use of Zonal Average Shift Factor itself could be the main
Down offers to maintain power balance between the sum of cause of inefficient deployment in some instances as the
market participants’ scheduled generation and ERCOT’s movement of a group of units is usually far less efficient than
short-term load forecast and to solve any real-time Zonal a unit-specific dispatch which targets the congestion at the
Congestion constraints (CSCs). Security Constraint Economic right spot.
Dispatch (SCED) is used to minimize the total offer price- More importantly, the use of zonal model and zonal CSCs
based zonal portfolio deployment costs with respect to Zonal creates discrepancies between the calculated flow and the
Transmission constraints. SCED calculates zonal portfolio
actual flow on a given CSC. Operators are forced to predict
deployments, zonal Market Clearing Prices (MCPE), and CSC
the actual CSC flow in order to enact appropriate congestion
Shadow Prices. Zonal MCPE is the marginal Energy price for
management measures. Operators manage to mimic the effect
each zone. CSC Shadow price is the marginal cost to resolve
CSC congestion. Congestion charge and TCR payment are of the physical limit on the physical flow of a given CSC by
priced at the calculated CSC Shadow Price for those taking a manual workaround which adjusts the CSC limit in
participants who have an energy schedule or own TCRs on the model to control the calculated flow, which in turn affects
that CSC. the physical CSC flow. The difference between the calculated
The function of the Local Resource Specific Congestion flow (the modeled flow) and the physical flow on a given CSC
Management market is to deploy Resource Specific Energy is the main cause of outstanding issues such as revenue
Up and Down offers to resolve any Local Congestion adequacy and inefficient deployment in Zonal Congestion
constraints if present. SCED is used to minimize the total Management.
cost-based unit specific deployment cost with respect to all In Local Congestion Management, as market participants
pre-contingency and first contingency transmission constraints only provide accurate portfolio energy schedules at zonal
(Local Congestion constraints) to calculate the unit specific level, the system must predict, based on unit’s current
deployment. ERCOT believes that competition at Local SCADA information, each individual unit’s contribution to
Congestion level does not exist. To mitigate any potential portfolio schedules and response to zonal deployments so as to
local market power, cost-based prices, rather than offer-based form a baseline for Local Congestion Management. To the
prices, are used to compensate Resources deployed for Local extent the predicted flow differs greatly from the actual flow,
Congestion.

4
operators will be forced to manually deploy additional units has the following four essential components: (1) Combined
during the operating interval. Day-Ahead Energy and Ancillary Service Market; (2) Day-
As schedules are submitted by zone in a zonal market, it is Ahead and Hour-Ahead Reliability Unit Commitment; (3)
very difficult to directly assign Local Congestion costs to Real Time Energy Market and Real Time Operations; (4)
participants who are responsible for causing Local Congestion Revenue Rights. Main changes to the current
Congestion. Thus the market lacks appropriate price signals system, if the new nodal design is adopted, will be: (1)
and economic incentives for participants to commit their units Resource-specific energy scheduling, offer, and deployment
and build new generation at the right locations. ERCOT is will replace zonal portfolio energy scheduling, offer, and
forced to commit resources out of merit or to engage in long deployment; Unit-specific ancillary service scheduling, offer,
term Reliability Must Run (RMR) agreements to ensure that and deployment will replace system-wide ancillary service
enough resources are online and available at the right scheduling, offer, and deployment. Unit-specific scheduling
locations to help maintain system reliability. and offer provides more detailed and accurate information
Although ERCOT has been mastering knowledge and which enhances market operation efficiency and reduces
problem-solving skills along the way and managed its zonal ISO’s operational challenges. (2) There will be a Day-Ahead
market quite successfully since its opening in July 2001, spot energy market, which will increase market liquidity and
people in and out of the market have been pondering about all market competivity. (3) Energy and ancillary services will be
the operations challenges and market inefficiency issues as co-optimized rather than optimized independently, which will
aforementioned and have been looking hard for more help improve market efficiency because a one-step
improvements or better alternatives. optimization which considers all factors at the same time is
usually more efficient than a multi-step optimization which
IV. MARKET REDESIGN considers each factor sequentially and separately. (4) In
In July 2002, one year after ERCOT market was opened, the addition to Flowgate TCRs, Point-to-Point Obligations and
total Local Congestion costs in ERCOT market reached 100 Options will be available in the TCR market. Points are more
million dollars, which is much higher than ERCOT granular as nodes of much smaller size will replace the current
stakeholders’ expectation. Public Utility Commission of Texas five big zones. Participants will have much more flexibility in
(PUCT) and ERCOT stakeholders started to search for a hedging their financial risks. (5) Resources will be settled at
method to direct assign Local Congestion costs under the nodal level, which encourages participants to manage
Zonal Portfolio model. Soon they realized this approach congestion by themselves and also provides more accurate
might not be feasible and started consider other alternatives price signals for future generation investment and
including Nodal approach. Nodal-type markets are generally transmission network expansion. Load will still be settled at
considered to have more consistency between its market load zone level, which facilitates retail competition while
operations and system operations, to be able to provide more protecting retail customers from location discrimination and
accurate unit-specific information such as schedules, offers, wholesale price volatility.
