Potomac Economics, ERCOT’s Independent Market Monitor, released its annual State of the Market report last week, saying the wholesale market “performed competitively” in 2017.

The Monitor said higher natural gas prices led to higher energy prices last year, with ERCOT’s load-weighted average real-time energy price rising 14.7% to $28.25/MWh. The average price for natural gas jumped 22%, from $2.45/MMBtu to $2.98/MMBtu.

Market conditions were rarely tight last year, the Monitor said, noting real-time prices did not exceed $3,000/MWh and broke $1,000/MWh for only three and a half hours.

However, total congestion costs in the real-time market almost doubled to $967 million. The Monitor attributed the increase to continued limitations on export capacity from the Panhandle, planned outages associated with the Houston Import Project’s construction and “unusual operating conditions” after Hurricane Harvey.

Although the market performed competitively, the Monitor made seven recommendations — all but one of them repeats from prior years — to improve the system’s operation and resources and price formation in the energy and ancillary services markets.

The Monitor’s new recommendation is to pay locational prices to all generators with output that affect a transmission constraint. Generators less than 10 MW and connected to the transmission system don’t bear the same obligations as larger generators and are settled at the load zone price, not a location-specific nodal price.

“Small generators … should settle in a manner consistent with the effect they have on the system,” the Monitor said in its report. “The output of some small generators can significantly affect transmission congestion.”

The Monitor suggests that when the smaller generators relieve a constraint, they be paid a much higher price than they are currently. When they aggravate a constraint, they would generally settle at a lower price.

“Settling with this generator [at] a zonal price fails to provide efficient incentive for it to operate in a manner consistent” with the system’s reliability needs, the Monitor said.

The report’s repeat recommendations are:

• Implementing real-time co-optimization of energy and ancillary services.
• Evaluating policies and programs that create incentives for loads to reduce consumption for reasons unrelated to real-time energy prices.
• Modifying the real-time market software to better commit load and generation resources that can be online within 30 minutes.
• Consider including marginal losses in LMPs.
• Pricing future ancillary services based on the shadow price of procuring the service.
• Evaluating the need for a local reserve product.

The Monitor has called real-time co-optimization the “most vital” market improvement and “foundational” to efficient pricing. The Public Utility Commission of Texas in December approved ERCOT’s proposed plan to further assess the benefits of implementing real-time co-optimization and marginal losses (Project No. 47199). As part of the project, the Monitor developed software to simulate co-optimization for 2017, and it intends to make the software, data and results available to all market participants.

The Monitor usually reviews the State of the Market report during the June Board of Directors meeting. Beth Garza, the Monitor’s director and Potomac Economics vice president, is also scheduled to detail the market’s performance during the Gulf Coast Power Association’s June 21 luncheon in Houston.

System Sets New Demand Records for May, June

The ERCOT system began June the way it concluded May, registering a new monthly demand record in the face of sweltering Texas heat.

The grid operator, which manages the energy flow for about 90% of the state’s electric load, recorded a new demand record for June on Friday with a load of 67.9 GW between 4 and 5 p.m. That broke the previous June record of 67.6 GW, set last year.

Real-time average prices peaked at $54.02/MWh in the interval ending at 2 p.m.

ERCOT established a new record for May for three consecutive hours on May 29, reaching 64.8 66.3 and then 67.3 GW during the intervals ending at 3, 4 and 5 p.m. The new mark is a 13.5% increase over the May record set last year.

Prices were as high as $92.95/MWh.

Texas has been beset with triple-digit temperatures. The National Weather Service issued a heat advisory for areas northwest of Fort Worth over the weekend, with predicted highs of 105 degrees Fahrenheit.

ERCOT said it had no plans to appeal for conservation, saying it has sufficient generation to meet demand.

The grid operator has now set monthly demand records for four months this year. It has projected a summer peak of 72.8 GW in August, which would break the 2016 record of 71.1 GW. It says it has 78.2 GW of capacity available, with a planning reserve margin of 11%. (See ERCOT Gains Additional Capacity to Meet Summer Demand.)

— Tom Kleckner