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ERCOT Submits Macroeconomic Value of Lost Load Report ERCOT has filed with the Public Utility Commission of Texas a Value of Lost Load (VOLL) study prepared by London Economics International LLC.
Filed in response to Commissioners' request at the most recent open meeting, the report includes the work done thus far by LEI to estimate VOLL in the ERCOT region. This includes a literature review (examining and summarizing VOLL studies conducted in the United States and other nations) and a macroeconomic analysis (developed to provide indicative estimates of foregone economic value when electricity service is disrupted in Texas).
LEI's indicative macroeconomic analysis indicates that, based on 2011 GDP figures, the state-wide and ERCOT-wide estimate for VOLL for C&I customers is in the range of $6,000/MWh.
Specifically, sector-level calculations for ERCOT yield an implied VOLL ranging from $6,492/MWh to $7,438/MWh for commercial customers and implied VOLL ranging from $4,031/MWh to $4,619/MWh for industrial customers, based on 2011 GDP data.
Using 2011 average retail rates paid by residential consumers across the state (not limited to ERCOT), the implied VOLL estimate using the bill-to-consumption approach for residential customers is only $110/MWh, though LEI said that VOLL estimates using the bill-to-consumption method will understate significantly the actual VOLL for residential customers.
LEI said that the macroeconomic approach has a number of commonly acknowledged shortcomings. Among other things, this approach assumes a linear relationship between interruption duration and costs, tends to underestimate VOLL in the short-run, does not account for indirect and induced effects of outages, and presents "average" VOLLs as it cannot account for either the timing or duration of an outage. Nevertheless, the macroeconomic analysis provides a useful benchmark for any future customer survey-based findings, LEI said.
Given the sensitivity of VOLL to a variety of specific factors such as customer's consumption profile, a region's macroeconomic and climatic attributes, as well as the types of outages experienced/examined, LEI said that its report does not -- and cannot -- provide a single VOLL estimate for the ERCOT region at this time for purposes of establishing the economic impact of rotating outages at the distribution level due to inadequate operating reserves. Arriving at an accurate VOLL estimate for ERCOT will require a comprehensive customer survey process, LEI said.
Link to VOLL report
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