ramp rates, and deployments, and to be able to manage A Cost Benefit study [4] has been conducted to provide a
congestion more efficiently. Equally if not more importantly, quantitative analysis and a discussion of qualitative costs and
Local Congestion costs can be directly assigned in a Nodal benefits for the ten year period 2005 through 2014, as well as
market. Direct assignment of Local Congestion costs provides a discussion of potential long term qualitative costs and
great incentive for market participants to help resolve Local benefits after the initial 10 year period. The ERCOT Cost
Congestion on their own initiative rather than rely heavily on Benefit study focused on two alternative market design
RTO or ISO’s system operation. choices: a zonal market design and a nodal market design.
In September 2003, PUCT issued Order 26376 which The year-by-year results of the Energy Impact Assessment
basically requires ERCOT to go to a Nodal type market by (EIA) are divided into three periods: 2005-2008, during which
October 1, 2006. Soon afterwards, a Texas Nodal Team the resource mix is unchanged, so that the results are limited
(TNT) was formed to address the effort needed to fulfill this to impacts of operational efficiency; 2009-2011, during which
goal. TNT is composed by five Concept Groups: Market the benefits of the nodal Change Case tend to grow each year
Operations, Congestion Management, Market Mitigation, because of more efficient sitting of new generation; and 2012-
Commercial Operations, and Cost/Benefit Analysis. By the 2014, during which the transmission system assumptions used
end of spring 2004, the first four groups completed their (i.e., a lack of transmission expansion) begin to influence the
corresponding concept design of the new Nodal Market from behavior of the results. According to the study, the nodal
different aspects, as explicitly indicated by the name of each Change Case is measured to produce average annual benefits
concept group. The ERCOT Board approved a series of white of $76 million per year (corresponding to a ten-year net
papers, proposed by the four Concept Groups, which became present value, or NPV, of $586 million) in reduced generation
the guidelines to develop the Texas Nodal Market (TNM) costs. For the nodal Change Case, the study measured a
protocols. The first draft of TNM Protocols came out in significant shift in value from the ERCOT market’s generator
September 2004. By the end of March 2005, TNT has segment to its load segments.
finished two rounds of review of the Protocols. Still subject to
continuous discussions and changes, the current TNM design V. ERCOT VS. CALIFORNIA

5
 ERCOT market and California market (CAISO) share schedules to analyze Local Congestion, while ERCOT
many similarities. Currently both markets adopt zonal type determines Local Congestion based on unit’s actual generation
market model, transactions are conducted between zones, and and deployment instructions at real-time. CAISO sets a offer
the system adopts Zonal Portfolio Energy schedules and Zonal limit to mitigate market power in Local Congestion, while
Congestion management, with the supplementation of ERCOT adopts a more rigid policy which pays generic costs
Resource-Specific schedules or offers and Local Congestion to all resources that are deployed to resolve Local Congestion.
management. CAISO has been working on its market CAISO did not have hour-ahead or day-ahead unit
redesign since its energy crisis in 2000, and is moving towards commitment market until last year, while ERCOT has both
a nodal type market. As aforementioned, ERCOT has been since its market opening. As to Ancillary Services, CAISO
considering moving towards a nodal type market too. A brief has improved its original design by replacing highly-priced
comparison of ERCOT market and California market helps low-quality Ancillary Service with lowly-priced high-quality
highlight some essential factors which have greatly influenced Ancillary Service. ERCOT has adopted a different
the rule-making and policy-changing process in these two improvement method which simultaneously procures all four
major power markets in the United States, which in turn will Ancillary Services. The authors of this paper believe that a
help the reader to better draw on the experiences of the two combination of the improvements in Ancillary Service
markets. procurement adopted by both markets is a better solution
First, CAISO and ERCOT have different system conditions. overall.
