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Texas PUC Staff Proposes Changes To Rules Governing Scarcity Pricing Mechanism

December 14, 2018

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

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Staff of the Public Utility Commission of Texas have filed a draft proposal for publication that would revise certain provisions of the scarcity pricing rules in ERCOT

Commission staff recommends the following changes in the draft proposal for publication:

Scarcity Pricing Mechanism

To address the concern that existing rule language could result in a discrepancy between pricing mechanisms in the Day-Ahead Market and the Real-Time Market (discussed in our prior story here), Staff has recommended amendments to §25.505 that would suspend the Operating Reserve Demand Curve (ORDC) and Reliability Deployment Price Adder if the Low System-Wide Offer Cap (LCAP) is in effect.

Under the current rule, if the peaker net margin threshold is reached, the Day-Ahead Market would be constrained to the LCAP, but the Real-Time Market would not because the ORDC would be in effect in the Real-Time Market. This could cause unusual divergence between the Day-Ahead Market and the Real-Time Market, as generators would be incentivized to offer only in the Real-Time Market (where the ORDC would apply) to avoid being limited by the LCAP in the Day-Ahead Market.

Specifically, the proposed revisions state that, if the peaker net margin exceeds the threshold established in the current rule (e.g. three times the cost of new entry of new generation plants), "ERCOT will not apply any administrative pricing mechanism, such as the operating reserve demand curve or the reliability deployment price adder, for the remainder of that calendar year. Energy prices will not exceed the LCAP for the remainder of that calendar year."

Staff also proposes a question for comment in the preamble as to whether the LCAP should be eliminated altogether.

Houston Ship Channel Gas Price Index

To address the concern that current §25.505 may be too prescriptive regarding the gas price index used in certain calculations, Staff proposes revised language that references a natural gas price index value determined by ERCOT. Staff believes that there is robust stakeholder scrutiny at ERCOT that will ensure that a meaningful gas price index is established.

Under the current rules, the peaking operating cost (POC) [which is used in the peaker net margin calculation] is 10 times the daily Houston Ship Channel gas price index for the previous business day. Under the proposed revision, the peaking operating cost (POC) would be 10 times the natural gas price index value determined by ERCOT.

Furthermore, under the current rule, the low system-wide offer cap (LCAP) is set at the higher of (i) $2,000 per MWh and $2,000 per MW per hour; or (ii) 50 times the Houston Ship Channel gas price index of the previous day. The proposed revision would provide that the LCAP would be set at the greater of (i) $2,000 per MWh and $2,000 per MW per hour; or (ii) 50 times the natural gas price index value determined by ERCOT

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