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Texas Commission Directs ERCOT to Study Interim Solution B for Utilizing Reserve Demand Curves

January 25, 2013

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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

Texas Public Utility Commissioners agreed yesterday that ERCOT should study the proposed Interim Solution B to improve scarcity pricing by utilizing reserve demand curves.

"I think that Interim Solution B is something that the Commission and the stakeholders need to explore seriously and very quickly," Commissioner Kenneth Anderson said.

ERCOT's Interim Solution B, Scarcity Pricing in Real-Time Energy Market by valuing remaining Operational Reserves, would determine an Operational Reserve Demand Curve through a formula developed by ERCOT. The value at any given level of available operating reserves is the product of the Loss of Load (LOLP) at that reserve level and the Value of Lost Load (VOLL). See prior stories for more details

Essentially, the solution would create an adder to wholesale prices under certain conditions.

A first step is to have ERCOT attempt to backcast calculations on what the adder under Interim Solution B would have been under certain months in 2011 and 2012, though certain limitations will challenge such analysis, including the inability to determine how market participant behavior would have changed had the Operational Reserve Demand Curve been in place.

Chairman Donna Nelson agreed that having ERCOT provide that analysis is an appropriate first step, but added that once the information is developed, there will need to be a process for stakeholders to comment on the solution.

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