Texas Generators Propose Three-Year Forward Reliability Requirement For Retail Providers If Conditions Triggered

October 1, 2021

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Reporting by Paul Ring • ring@energychoicematters.com

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Consultants retained by NRG Energy, Inc. and Exelon Corporation have filed with the Texas PUC a proposal that would impose on retail electric providers a three-year forward "reliability requirement" if certain conditions are triggered

The so-called LSE Reliability Obligation would include the following elements:

• Reliability Standard: the PUCT determines a formal system reliability standard. ERCOT calculates the required seasonal reserve margin to achieve this standard.

• Resource Accreditation: ERCOT will accredit the reliability value of each resource for each season. Resources with dispatch limitations - whether due to intermittency, energy output duration limitations, or fuel supply challenges - would be accredited according to their expected performance during reliability events.

• System Assessment: ERCOT will project, on a 3-year forward basis, whether there are sufficient accredited resources to satisfy the seasonal reserve margin necessary to meet the reliability standard.

• Trigger: The PUCT will trigger the LSE Reliability Obligation on a 3-year forward basis when ERCOT system assessment projects a likelihood of insufficient resources to meet the reliability standard.

• LSE Requirement: If triggered, each LSE would be assigned a seasonal reliability requirement based on its projected firm load during critical system hours. LSEs serving interruptible loads or with demand response capabilities would receive a reduction in their reliability requirement.

• LSE Showing: If triggered, LSEs would be required to show sufficient resources (based on ERCOT's resource accreditation) to meet their seasonal LSE requirement on a year-ahead forward basis. Any showing deficiency would be assessed a penalty that would be used by ERCOT to procure accredited resources and correct the deficiency.

• Performance Assessment: Resources that are accredited with a reliability value and obligated as part of an LSE Showing would be required to offer into the energy market during designated reliability events, with penalties assessed for non-performance

"Using the forward-looking system assessment developed by ERCOT, the PUCT would make a decision about whether to "trigger" the LSE Reliability Obligation. If the 3-year ahead system assessment shows a high probability of adequate resource availability, no action would be needed. However, if the system assessment shows inadequate resources, the PUCT could trigger the LSE Reliability Obligation. Factors that the PUCT could consider include load uncertainty, the magnitude of the expected sufficiency or deficiency, the potential for resource additions or retirements during the three-year period, and data or methodological limitations that could impact the assessment," the proposal states

"The requirement for a trigger to activate the LSE Reliability Obligation allows it to be minimally intrusive and disruptive to the current market framework: should the three-year ahead assessment indicate that the system will remain reliable over this period, the current energy-only market will function as it does today without intervention; however, in the event that evidence suggests that the system will be short, the trigger for the LSE Reliability Obligation provides the system operator with some recourse to remedy an expected resource deficiency that the energy-only market alone would not be expected to resolve," the proposal states

"By 'pulling' the trigger, the PUCT puts LSEs on notice that they will need to make a showing to demonstrate procurement of sufficient reliability resources to cover their share of total system reliability requirements beginning one year before the compliance season. The 3-year forward timeframe for the trigger would allow LSEs time to develop new resources should that be necessary. The year-ahead forward timeframe for the LSE showing is selected to be far enough out to enable ERCOT to procure resources on behalf of deficient LSEs but close enough to the compliance season that LSE loads are relatively certain," the proposal states

The LSE Reliability Obligation, "may benefit from a mechanism to address the risk of load migration after the forward showing," the proposal states

The proposal states that such mechanism to address migration could include:

• Moving the forward showing closer to the compliance season. This would reduce LSEs' risks associated with load migration but may jeopardize reliability by diminishing ERCOT's ability to remedy any systemwide shortfalls.

• Incorporating a second formal showing closer to the compliance period to rebalance the obligations among LSEs. The principal function of the second showing would be to reshuffle the obligation among LSEs to account for load migration, as opposed to the year-ahead showing which would identify any remaining system-wide deficiencies and rectify them. The potential risk reduction benefits would need to be weighed against the administrative cost associated with a second formal showing.

The proposal further states, "The proposed trigger feature of the LSE Reliability Obligation was designed to minimize the intrusion and impact of the proposal while still allowing the energy-only market design an opportunity to deliver. However, it is possible that the uncertainty created by the trigger and potential oscillation between on/off states could increase burden and uncertainty for LSEs," the proposal states

"An alternative approach is to adopt the LSE Reliability Obligation without the trigger. In this case, the LSE Reliability Obligation would be perpetually active on a year-ahead basis with respect to each season. The potential benefits of this are twofold: 1) it provides certainty to LSEs about what requirements will be and what value holding accredited reliability resources will provide, and 2) it ensures that reliability does not unexpectedly degrade after the trigger was not pulled which could leave the system deficient without any remedy to rectify. The costs are that this approach would take a potentially more domineering role in the market design of ERCOT. Ultimately, the decision to include or exclude the trigger component is a regulatory judgement call that should be made by the PUCT," the proposal states

The specific LSE requirement for each LSE would be each LSE's share of total system-wide reliability resources that must be procured in the event that the LSE Reliability Obligation is triggered. Each LSE's reliability requirement would be based on their pro-rata share of system load during the periods of the season that drive reliability requirements - which will typically align with peak "net load" hours, where net load is defined as gross load minus renewable and storage generation. "This approach assigns reliability requirements to the LSEs with highest loads during the most challenging hours without penalizing loads that consume energy during non-binding or even beneficial times of day (such as the middle of the day when an abundance of solar and wind generation result in very low or negative energy prices)," the proposal states

"The LSE requirement should only apply to firm load that is non-curtailable. To the extent that LSEs have load that can be curtailed or interrupted at the direction of the system operator, this would be given credit and exempted from the LSE requirement. Load that is partially curtailable would get a partial credit against the requirement. The partial credit would be determined by ERCOT based on any specific limitations to the load's ability to curtail (e.g., limitations on how often a load curtailment event could occur and how long the load could be offline). Other measures that allow LSEs to shift load away from peak net load periods - such as time-of-use rates or demand response - would also inherently reduce their LSE requirement," the proposal states

In the event that the LSE Reliability Obligation is triggered, each LSE would be required to make a reliability showing on a year-ahead basis. The reliability showing would require that each LSE show that it has a contractual relationship with sufficient reliability resources to meet its LSE requirement.

If an LSE is deficient (i.e. shows fewer MW of reliability resources than the MW LSE requirement), it would be assessed a compliance penalty.

"The penalty should be sufficiently punitive - for example two to three times the cost of new entry (CONE) - to ensure compliance," the proposal states

Project 52373

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