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ERCOT IMM Proposes Pay-As-Bid Compensation For Large Load Demand Reduction Reliability Service
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The ERCOT reliability service which is to procure demand reductions from large load customers, required by recent legislation, should compensate providers of demand reductions on a pay-as-bid basis, ERCOT's Independent Market Monitor said in comments at the Texas PUC
PURA § 39.170(b) directs the PUC to require ERCOT to develop a reliability service to competitively procure demand reductions from large load customers with a demand of at least 75 megawatts (MW) to be deployed in the event of an anticipated emergency condition.
See more background here
In comments at the PUC, the IMM said of the Large Load Demand Management Service (LLDMS), "We recommend a paid-as-bid auction structure for pricing."
"The LLDMS product is a short-term reliability product procured based on anticipated probability of load shed, resulting in a quantity and budget constraint. It is not intended to provide revenue in a fashion that will incentivize new investment in load that can participate in this program. As such, the inframarginal rents from a single-price auction pose an unnecessary cost. While a paid-as-bid auction structure does have some incentive for participants with lower costs to inflate their offer prices, the fixed procurement quantity (tied to a budget) does pose risk of unsuccessful offering, so there is a self-discipling aspect that will keep price inflation in check. One important aspect of this is that offer prices should not be made public after the auction to prevent future offer inflation," the IMM said
The IMM summarized, "In the anticipated competitive participation pool, large loads will be incentivized to submit competitive offers to avoid the chance of an unsuccessful offer."
The IMM also said that 4CP-responsive loads should be excluded from the LLDMS. Statute directs that loads responsive to wholesale prices shall not be eligible for LLDMS, and PUC Staff have asked whether 4CP-responsive customers should be ineligible
The IMM also favors an "as needed" design for LLDMS, which would procure the demand reductions on an as needed basis just prior to an extreme event identified by ERCOT
This is in contrast to the potential use of a Seasonal option for LLDMS, under which LLDMS would be procured on a seasonal basis prior to the start of each defined season, to be available as an additional tool during any event during the season as needed by ERCOT
The IMM said, "The LLDMS should avoid replicating the structural limitations of the Emergency Response Service by instead allowing procurement levels to reflect short-term reliability needs."
The IMM said that a Seasonal LLDMS, "would impose the same adverse effects and shortcomings as the Emergency Response Service (ERS). Because the seasonal budget is set in advance, it cannot reflect the true likelihood of extreme weather. In seasons with no qualifying events, the cost to load yields no reliability value, while in seasons with multiple events, the budget may be materially strained."
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April 7, 2026
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Copyright 2026 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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