Verdigris Energy Urges Texas PUC To "Scrutinize" Ancillary Service Costs Which Spiked To $20,000/MWh, Asks Whether Prices Should Be Revised Down To Energy Price Cap
February 25, 2021 Email This Story Copyright 2010-21 EnergyChoiceMatters.com
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Verdigris Energy, LLC filed a letter with the Texas PUC urging the PUC to scrutinize prices for ancillary services during the recent weather event, as Verdigris noted that ancillary services prices were in excess of $20,000/MWh (Docket 51617)
"While balancing-energy prices are getting a great deal of attention, a larger
issue looms over the industry and appears to be going unnoticed and unquestioned.
Ancillary Service prices are not transparent. They are poorly understood, and many
Retail Electric Providers are not yet willing or even able to share cost estimates with
their end-use customers who take this item as a pass-through," Verdigris said
"[U]nlike balancing energy, clearing prices for Ancillary Services far exceeded the offer cap. In fact, they settled in excess of $20,000/MWh," Verdigris said, as it included in its filing a table with the daily average price for ancillary services.
"Three of the largest cost items among the ancillary services are Responsive
Reserve Service (RRS), Regulation Up (Reg Up) and Regulation Down (Reg Dn). RRS
is provided by generators on standby to ramp-up capacity that hasn't otherwise been
scheduled, as well as loads who have agreed to be interrupted without notice. Reg
Up and Reg Down are small adjustments made by generators to keep the grid at 60
Hz. ERCOT procures these services and passes costs through to load serving entities
on a pro-rata basis. These items are commonly unhedged in total or in part by
energy suppliers, who will fix the values for end users (including a risk premium), or
pass these costs through without premium," Verdigris said
"For many commercial and industrial end users, these cost items are passed-through
at cost. These typically amount to a tiny fraction of the overall cost of
energy. Historically when LMPs (aka 'spot prices') have surged, Ancillary Services
have climbed, but not close to the extremes of last week. As the table reflects, RRS,
RegUp and RegDn typically clear at prices lower than the zonal LMP ('Spot price'),
but last week values exceeded $20,000/MW per hour, the highest being $25,674.30
for Responsive Reserve Service at 8am on Wednesday, Feb. 17, nearly three times
the $9,000 offer cap. This is the first time Ancillary Service prices have exceeded the
offer cap. According to Carrie Bivins, ERCOT IMM Director, discussing Ancillary
Service prices at the ERCOT Urgent Board of Directors Meeting held February 24,
'Optimization is setup to procure at pretty much any price,'" Verdigris said
"To illustrate the impact of the extraordinary Ancillary Service prices, a
commercial energy buyer taking Ancillary Services as a pass-through has received a
good-faith estimate from their Retail Electric Provider that the Ancillary Services
portion of their bill for the week of Feb 14 is more than 495x the typical ancillary
services pass-through. For a mid-sized commercial energy user typically paying an
all-in cost of energy of $1,000 per week, the typical Ancillary Services pass-through
is about $50. For the week of February 14, it will be about $25,000," Verdigris said
"Given the $9,000/MWh offer cap for Ancillary Services, is an 'optimized'
settlement price of in excess of $20,000/MWh justified? It is unprecedented and
should be scrutinized by regulators and legislators," Verdigris said
Verdigris said that some of the questions the PUCT should address include the following:
"1) Given that the maximum offer for Responsive Reserve Service, Regulation Up
and Regulation Down was $9,000, how do the settlement price for these
Ancillary Services clear at multiples of the highest offer? Is it possible that
these extraordinary clearing price calculations were subject to error?
"2) Should the PUCT order Ancillary Service values be revised back to the offer
"3) Is it possible for market participants to 'game' the availability of Ancillary
Services to cause the clearing price of capacity to vastly exceed the offer cap?
"4) Do these lines of questions simply suggest prudent profit maximization and
reasonable price signals, or do they reveal instances of price gouging during a
public safety emergency?
"5) Once all firm load is subject to involuntary interruption, should all load be
recognized as de-facto interruptible resources with an offer price of $0 and
placed into the RRS offer stack? If not, should interrupted loads receive a
pro-rata share of the RRS payout?
"6) During periods of sustained rolling blackouts, does ERCOT need to procure
much, if any, RRS from generators when every MW of capacity available is
needed for balancing energy to meet the ongoing crisis?"