Retail Providers, ERCOT IMM Say Changes to ERCOT ORDC Unnecessary; Generators Press For Revisions

Market results under the current design of the ERCOT Operating Reserve Demand Curve (ORDC) are consistent with expectations in a market with surplus generation, and changes are not needed, retail electric providers and the ERCOT Independent Market Monitor said in separately filed comments at the Public Utility Commission of Texas

"[T]he IMM would advise against modifying the ORDC parameters at this time. The modest effect ORDC has had on real time prices is expected given current levels of installed reserves in the ERCOT market," the IMM said.

"The question before the Commission is whether the parameters of the current ORDC implementation appropriately reflect costs to consumers of the diminished reliability that results from decreased operating reserves. Looking at August 13 as an example, the prices were reflective of reliability and available reserves on that day. The same was true throughout the summer of 2015," the IMM said

"Finally, despite the fact that the current ORDC price adders have been modest to date, the ERCOT region continues to attract new generation additions. These generation additions, combined with ERCOT's revised load forecasting procedure implemented in 2014, provide an expectation of adequate installed reserves for the next few years. This situation is a more comfortable position than the one in 2012 (at the time of ORDC's initial conception), when the expected installed reserves were less than the minimum target," the IMM said

The REP Group similarly said that it, "believes the ORDC is functioning as intended by the Public Utility Commission (PUC) and does not believe significant changes are needed at this time."

The REP Group took particular aim at certain proposals to increase the value of "X" in the ORDC or the Value of Lost Load (VOLL), saying such changes are hardly minor.

Certain proposals would double VOLL to $18,000, and certain proposed changes to "X" or VOLL increase energy prices depending on the proposal between $1.66 per MWh to $28.08 per MWh, the REP Group said, citing an ERCOT analysis. "For perspective, every increase of $1 per MWh results in approximately $350 million of additional cost market-wide on an annual basis," the REP Group said.

"ERCOT also performed the same analysis using 2011 data and the adder is estimated between $31.05 per MWh and $318.40 for Options 6-9 [with proposed changes to "X" or VOLL]. The results restated in terms of the PNM using 2011 data increase the PNM between $166,573.81 and $2,234,720.82," the REP Group said.

The REP Group also said that any changes should not take effect before the summer of 2017 (or 12 months after a decision adopting any changes) to minimize the impact on existing contracts and commercial arrangements

However, generators pressed for changes to correct "flaws" in the current ORDC design.

Calpine cited a, "serious disconnect between PRC, ORDC reserves, and the amount of RRS procured that leads to unnecessary price-suppressing out-of-market action by ERCOT and can also result in premature declaration of EEA."

Calpine specifically said that, "ERCOT's unnecessary and premature out-of-market actions [on August 13, 2015] affected levels of system price."

"Moreover system reliability possibly was put into jeopardy by maintaining inadequate PRC behind the High Ancillary Service Limit ('HASL') of resources (imperative ERCOT retains the ability to use responsive reserves for reliability needs even at the expense of curtailing some load to avoid system blackouts). Put simply, ERCOT and the PUCT must take steps to assign a proper value to the remaining reserves and to align the components of ORDC with the EEA so that meaningful adders accompany the ISO's out-of-market actions in response to impending emergency conditions," Calpine said

"Calpine urges the Commission to eliminate the obvious and unintended disconnect between the pricing signal from the ORDC price adder and the level of scarcity on the system also made obvious on August 13. The primary driver for this disconnect is the current value of the 'X' parameter at 2,000 MW, which Calpine believes is too low. Simply stated, the current value of 'X' does not allow the ORDC adder to appropriately price the value of declining operating reserves and provide a proper signal to incent timely market driven action by resources and loads," Calpine said

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