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Texas PUC Staff Propose Commission Action Regarding ERCOT Price Formation Proposals

Staff Address ORDC Changes, LOLP Changes, Extended LMP

February 8, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Staff of the Public Utility Commission of Texas have filed a memo proposing certain action by the Commission in a project assessing price formation issues in ERCOT.

This memorandum focuses on proposals related to (1) the Operating Reserve Demand Curve (ORDC) and (2) Reliability Unit Commitment (RUC) pricing. Longer lead-time recommendations, including co-optimization and marginal losses, are currently under study by ERCOT and are not brought forward for consideration at this time, Staff said

As discussed more fully below, Staff recommends that the Commission, at its February 15, 2018 open meeting:

• "Consider" removing RUC and Reliability Must-Run (RMR) capacity from the ORDC;

• Defer ordering any changes to the Loss of Load Probability (LOLP); and

• Direct Staff to open a new project to assess RUC pricing, with an emphasis on the Extended LMP (ELMP) concept.

Regarding its proposal that the Commission "consider" removing RUC and Reliability Must-Run (RMR) capacity from the ORDC, Staff's memo outlined arguments for and against the proposal, and the impact that such proposal would have.

Staff noted that, if the Commission determines that RUC and RMR capacity should be removed from the ORDC, this change could be put in place by summer 2018, assuming the Commission provides such direction at the February open meeting. ERCOT has informed Staff that implementation could be accomplished 60 days after approval by ERCOT's Board of Directors. Direction provided by the Commission to ERCOT at the February open meeting could be presented to the Board of Directors at the April meeting and be in effect by July 1, 2018.

Regarding LOLP, Hogan/Pope Report had proposed shifting the mean of the probability distribution applied in deriving the LOLP, which is a key input to determining the ORDC price adder. The Hogan/Pope Report had proposed shifting the mean of the LOLP distribution by a scaling factor of up to one standard deviation to reflect this increased risk.

"Staff recommends the Commission defer ordering ERCOT to implement any changes to the LOLP, pending additional observation of ORDC outcomes over a longer period of time," Staff said

"Additional observation would allow the Commission to determine whether, as asserted by commenters, the current design underestimates the volatility of intermittent generation and whether the vertical portion of the curve results in undesirable market outcomes. If valid, these claims should be discernible over time, particularly during the summer months when the ORDC is more likely to be contributing to the price. Additional time spent observing ORDC outcomes would provide the Commission with necessary data to support a decision to modify the LOLP calculation," Staff said

The Hogan/Pope Report had outlined several concerns regarding pricing outcomes when ERCOT commits a unit through the RUC process to resolve local transmission constraints. Parties had provided comment on the proposals described in the Hogan/Pope Report and proposed alternatives. Stakeholder recommendations had included:

• Instituting an ELMP framework that considers the start-up and minimum energy costs of certain units in the pricing logic and relaxes the minimum dispatch level to allow the unit to set a price reflective of these costs if the unit is economic.

• Assigning a "scarcity value" to the commitment by deducting the minimum output of the unit from the capacity of the transmission constraint the unit is brought online to resolve.

• Relaxing mitigation or increasing the mitigated offer cap when a unit is marginal but mitigated to control for local market power.

• Minimizing the use of RUC through various changes

"Given the range and complexity of proposals relating to RUC pricing, Staff believes further study is necessary before any proposal is brought forward for Commission consideration. Additional information, including specific examples demonstrating the price effect of RUC instruction, would be helpful in assessing the need for changes to RUC pricing rules," Staff said

"Further, in Staff's preliminary view, the ELMP concept represents a possible improvement to the design that merits further review in a discrete project. A separate project with a distinct focus would allow Staff to develop a robust record for Commission deliberation," Staff said

"If the Commission wishes to further consider RUC pricing proposals, Staff thus recommends that the Commission direct Staff to open a separate project to gather additional information pertaining to these proposals, with a particular emphasis on ELMP," Staff said

Project 47199

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