Texas Commission to Address Question of Mandated Reserve Margin; Directs Drafting of Operating Reserves Demand Curve Protocols

The Public Utility Commission of Texas directed ERCOT to begin drafting protocols for implementation of an Operating Reserves Demand Curve as the Commission considers final approval, while Commissioners agreed to examine several questions in a new phase of its resource adequacy investigation, including whether a minimum reserve margin should be mandated.

Specifically, Commissioners agreed to direct ERCOT to begin drafting protocols for an Operating Reserves Demand Curve (ORDC), under the B+ solution, with no values for various parameters (such as the minimum contingency level) included in the initial draft. An ORDC would essentially produce an adder to the real-time energy price, and is designed to produce more efficient scarcity pricing

The Commission will work "quickly" to render a final decision on the Operating Reserves Demand Curve, but did not commit to rendering a decision at the next open meeting. Chairman Donna Nelson wished to consider final action on the Operating Reserves Demand Curve after receiving a report from Brattle on potential co-optimization in the ERCOT market, which is expected to be filed before the next open meeting. Additional time for a vote on the ORDC was also provided to allow new Commissioner Brandy Marty to fully consider the issue.

Additionally, Commissioners agreed to open a new phase of its resource adequacy investigation to address a series of issues, including:

• Is a mandated reserve margin required?

• If so, what should the standard be?

• What is the most effective way to meet any mandate or target from a cost/benefit standpoint

• Issues surrounding the ERCOT Capacity, Demand and Reserves (CDR) report, including load forecasting accuracy

• Is a formal cost/benefit study required regarding co-optimization?

The PUC will accept comments on these issues through September 23. A hearing on these questions will be held October 8.

The Commission will also discuss asking Brattle to develop an economically optimal reserve margin study. Such study will examine at what point do additional costs to achieve the mandated reserve margin outweigh the risks of not meeting such mandate.

Commissioner Kenneth Anderson stressed, in particular, the need to improve load forecasting, especially if a mandated reserve margin were adopted.

"It's become apparent this summer that there is a fundamental, and I think permanent, disconnect," between ERCOT's load forecasts, as performed under the current requirements in the protocols, and actual experience, Anderson said.

Anderson said that in ERCOT's spring CDR, load growth was forecast for 2.1% for the summer, but actual load growth, despite several heat waves, has been barely 1%.

On some days, load has been 800-900 MW under the short-term forecast, Anderson said.

"There used to be a pretty close, almost algorithmic, connection between growth in economic activity and load growth. That's disconnected and just not there anymore," in today's world, Anderson said, as load growth is lagging growth in economic activity

Anderson suggested that a confluence of events is driving this disconnect, including improved energy efficiency, especially in new building and housing stock, as well as load shifting due to REP products which encourage such load shifting.