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Anderson Suggests Texas Commission Study Reliability Standard Prior to Comparing Costs of Resource Adequacy Alternatives, Notes Energy-Only Market Expected to Remain Above Brattle's "Equilibrium" for Next Seven Years (20 Year Track Record of Adequate RA)
Given the recent results of the Brattle economically optimal reserve margin study, Texas Public Utility Commissioner Kenneth Anderson has recommended that the Commission study the appropriate reliability standard (1-in-10 year loss of load event or alternative) prior to instituting a comparison of the costs and benefits of various policy approaches to resource adequacy.
In a memo in advance of today's open meeting, Anderson said, "The revised load forecast produced by ERCOT on January 22, 2014, shows a significant reduction in the overall forecasted peak load growth in ERCOT through 2023."
"When applied to the ERCOT May 2013, Capacity Demand and Reserves report, the new revised peak load estimates produce the revised forecasted reserve margins ... [which] show that ERCOT will not drop below the current target reserve margin of 13.75% until 2019 (and then by only 0.15%), and even then it will still be far above the economically optimal reserve margin of 10.2% determined by Brattle in the January 2014 Brattle Study. The equilibrium reserve margin of 11.5% determined by Brattle will not be reached until 2021 (if then), and the economically optimal reserve margin of 10.2% not until 2022," Anderson said.
Click here to see reserve margins under new load forecast, based on May 2013 CDR resource projections
"Accordingly, nothing before us today shows there is any problem with the reserve margin in ERCOT's energy-only market. This leads me to conclude that analyzing various alternative market structures or their respective costs is premature, because the market that we currently have is functioning reasonably well. By 2019 our energy market will be twenty years old, and still operating at a reserve capacity above the Brattle predicted natural equilibrium of 11.5% or the economically optimal reserve margin of 10.2%, and only slightly below ERCOT's current 13.75% target reserve margin," Anderson said.
"However, Brattle has raised an issue which this Commission has somewhat hastily passed over -- specifically, whether our current target reserve margin based upon a 1-in-10 year loss of load event (0.1 LOLE) is the most appropriate reliability standard. Given the lack of urgency in moving from our current market design, I submit we should first analyze the appropriateness of ERCOT's reliability standard and whether a change in that reliability standard is warranted. Brattle more than implicitly recommends that the Commission undertake this action. If the Commission were to adopt a mandatory reserve margin, what Brattle refers to as a 'reliability-based standard,' they recommend the adoption of the 'normalized expected unserved energy' (EUE) standard because it considers the magnitude and duration of events among its factors. Adopting a EUE approach would constitute a total redesign of ERCOT's reliability standard, which should not be done without careful evaluation by the Commission and the ERCOT stakeholders. Analyzing the EUE recommendation should be conducted as part of a truly broad and intensive study of the appropriateness of ERCOT's reliability standard and resulting reserve margin," Anderson said.
"Therefore, I would urge this Commission to open a particular project focused upon all aspects of ERCOT's reliability standard and resulting reserve margin, including, without limitation, whether it is necessary to adopt the resulting standard as a target or a requirement. At this point I have no opinion as to whether we should ultimately stick with ERCOT's current 0.1 LOLE standard, modify the LOLE standard or adopt a EUE standard at a level to be determined. It does, however, strike me as premature to study alternatives to ERCOT's current market design unless and until this Commission determines the appropriate reliability standard, the installed capacity reserve margin required to achieve the standard and nature of the resulting reserve margin," Anderson said.
"Initially, I would ask ERCOT to provide us with information as to what installed capacity reserve margin is required to meet a 6 hour LOLE, a 12 hour LOLE and a 15 hour LOLE. Staff can take that information and develop a process over the next few months that can lead to one or more workshops this summer or early fall so that this Commission and the stakeholders can make an informed decision before the end of this year," Anderson said.
"Consequently, both for reasons of cost and need, I would defer asking Brattle to do an additional [cost-benefit] study [on RA policy options] along the lines laid out in the Chairman's Memorandum until we determine, based upon real data, ERCOT's appropriate reliability standard and the nature of the standard. Only then should we consider conducting a study to compare ERCOT's current market design with any other market design," Anderson said
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February 6, 2014
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