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STEC Says ERCOT Outage Cancellation Procedure Gives Market A "Free Capacity Call Option", Seeks PUC Review

March 27, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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South Texas Electric Cooperative, Inc. filed a request that the Public Utility Commission of Texas, "initiate a review of ERCOT's outage cancellation actions and procedures, the increased costs caused by such actions that generators cannot avoid ... and the risks to consumers and reliability caused by outage cancellations during the limited time available for the performance of generator maintenance for summer readiness."

STEC said that certain outage withdrawal or rejection conditions imposed by ERCOT may hinder the summer preparedness of STEC and other ERCOT market participants.

"Specifically, STEC would like to make the Commission aware of an ERCOT instruction to reschedule the outage for the San Miguel Unit due to cold weather that had been projected for more than a week prior to such time, or risk ERCOT withdrawing the acceptance of the outage. This instruction was received on February 28, 2019 after the close of the Day-Ahead Market ('DAM'), and less than 12 hours before a several week, major maintenance Planned Outage was scheduled to begin. STEC makes this filing in both the Price Formation and the Summer Readiness projects because the San Miguel Unit's Planned Outage start date was rejected due to a capacity shortage expectation on the ERCOT grid due to cold weather. The actions ERCOT took were intended to avoid rotating outages due to the anticipated capacity shortages. ERCOT exercised what amounts to a free capacity call option -- at great expense to the generators that had to cancel outages, reschedule outages if possible, bring units back when alternate supply had already been contracted, and risk unit performance due to the inability to timely take outages -- at great risk to both those generators and the market that have to perform maintenance or risk being subject to forced outages during the period of the lowest reserve margins the ERCOT market has ever seen," STEC said

An ERCOT media representative said in a statement to that, "ERCOT is working with stakeholders to continuously improve its processes. Following this unique situation, we are working with Market Participants to assess the most effective ways to communicate moving forward."

A presentation from ERCOT concerning the outage delays to be given at today's TAC meeting states that the "more reasonable scenarios" from ERCOT assessments in advance of the cold snap during the time period at issue showed an up to 5,500 MW shortage with potential for more extreme conditions. Actual conditions, but for the outage delays, would have resulted in a shortage of over 1,500 MW, the presentation states

STEC said that, "On June 11, 2018, STEC submitted a several week Planned Outage request to conduct needed major annual maintenance on the 391 MW San Miguel Unit. Despite ERCOT accepting STEC's Planned Outage request approximately nine months ahead of the outage, and despite the necessity of STEC's maintenance request to ensure the unit is available for the summer as requested by the Commission, the San Miguel Unit was selected as part of the cohort of units recalled from outage due to cold weather forecasts. ERCOT Protocols §§ and give ERCOT discretion to determine when outage cancellations are appropriate, but also require ERCOT to consider the timeliness of outage requests and the reliability impact of the cancellation. These factors were not given adequate consideration by ERCOT during the recent outage cancellations on February 28, 2019. Instead, ERCOT indicated to STEC that it was issuing a blanket outage cancellation for all units greater than 400 MW, including STEC's scheduled Planned Outage for the San Miguel Unit. STEC is concerned that the Planned Outage cancellation procedures prescribed by the Protocols were not followed, placing the San Miguel Unit in jeopardy of not being adequately prepared during critical summer months when ER COT reserve margins are at historic lows. STEC requests that the Commission incorporate a review of ERCOT's outage cancellation practices in conjunction with other summer preparedness initiatives the Commission is currently undertaking."

STEC said that, "Although STEC's Planned Outage request was submitted nearly nine months prior to the start date, less than 12 hours prior to initiating the ramp down of the unit to begin the outage, STEC was notified by ERCOT that the outage would be withdrawn if STEC did not 'voluntarily' reschedule to a time no earlier than 22:00 on March 6, 2019. Once an outage is withdrawn, any attempts to reschedule are considered to be a new request subject to the applicable Planned Outage lead time and coordination requirements found in the Protocols. Withdrawing the outage would essentially guarantee that SMEC [San Miguel Electric Cooperative] would be unable to complete its maintenance on the San Miguel Unit prior to May 15, 2019 and called into question whether the unit would even be able to maintain operations until maintenance could be rescheduled. STEC repeatedly reached out to ERCOT staff to explain the importance of allowing San Miguel's outage request to proceed. Despite STEC's attempts to persuade ERCOT to reconsider the cancellation, ERCOT declined to allow the outage and STEC faced no other option than to reschedule the outage start date to March 7, 2019 in order to preserve its place in the outage queue and not be subject to the submittal requirements that would have occurred if ERCOT had withdrawn the outage. The actions taken by ERCOT could be likened to volunteering without being given a choice."

