PUCT Chair Nelson: Raising ERCOT Offer Cap Won't Achieve Desired Reserve Margin

Raising the offer cap in ERCOT would not allow the market to achieve the desired reserve margin, Donna Nelson, Chair of the Public Utility Commission of Texas, said in a memo in advance of today's open meeting.

The PUCT was slated to discuss Nelson's memo and resource adequacy issues later this afternoon.

In the memo, Nelson said that the one event in 10 years standard for resource adequacy should be maintained.

"Adopting a lower standard would increase our risk of rolling outages; I am unwilling to do that," Nelson said.

Nelson suggested directing ERCOT to determine what reserve margin is necessary to achieve the one event in 10 years standard. Nelson noted that ERCOT staff is currently performing a Loss of Load Probability study that takes 2011 weather into account, and expects to complete the study in a couple of months.

Furthermore, "[i]n addition to deciding the proper level for the reserve margin, we need to decide whether it is a mandatory number," Nelson said.

"I have come to the conclusion that the market should be designed to meet the specified reserve margin. Texans expect their air conditioners to run and their lights to stay on," Nelson said.

"Based on the Brattle Group's analysis, I believe raising the offer cap will improve the situation but I do not believe it will allow the market to achieve a reserve margin consistent with the one event in 10 years standard. I have not seen analysis disputing the Brattle Group's findings on this point," Nelson said.

Given this, Nelson said that the Commission, "need[s] to decide what market design changes are necessary to achieve the reliability objectives we set in response to the first two issues I have identified."

"I propose that we solicit possible solutions from stakeholders and schedule a workshop on September 6 to allow stakeholders to present those solutions and for us to ask questions. Also, to develop a comprehensive solution to the resource adequacy issue, the long term resource adequacy rulemaking in Project No. 40268 should be considered at the same time as the stakeholder proposals," Nelson said.