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ERCOT Independent Market Monitor Recommends That Texas PUC "Correct" Real-Time Energy Prices From 12am Feb. 18 To End Of Winter Event To Remove "Inappropriate Pricing Intervention"
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The ERCOT Independent Market Monitor has recommended that the Texas PUC, "direct ERCOT to correct the real-time prices from 0:00 February 18, 2021, to 09:00 February 19,2021, to remove the inappropriate pricing intervention that occurred during that time period."
"The IMM agrees with the Commission's Order from February 15, 2021, which mandated that real-time energy prices reflect firm load shed by setting prices at the value of lost load (VOLL). This is essential in an energy-only market because it provides efficient economic signals to increase the electric generation needed to restore the load and service it reliably over the long term," the IMM said in a filing with the PUC
"Conversely, it is equally important that prices not reflect VOLL when the system is not in shortage and load is being served. The Commission recognized this principle in its Order, expressly stating it is only ERCOT's out-of-market shedding firm load that is required to be reflected in prices. Unfortunately, ERCOT exceeded the mandate of the Commission by continuing to set process [sic] at VOLL long after it ceased the firm load shed," the IMM said
"ERCOT recalled the last of the firm load shed instructions at 23:55 on February 17, 2021. Therefore, in order to comply with the Commission Order, the pricing intervention that raised prices to VOLL should have ended immediately at that time. However, ERCOT continued to hold prices at VOLL by inflating the Real-Time On-Line Reliability Deployment Price Adder for an additional 32 hours through the morning of February 19. This decision resulted in $16 billion in additional costs to ERCOT's market, of which roughly $1.5 billion was uplifted to load-serving entities to provide make-whole payments to generators for energy that was not needed or produced. Although most energy costs can be hedged by ERCOT's load-serving entities through bilateral contracts or generation, these make-whole payments are particularly harmful because they are uplifted to all loads through the Real-Time Ancillary Service Imbalance Charge. Therefore, they cannot be hedged and will likely result in substantial adverse economic effects, including higher levels of defaults," the IMM said
"Therefore, the IMM recommends that the Commission direct ERCOT to correct the real-time prices from 0:00 February 18,2021, to 09:00 February 19, 2021, to remove the inappropriate pricing intervention that occurred during that time period. From a practical standpoint, this will primarily be accomplished by removing most, if not all, of the Real-Time On-Line Reliability Deployment Price Adder during these intervals, which will substantially eliminate the Real-Time Ancillary Service Imbalance Charge," the IMM said
"Importantly, adopting this recommendation will not result any revenue shortfalls for ERCOT's generation as the corrected prices will cover the generator's as-offered costs, and efficiently reflect the actual supply, demand, and reserves during this period. We recognize that revising the prices retroactively is not ideal. In this case however, given that the prices are inconsistent with ERCOT's protocols and the Commission Order and that allowing them to remain will result in substantial and unjustified economic harm, we respectfully recommend that the Commission take the action described above to correct ERCOT's real time prices," the IMM said
Separately, Vistra Corp. said in a filing with the PUC that, "Vistra strongly advises against the Commission ordering ERCOT to change its rules to
cap ancillary services at $9,000/MW/h [sic]."
"To begin with, any going-forward changes to ERCOT
rules involving capping ancillary services should follow the ordinary stakeholder process to ensure
that all market participants have the ability to weigh in with their viewpoint, and a fully informed
decision can be made. ERCOT’s market rules should not be abruptly changed," Vistra said
"The decision to allow ancillary services prices to go above $9,000/MW/h was not made arbitrarily or without reason.
For example, it may be inappropriate to cap ancillary services at $9,000/MW/h because doing so would skew offers
for down Regulation relative to offers for Responsive Reserve Service or up Regulation, since generators providing
down Regulation can capture both energy and ancillary service revenue, where generators providing the other services
would be limited to $9,000/MW/h under the IMM’s recommended approach," Vistra said
"Moreover, Vistra opposes an order that cherry picks certain prices (i.e., ancillary services
prices) to be repriced without considering the other prices that market participants are challenging
(e.g., pricing at $9,000/MWh beyond the time ERCOT ceased shedding load). The Commission
should consider opening a Project to address repricing issues for the February 2021 Winter
Weather Event holistically, giving all affected market participants the chance to be heard. It would
be inappropriate for the Commission to just reprice ancillary services without addressing the other
pricing issues and challenges. In this regard, the Commission should, for example, consider that
residential customers are typically not affected by ancillary services prices. Additionally, the Commission should explore whether revising ancillary services prices will adversely affect the
economic viability of generation assets that the market needs," Vistra said
"Finally, it is not correct that market participants did not know, or should not have expected,
ancillary services prices to go above $9,000/MW/h. In fact, on Sunday February 14, ERCOT
posted a market notice reminding market participants that the ERCOT Protocols dictate that the
Day-Ahead Market (DAM) algorithm consider lost opportunity costs associated with capacity
providing ancillary services, and because of that, prices can exceed the System-Wide Offer Cap
(SWOC) of $9,000/MW/h. ERCOT specified that it did not see a need to correct DAM prices for
February 15, 2021. The pricing outcomes were reflective of actual scarcity of supply," Vistra said
Project 51812
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IMM Says, "ERCOT Exceeded The Mandate," Of The PUC By Continuing Price Adder After Load Shed Ended
Vistra Opposes Rule Change To Cap Future Ancillary Services At $9,000/MW/h; Says Any Adjustment To Prior Prices Should Examine Energy, AS Prices Holistically
March 4, 2021
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Reporting by Paul Ring • ring@energychoicematters.com
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