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PUCT's Anderson Offers Final Proposals for Operating Reserves Demand Curve Texas Public Utility Commissioner Kenneth Anderson has offered two proposed alternatives for implementing an Operating Reserves Demand Curve in ERCOT.
Anderson's proposals would establish $9,000 as the appropriate Value of Lost Load to be used in calculating the value of operating reserves, at least for now.
Anderson's preferred option of the two proposals would set "X", or the minimum contingency level, at 1,375 MW. However, this option would also implement a Value Of Non-Market Actions at the system-wide offer cap.
The Value Of Non-Market Actions would place an additional value on the operating reserves necessary to avoid going into Energy Emergency Alert Level 1 (EEA 1), which occurs when reserves drop below 2,300 MW. "It is worth noting that when this occurs, ERCOT operators abandon relying on the market to maintain system reliability, and take various out of market actions that have a real economic cost," Anderson said.
"Despite the attempt of some to minimize the tangible effects of EEA 1, it turns out that there are real economic costs that occur in EEA 1; costs that ultimately are uplifted to load serving entities and the retail customers that they serve. In addition to 'market notifications', in EEA 1 ERCOT operators stop all exports of power over the DC ties with other power regions and begin importing power, if available. Under current arrangements, that power very likely is priced at the SWOC (because by EEA 1 ERCOT is using Responsive Reserves, the energy of which now is priced at the SWOC). Furthermore, in EEA 1 ERCOT will use its Reliability Unit Commitment (RUC) authority to order all remaining available generation, if any, to come on line. Again, the energy from units that are RUC'd is priced at the SWOC under current ERCOT protocols. Therefore, is seems to me that the SWOC, as then in effect, is a reasonable approximate value for VNMA," Anderson said.
Alternatively, Anderson proposed setting "X" at 1,950 MW to 2,000 MW, with no implementation of a separate Value Of Non-Market Actions (with the higher "X" acting as a proxy for this).
Whichever option is used, on balance Anderson prefers the "piecewise linear approximation" used by ERCOT for the shape of the Loss of Load Probability curve. "While I am somewhat flexible on this point, I believe that this curve is easier for market participants to model when managing their risk analysis. It is also consistent with my 'guiding principle' that any interim solution not reverse resource revenue. If and when the real-time market is co-optimized (or some other external resource adequacy construct is adopted), the shape of the LOLP curve can be adjusted to reflect a more idealized and economically pure construct," Anderson said.
"Whichever alternative is adopted, if we can reach consensus on the ORDC, it is my desire that ERCOT work to implement it as soon as possible, preferably before the spring of 2014," Anderson said.
During Friday's open meeting, ERCOT also said that it would be filing several backcasts concerning the ORDC early this week.
Anderson also reported that he will be filing a memorandum at the next open meeting concerning Emergency Reserve [sic] Service (ERS).
"As I have stated in other venues, increasingly I am unhappy with the current form of ERS. If the current pilot regarding a 30-minute service demonstrates value, the whole program should be converted into a day-ahead product. ERS could also be merged with the non-spinning reserve service with appropriate adjustments to recognize load. In addition to their capacity bids, ERS providers would provide an 'energy bid' that would reflect the price at and above which they would curtail their consumption. As long as the price was at or above their bid price they would remain curtailed. This mechanism would provide better price formation to the market and provide providers of curtailment services more flexibility as to when and how often they want to be curtailed," Anderson said.
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July 22, 2013
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Reporting by Paul Ring • ring@energychoicematters.com
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