ERCOT Board Approves Interim Shadow Price Cap for Valley

ERCOT's Board of Directors approved a temporary price cap revision for the Valley area.

The measure revises the methodology for setting the maximum shadow price on the Valley Import Constraint.

The Valley import is a base case constraint and therefore the previous Shadow Price cap was $5,000/MWh. Accordingly, whenever the constraint was violated the LMPs of the Electrical Buses in the Valley were increased from system lambda by nearly $5,000.

After December 1, 2010, whenever the constraint was violated the South Load Zone price was averaging around $1,800/MWh. This is a high price for a Load Zone for a constraint to which majority of the loads in the Load Zone have next to no impact. After go-live, whenever the constraint was binding the Shadow Price never went above $100/MWh indicating the level of Shadow Price cap needed to resolve the constraint as much as possible with the current generation pattern.

Effective May 25, 2011, $350/MWh will be the Shadow Price cap for the Valley import constraint. This level was arrived at using a methodology considering the maximum offer from a new or existing resource and the minimum shift factor in the Valley region, to ensure that all available resources will be dispatched to resolve the constraint as much as possible, while also recognizing that the Valley import is affected by only a few resources and is not a competitive constraint, and hence the offers from these resources are mitigated by their verifiable cost.

The Board also directed the Technical Advisory Committee to report back to the board on a recommendation for a holistic methodology for setting appropriate shadow price caps for constraints not resolvable by Security Constrained Economic Dispatch (SCED), and a recommendation for addressing gaps between operations and planning processes to identify constraints not resolvable by SCED.