Texas PUC orders higher scarcity prices amid dropping reserves

Facing a shrinking reserve margin, Texas utility regulators have ordered the Electric Reliability Council of Texas to make a change to its “operating reserve demand curve,” or ORDC, which will increase real-time prices when power supplies are limited.

On Dec. 21, ERCOT received a Notification of Suspension of Operations (NSO) for the 470-megawatt coal-fired Gibbons Creek Generating Station, which is operated by the Texas Municipal Power Agency.

The NSO indicated that the generation resource will be mothballed indefinitely beginning June 1, 2019.  Pursuant to a previous NSO filed on April 30, 2018, this resource has been mothballed since October 1, 2018, and was expected to be mothballed for a period of not less than 7 months and not greater than 8 months.  

ERCOT in a recent market notice said it “has completed its reliability analysis and has determined that this Generation Resource is not required to support ERCOT transmission system reliability and may suspend operations according to the schedule in the NSO.”

Mothballing the plant will lower ERCOT’s reserve margin to 7.4 percent this summer, below ERCOT’s 13.75 percent minimum target.

“I believe you can absolutely run this system in a reliable manner, but when you hear 7.4%, does that give you a lot of comfort?” PUC Chair DeAnn Walker asked ERCOT representatives during the commission’s open meeting.

“At that reserve margin level, it’s likely that, particularly this summer, we’ll have to take advantage of those additional resources that we use under our emergency operating procedures,” said Dan Woodfin, ERCOT’s senior director of system operations, pointing to demand-response and voltage reductions.

ERCOT will likely have to use its emergency procedures a few times this summer and the low reserve levels increase the likelihood of rotating outages, Woodfin said.

In an effort to address the low reserves, the PUC directed ERCOT to increase the standard deviation in the grid operator’s loss-of-load probability used to calculate the ORDC by 0.25 percent this year using a single blended ORDC curve. Another 0.25 percent increase would take place next year. The changes will drive up prices when reserve levels drop.

“I believe that if the Commission implements these changes to the ORDC, there should be various responses from the entire market, such as the following: increased development of demand response, distributed generation, self-generation by customers, increased investment in generation maintenance, delays in pending generator retirements, expedited return to service of certain generating units, and additional investment in newer generation technologies that are quicker to build and more operationally flexible,” Walker said in a memo outlining her proposals.

ERCOT staff said the grid operator could have the revised ORDC calculation in place by April.

Generators approved of the PUC’s action. “This decision sends the proper signal of confidence that the competitive electric market can deliver reliable and affordable electricity for Texans,” Irving, Texas-based Vistra Energy said.

The PUC also decided to move forward with real-time co-optimization of energy and ancillary services. As part of the effort, in early February PUC staff will give the commission a list of policy issues for stakeholder comment.

Real-time co-optimization will improve ERCOT’s ability to manage changing ancillary services needs as its resource mix evolves, according to a July report by the grid operator.

"I believe real time co-optimization brings not only economic benefits that exceed its costs, but operational benefits for ERCOT as well,” Walker said in her memo.

Prior to the Gibbons Creek NSO filing, On Dec. 4, ERCOT said that an anticipated decrease in power reserves for summer 2019 was primarily driven by a higher summer peak load forecast and delays and cancellations of planned generation projects.