ERCOT Files Two Interim Solutions to Improve Scarcity Pricing by Utilizing Reserve Demand Curves

ERCOT has filed with the Public Utility Commission of Texas two potential interim solutions to improve scarcity pricing by utilizing reserve demand curves.

ERCOT prepared the solutions in response to the Commission's request to study the impacts on pricing of operating reserves that would result from implementation of the concepts discussed in the paper prepared by Professor William W. Hogan, and filed by IPR-GDF SUEZ Energy North America, Inc. ERCOT filed the proposals in advance of the January 24 open meeting and open meeting/workshop on resource adequacy that is to include a presentation from Professor Hogan.

ERCOT's Interim Solution A, Scarcity Pricing in Real-Time Energy Market by Modifying Generator Energy Offer Curve, would slope the current offer floors to better reflect the value of diminished operating reserves.

Under this solution, the value of diminished operating reserves are reflected in the energy prices upon deployment of energy.

Interim Solution A would include rules for pricing the portion of the Generator Energy Offer Curve (EOC) corresponding to Non-Spin capacity responsibility, RRS capacity responsibility, and RegUp capacity responsibility.

With this approach, there would need to be co-ordination of the values of the Power Balance Penalty Curve, SWCAP and VOLL, ERCOT noted.

While Base Points and LMPs are consistent, ERCOT noted that SCED Step 2 mitigation may result in prices not reflecting scarcity conditions, under this approach.

ERCOT's Interim Solution B, Scarcity Pricing in Real-Time Energy Market by valuing remaining Operational Reserves, would determine an Operational Reserve Demand Curve through a formula presented by ERCOT. The value at any given level of available operating reserves is the product of the Loss of Load (LOLP) at that reserve level and the Value of Lost Load (VOLL)

ERCOT noted that under Interim Solution B, SCED Step 2 mitigation will not impact the price adder, and price formation during scarcity conditions will be improved.

However, the impact of Interim Solution B to the current Day-Ahead Market needs to be evaluated, ERCOT said.

Greater details on ERCOT's proposals may be found in its presentation filed in Project No. 4000 (click here)