CAISO has a comparatively low system reserve margin,
which was less than 10% from 1999 to 2000, and relies VI. CONCLUSION
heavily on imported energy to meet its entire load in peak This paper gives a brief but comprehensive introduction to
seasons. On the other hand, ERCOT has maintained a high the market operations of the ERCOT wholesale market. Some
system reserve margin all the time, which is about 30%. High major operation challenges are reviewed. The market
system reserve margin gives ERCOT better control over redesign process at ERCOT is discussed. A brief comparison
market power and enhances competivity in its power market. is made between ERCOT and CAISO. The information
In addition, the transmission network of CAISO is a radial provided by this paper is intense and comprehensive and will
network, while the ERCOT system is a typical full help the reader build up a better understanding of the power
transmission network. Compared to ERCOT, CAISO’s markets in the United States, especially zonal type markets.
transmission network is exposed to more inherent problems
such as Local Congestion and voltage stability.
VII. REFERENCES
Second, these two markets adopted different policies at the
[1]. The ERCOT Stakeholders, “ERCOT Protocols,” ERCOT, Taylor,
start of their power industry deregulation to mitigate market Texas, Jan. 2001.
power and increase competivity. CAISO required its three [2]. The ERCOT Stakeholders, “ERCOT TNT Protocols”, ERCOT, Taylor,
major utility companies to sell at least 50% of their fossil Texas, Mar. 200.
units. The three utility companies were not allowed to sign [3]. Jun Yu and Joel Mickey “Restructured ERCOT Market: Market
Operation”, in Proc. of 2002 Power System and Communications
any bilateral energy contracts. They were mandated to sell or Infrastructures for the future.
buy energy only through Power Exchange, the only official [4]. The Final ERCOT Cost Benefit Study, ERCOT, Taylor, Texas, 2004
site to trade energy at that time. In addition, CAISO did not http://www.ercot.com/TNT/default.cfm?func=documents&intGroupId=8
allow its three major utility companies to change their retail 3&b=
prices before they fully recovered their stranded costs. The
utilities were exposed to great financial risks, especially when VIII. BIOGRAPHY
the spot market was not stable and energy prices were volatile. Jun Yu received his dual BS degrees in Electrical Engineering and
By contrast, ERCOT encourages its utility companies to sign Economics and MS degree in Electrical Engineering from Tsinghua
bilateral contracts to serve their own load, although they are University in 1991 and 1994, respectively. Afterwards he worked in China
not allowed to have a total capacity greater than 20% of the International Trust and Investment Corporation for three years. He received
his Ph.D. in Electrical Engineering from Texas A&M University in August
system’s total capacity, either. Although ERCOT required its 2000. He has played a critical role in the whole process of ERCOT market
utilities to decrease their retail prices by 6%, the utilities can rule development and system development, market opening, market
still adjust their retail price based on market fuel price. Thus stabilizing, and market redesign. He is currently Lead of Market Analysis and
the utility companies in ERCOT are able to keep their energy Development at ERCOT.
costs under control and their financial risks reasonably well Shuye Teng received her BS in Environmental Engineering from Hunan
hedged. In addition, some big utility companies in ERCOT, University in 1993 and MS in Thermal Energy from Tsinghua University in
1996. Afterwards she became a graduate student at Texas A&M University,
such as TXU, are also big load serving entities, which also where she received her Ph.D. in Mechanical Engineering in May 2000. She is
helps mitigate market power. currently a Senior Market Support Specialist at ERCOT.
Third, market operations wise, these two markets have some Joel Mickey received his dual BS degree in Economics and Political Science
important differences too. Energy schedules submitted in from Houston Baptist University in 1997. He was employed at Reliant
CAISO are physical schedules, while those submitted in Energy from 1981 to 1997 holding positions as underground Network Tester,
System Controller, and Staff Consultant. Mr. Mickey then worked for a
ERCOT can be completely financial. In real-time operations, software development firm from 1997 to 2001 developing trading, scheduling,
CAISO adopts Resource-Specific scheduling and offer, while and risk-management software for the deregulated marketplace. Mr. Mickey
ERCOT adopts zonal portfolio scheduling and offer plus is currently the Manager of Market Operations Support at ERCOT.
Resource-Specific offer. CAISO uses Resource-Specific