Side-effect market disruptions from ERCOT’s conservative operation approach have begun fueling divisions between key stakeholders.

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A key component of ERCOT’s recent strategy to increase power reserves also has had the unfortunate side effect of simultaneously increasing power prices, according to experts.

And now these side-effect market disruptions are fueling divisions between key stakeholders at the Electric Reliability Council of Texas. They also became a topic of debate this month among Public Utility Commission regulators and state lawmakers.

The ongoing issue revolves around ERCOT’s increased use of “Reliability Unit Commitment” orders — or “RUC” orders — under which ERCOT commands generators to come online when operating reserves are low. In exchange, generators operating under RUC orders receive financial reimbursements calculated by an ERCOT algorithm.

ERCOT began issuing RUC orders more frequently after it enhanced its operating reserve requirements in response to last year’s power outages. But these additional RUC deployments and enhanced power reserve requirements also have resulted in more frequent deployments of separate automated systems (discussed below) that add to wholesale power prices.

Carrie Bivens, ERCOT Independent Market Monitor

The issue came up during a March 9 legislative hearing in which Carrie Bivens, the Independent Market Monitor for the ERCOT market, discussed RUC-related market disruptions. Separately, she also has floated a proposal (it’s known as Nodal Protocol Revision Request 1092) to address what she describes as misaligned market incentives created by the RUC deployments. Among other changes, the proposal would set a lower price offer floor and remove an opt-out provision that allows generators to instead self-commit their units if that is more financially advantageous.

But her proposal – which Bivens introduced last fall — has been contentious from the start. Generators have argued that overusing RUC prevents them from recovering their long-term operating costs while consumers have argued that generator behavior is driving up costs for everyone. These arguments have not changed since Bivens introduced her proposal and they remained in place during a contentious March 10 ERCOT workshop in which both sides reiterated their positions for several hours. However, stakeholders representing consumer interests have begun working on a compromise, and ERCOT watchers expect the organization’s Technical Advisory Committee to vote on it March 30. This would allow ERCOT’s full board to take it up at the end of April.

But it also appears that some generation segment representatives remain very entrenched and so it remains unclear how policymakers eventually resolve the issue.

UNDERLYING CAUSES

ERCOT watchers have connected much of the ongoing friction to the organization’s post-Winter Storm “conservative” operational policies, under which the organization has demanded more reserves than the market structure was originally designed to deliver. Additionally, ERCOT has begun using RUC in a fashion different from its original design, which previously was understood to operate as an “out of market” service used by ERCOT sparingly when there were an insufficient number of self-committed units to meet reliability targets. But now that ERCOT has much more aggressive targets, it is more common that there are insufficient self-commitments and thus the over-reliance on RUC. This, in turn, has distorted the energy market price, and triggered additional wholesale price adders under ERCOT’s automated Operating Reserve Demand Curve (“ORDC”) and Reliability Deployment Price Adder (“RDPA”) systems.

PUC Chair Peter Lake, during legislative testimony on March 9, said the market continues to adjust to recent new ORDC changes and that once those adjustments occur, there will no longer be a need for ERCOT’s increased reliance on RUC. Some ERCOT stakeholders, however, have expressed skepticism that the fix will be so simple.

UNCERTAINTY PRODUCT

Ms. Bivens also has floated an idea for a new “uncertainty product” to maintain sufficient reserves during those periods when uncertain weather forecasts make planning difficult. Under ERCOT’s current rules, the organization requires 6,500 megawatts of reserves during normal conditions, and 7,500 MW on days characterized by weather uncertainty. Under the proposal, ERCOT could acquire a weather uncertainty Ancillary Reserve to fill the gap. One advantage of the proposal, according to some stakeholders, is that it substitutes a market-based product for out-of-market RUC instructions.

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— R.A. Dyer