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STEC Says ERCOT Outage Cancellation Procedure Gives Market A "Free Capacity Call Option", Seeks PUC Review
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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 EnergyChoiceMatters.com 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 §§ 3.1.6.8 and
3.1.6.9 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
Project 47199
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March 27, 2019
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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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