STEC said that, "Resource Entities are left with little recourse in the event ERCOT cancels a Planned Outage. Should ERCOT withdraw or reject a Planned Outage, Resource Entities must restart the Outage scheduling process and submit a Planned Outage proposal as a new request, subject to the timelines and requirements of the ERCOT Protocols. Additionally, resources must make last minute efforts to procure fuel and chemicals to be able to run, reschedule contractors and equipment needed for the outage thereby incurring significant costs to do so, and to be exposed for any costs paid to procure energy to cover the time period when the generator was to take outage. This unilateral capacity call option by ERCOT has real, non-trivial costs for generators and for consumers. If the maintenance cannot be completed, or the same level of maintenance cannot be completed, then those generating assets are at greater risk of forced outage. The risk of forced outage historically had been a problem only for generators, but with the energy-only market having so efficiently reduced the amount of available capacity to lows not seen in any organized energy market since the California power crisis in 2000, this is now also a risk to load that is now much more likely to be subject to rotating outages than at any time in ERCOT's history."

"Delaying the start of the Planned Outage on such short notice also caused significant unnecessary expenses for STEC. Several days before the issuance of the Operating Condition Notice ('OCN'), STEC procured an additional 100 MW at prices higher than the San Miguel Unit's variable costs in order to cover STEC's exposure during the extreme weather conditions knowing that the San Miguel Unit would be offline and that extreme cold weather was forecasted. These costs would not have been incurred by STEC if ERCOT's actions were timely and prudent. Furthermore, ERCOT did not provide notice of the outage recall until after the timeline for DAM submissions had closed. This left STEC with no ability to adjust or hedge its DAM position for the unanticipated availability of the San Miguel Unit. The delay in the San Miguel Unit outage also created an overlap between the Outage for the San Miguel Unit and another Resource within STEC's fleet. The sequential timing of these two Resource Outages was not happenstance but was part of a coordinated effort that takes place every Outage season to minimize STEC's overall cost to serve load. This is not a coordination effort that is unique to STEC, however. The resulting Outage overlap forced STEC to procure power from other sources at a cost higher than the variable cost of energy from the San Miguel Unit. The final incremental costs for STEC are expected to total at least $360,000," STEC said

STEC said that, "Notably, after ERCOT's February 28 decision to reschedule outages, summer energy prices fell. For example, in the North Hub, there was a decrease of approximately $6/MWh from March 4 through March 7. Some market participants believe ERCOT's out-of-market action to be the direct cause of the decrease in summer energy prices. STEC cannot attest to the validity of that assertion; however, ERCOT's decision to reschedule outages and the subsequent decrease in summer energy prices are at the very least positively correlated. Nevertheless, this price decrease shows that ERCOT's willingness to take out-of-market actions-actions inconsistent with an energy-only market- will continue to depress forward prices."

STEC said that, "STEC is concerned that ERCOT's decision to recall the Planned Outage of the San Miguel Unit will prevent SMEC from adequately completing the repairs and maintenance that are necessary for the unit to reliably perform this summer. SMEC will use all best efforts to complete as many of the originally planned repairs as possible during the truncated outage window and SMEC expects to be able to make significant progress on the San Miguel Unit during the outage. However, it is likely that some repairs will have to be delayed until a later outage can be scheduled, particularly in light of the resulting contractor scheduling crunch caused by ERCOT. Delaying any repairs of a baseload resource the size of the San Miguel Unit not only jeopardizes the integrity of the individual unit, but also jeopardizes the reliability of the entire ERCOT system when the reserve margin is at historic lows and stakeholders are focused on ensuring system reliability during tight summer conditions. By issuing cancellation instructions to baseload resources like San Miguel, ERCOT ignores its own mandate to consider the impact an outage cancellation would have on the ERCOT System."

STEC said that the PUC should provide clarification regarding ERCOT's ability to exercise discretion to recall outages, including any limitations on ERCOT's discretion.

The Commission should provide guidance regarding the timeliness of notice of outage cancellations, STEC added

The Commission should instruct ERCOT to increase the transparency of its outage cancellation process, STEC said

STEC said that, "ERCOT should not have a free call option on capacity in the ERCOT Energy-Only market."

"Many market participants say that the ERCOT market is the most efficient market- however there are externalities in the market that are not covered. This free capacity call option on the part of ERCOT is a key externality. ERCOT's ability to call on thousands of MW of generation to cancel outages, putting those units at risk for summer readiness and with real-world costs being absorbed by those generators, is one such externality for which ERCOT should provide generators a Make Whole Payment. If there were some cost to ERCOT for taking actions that impact system reliability and disrupt the ability of generators to be available, the tangible costs for those ERCOT actions should be borne by ERCOT, not the generators that are complying with the Protocols. Lastly, the energy-only market design is premised upon the notion that resource adequacy will hinge on the occurrence of a few events of high prices, therefore STEC is concerned that the ERCOT actions erased one of the sparse revenue opportunities for generators and exacerbates the revenue sufficiency problems that have resulted in declining reserve margins. In addition to the investigation into the actions ERCOT has taken that conflict with the Protocol protections to generators, the Commission should also look at cost causation. In this case, much like taking a unit out of merit order or using Reliability Unit Commitment to mandate a generator be available, there are verifiable costs that generators incur with the expectation that they will be performing maintenance to meet their obligations to the Commission, to ERCOT, and to the market as a whole," STEC said

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