Texas PUC's Anderson Proposes Review of Operating Reserve Demand Curve Parameters

With 16 months of operation and citing recent experience, Texas Public Utility Commissioner Kenneth Anderson proposed in a memo in advance of today's open meeting that, "now is the time for the Commission to review the ORDC [Operating Reserve Demand Curve] in order to examine how it has functioned and whether there is a need for minor adjustments to improve its efficiency."

"Overall, I believe that the inclusion of the ORDC has been a positive development because, among other factors, it has improved operational reliability by incenting the correct behavior of both resources and load. However, during the second half of this summer I also saw results that seemed somewhat unexpected. Also interesting is how resource bidding behavior has adapted to the ORDC and other modifications made to the market as part of its implementation," Anderson said

"For example, on August 13, 2015, the ORDC adder did not seem to reflect appropriately the reduction in physical responsive capacity (PRC) that occurred. A low level of PRC can drive ERCOT grid operators to take out-of-market actions, including implementing Energy Emergency Alerts (EEA) and related procedures," Anderson noted

Anderson also noted that as part of market changes, the bid floor for non-spinning reserves was lowered to $75 MWh. "This seems to have created something of a de facto floor on energy prices on some days when one might have expected higher LMP from quick start units, as previous behavior tended to result in much higher bids in the first dispatch intervals reflecting full recovery of startup costs," Anderson observed

Anderson provided a non-exhaustive list of ORDC parameters that may be reviewed as including:

• The level of X used in the ORDC formula, which is 2,000 MW of operating reserves, selected to represent a level below which ERCOT operators cease relying on the market and begin to take out-of-market actions.

• The number of standard deviations used to formulate of the loss of load probability curve in the ORDC.

• The value of lost load (VOLL) used in the ORDC, which currently is $9,000 MWh (and whether $9,000 MWh should remain as the effective price cap even if the VOLL is increased).

• Should operating reserves counted in ORDC become more closely correlated to PRC, and if so, how?

• Are the current inputs used to calculate the loss of load probability (LOLP) for any given period a sufficiently reasonable approximation or should the method and inputs be reevaluated? Anderson asked the question because at certain hours of certain days last summer the price adder resulting from the ORDC seemed to suggest LOLP of well under 1% even though ERCOT was considering making conservation appeals.