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Texas REPs Reiterate ORDC Worked As Intended

October 22, 2018

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

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Texas retail electric providers submitted further comments to the Texas PUC reporting that the Operating Reserves Demand Curve (ORDC) functioned as intended this summer

The REP Group, consisting of the Texas Energy Association for Marketers ("TEAM") and Direct Energy, said that, "the ORDC worked as intended. The ORDC influenced the market in several respects. First, with the awareness of the potential exposure to $9000 prices under the ORDC, the pricing in forward curves for power to be consumed in the summer of 2018 were in the range of $100 to $200 /MWh throughout 2018. Second, day ahead prices were also higher than prior years, in part based on the presence of the ORDC. Third, the ORDC resulted in higher real-time prices during times when there was the possibility of actual scarcity in the real-time market. It also is important to note that the real-time prices for Summer 2018 showed a 25% increase over the pricing in 2017 even though natural gas prices essentially remained the same."

The REPs further said that the actual experience of the summer validated much of the CDR report. "The aspects that have been most difficult to quantify is the expected response of load to scarcity pricing and/or expected 4CP days."

The REPs noted that, "The 4CP response is an aspect of demand response that is directed at reducing wires charges. This response has the consequence of being on high demand days, which have the potential to be high scarcity pricing days. Load response because of the 4CP on high scarcity pricing days may result in lower prices because there is less demand. For example, in July of 2017, more than 1800 MW of demand responded on the 4CP day. That could impact the size of the ORDC adder and energy prices. Not knowing the exact date of the 4CP event can result in a response on more than one day of each month."

Discussing price formation on several specific days cited in a Staff question to stakeholders, the REPs said, "To understand price formation for the above-identified days, it is important to understand the pricing and amount of power that was procured through bilateral agreements under the forward curves. The forward curve prices for power (based on ICE futures) to be delivered in July and August was at or near $200 during much of 2018. Therefore, generators were able to lock in significant revenue for their plants during that time. This is indicative of effective performance of the market as intended. In this instance, the generator revenue was sufficient in the Spring of 2018 to allow shutdowns for maintenance during the shoulder months. This supported greater availability and lower unplanned outages during the summer months. As such the analysis of 2018 Market Performance cannot be limited to a review of the real-time and/or day ahead market prices."

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