By Tom Kleckner

AUSTIN, Texas — ERCOT CEO Bill Magness and Texas Public Utility Commission Chairman DeAnn Walker will attend NERC’s Board of Trustees meeting next month to address concerns over the grid operator’s slender reserve margins, Magness told his Board of Directors last week.

“We invited ourselves,” Magness told the board during its Oct. 8 meeting. “We were cordially invited but not asked to come.”

NERC has raised issues over ERCOT’s reserve margins before each of the last two summers. The grid operator has a 13.75% target planning reserve margin but has begun the last two summers with margins in the single digits. (See Abundance of Summer Capacity — Except in Texas.)

ERCOT’s energy-only market has met record demand both summers, albeit while taking emergency actions twice in 2019.

“We’ve both talked to [NERC CEO] Jim Robb a fair amount recently about how we operate in the summer and about how ERCOT operates with the reserve margins we have,” Magness said.

He said that NERC’s summer outlook for ERCOT did not have reference reserve margins the organization uses as a standard, “and that raised concerns and lot of troubling thoughts at NERC and its board and what they had to communicate to [federal] regulators.”

“Jim understands that we still get through it,” Magness said. “This market is working very well to maintain reliability by using the market forces we rely on.”

Magness said he and Walker will deliver a presentation on ERCOT’s market scheme “and how we tend to make it work through very tough summers.”

Intense August heat sent demand and prices soaring, forcing ERCOT to call two energy emergency alerts (EEAs), its first in five years. The grid operator recorded its two highest peaks during the month, at 74.7 GW and 74.6 GW. (See “ERCOT CEO Briefs Commission on Summer Performance,” Texas PUC Briefs: Aug. 29, 2019.)

Continued high temperatures in September have provided one benefit to ERCOT: system administrative fees above forecast. Average system demand was up 7% during the month over 2018, with a new record of 68,959 MW.

Magness said September’s demand pushed ERCOT’s positive variance in administrative fees from $4.6 million to more than $6 million. The grid operator’s revenues were projected to be $26 million over budget through August. Expenditures are also expected to be over budget, but by $6.2 million through August.

Ironically, Austin saw temperatures dip into the lower 50s by the end of last week.

“It’s much more comforting to talk about the summer when the weather’s like this than when it’s still summer,” Magness told the board.

ERCOT MPs: Market Worked as Designed in Summer

ERCOT stakeholders on Friday praised the market’s response to another summer of thin reserve margins and record-breaking demand.

Representatives of industrial consumers, cooperatives, public power, generators, marketers and retailers joined ERCOT staff and the Independent Market Monitor to offer their feedback on the energy-only market’s results during a PUC workshop.

Attorney Katie Coleman, speaking for the Texas Industrial Energy Consumers trade group, recalled how “everyone would freak out” when projected reserve margins would fall below 12%. She credited the PUC and state government for sticking with the market’s design.

“That has allowed ERCOT to do something that no other market in the world has done, which is to run a lean, efficient market with strong performance that saves the state money and encourages economic development,” Coleman said.

Turning to other panelists, Coleman said, “We’ve all had our differences from time to time … but what we’ve built here is something everybody should be proud of.”

Coleman said it was “remarkable” that the market survived a summer with “7, 8ish percent” reserve margins and only called two EEAs. She said the market was “able to get away with it, when nobody else in the world had,” because of the $9,000/MWh price ceiling during scarcity conditions and because ERCOT’s Capacity, Demand and Reserve (CDR) reports don’t account for all available reserves.

“The threat of being exposed to a $9,000 price, either losing out on getting that $9,000 price or not being able to fulfill a forward commitment and having to buy power at a $9,000 price, incentivizes a really, really strong performance,” Coleman said. “Secondly, the CDR does not count everything. … A 7 to 8% reserve margin is not a 7 to 8% reserve margin, primarily because it’s not able to count the demand side accurately.”

