Innovative Market Design and Mitigation Methods in the ERCOT Nodal Market

This paper describes the innovative market design and local market power mitigation techniques developed by the author and being implemented in the ERCOT nodal market. For example, the day-ahead market (DAM) design is unique and offers a flexible centralized exchange to trade energy, congestion revenue rights (CRRs) and ancillary services (AS). There is no local market power mitigation in the DAM. The startup offer and minimum energy offer of the three-part offer in the DAM and reliability unit commitment (RUC) are capped at verifiable cost. To eliminate any potentially manipulation arising from over-sold CRRs, over-sold CRRs are derated but the holders of the CRRs are reimbursed up to the legitimate "hedge value" of those CRRs. One of the most important innovative design elements is the so-called Texas two-step method used in the security constrained economic dispatch (SCED) for local market power mitigation. The Texas two-step method in the SCED mitigates against the exercise of locational market power arising from congestion on non-competitive constraints while ensuring that scarcity prices are not mitigated. Finally, to determine the competitiveness of constraints, the author has developed a creative constraint competitiveness test (CCT).