Coleman noted the CDR includes about 7,000 MW of emergency response service. However, if a generator is only awarded 30% of the ERS it has offered the market, she said, “those extra [megawatts] don’t show up in the CDR. We know those are flexible, sophisticated loads, and when you have high prices, you’ll get response from those loads.”

Representatives for power generators and the retail electric providers (REPs) agreed the market worked as expected and designed during the summer months.

Fronting the Texas Competitive Power Advocates group, Michele Gregg said scarcity conditions during previous years of low prices “was not only expected, but also how an energy-only market is supposed to work and part of [its] success.”

“The days this summer where we saw scarcity pricing, it was good to see that lining up with scarcity. We hope that is going to lead to good, firm capacity projects in the future,” Gregg said. “Once sufficient generation is built, we expect prices will decline again. That’s just how the market works. We haven’t seen the sustained pricing … enough to build a combined cycle plant.

“We appreciate the regulatory certainty of allowing the rules to work,” REP representative Cathy Webking said. “Customers in general benefited from that in the competitive market. The volatility in the scarcity market reflected scarcity, and while there were scarcity pricing mechanisms on the wholesale side, it’s important to note customers on fixed-priced contracts for the summer saw none of that [volatility].”

ERCOT staff filed a presentation that reiterated much of what it has been saying for the past month. Senior Director of System Operations Dan Woodfin said the grid’s tightest days came when wind energy fell off in the early afternoon, setting the stage for the EEAs and $9,000 prices.

However, on the system’s record-peak day, renewable resources made above-normal contributions.

“It’s an interesting phenomenon that we need to flesh out,” Woodfin said. “I’m not sure if it’s a meteorological phenomenon or as the wind [farms are] spread out over a larger geographical area, there’s less chance of one storm to knock out the forecast.”

Besides the two EEAs, ERCOT issued eight operating condition notices for reserve capacity shortages and 25 advisories when physical responsive capability dipped below 3,000 MW in August and September.

“Overall, the market outcomes supported reliability needs,” Woodfin said.

As she has in several venues in recent weeks, IMM Director Beth Garza again stressed that high prices in ERCOT are no longer highly correlated with high temperatures, but when West Texas winds die down before the afternoon peak. (See “ERCOT Monitor: August ‘High Excitement’ for RT ‘Geeks,’” FERC’s Glick Navigates Political Dynamic.)

“I’ll say it one more time: High prices are increasingly correlated with high net load,” she said, referring to load minus wind and solar generation’s contributions.

Above-average temperatures in September have pushed ERCOT’s real-time prices to their highest level since 2011, one of the hottest summers on record in the state. Garza said prices for the year are averaging $52/MWh through September, up from August’s average of more than $50/MWh and 46% higher than last year.

Natural gas prices are still down 15% from last year, when real-time prices averaged $35.63/MWh.

September’s heat resulted in an ERCOT peak demand record of 68,959 MW for the month. The grid operator broke the previous record for October by more than 2,300 MW on each of the month’s first two days, reaching 64,670 MW and 65,066 MW.

PUC Assesses $647K in Penalties

During the morning’s brief open meeting, the PUC handed out $647,500 in administrative penalties and $225,000 in bill-payment assistance funding.

The commission approved a settlement against Just Energy that docked the retailer $475,000 for not timely releasing “switch hold” for customers with past due bills. As part of the settlement, Just Energy agreed to contribute an additional $225,000 to bill-payment assistance programs (49688).

The PUC also approved a $23,500 penalty against the city of Garland’s utility for failing to provide non-spinning reserve service (49699) and three settlement agreements against transmission and distribution utilities over annual service quality:

• Texas-New Mexico Power was fined $30,000 (49618);
• Southwestern Electric Power Co. was fined $45,000 (49828); and
• Southwestern Public Service was fined $74,000 (49857).

The commissioners signed off on CenterPoint Energy’s request to adjust its energy efficiency cost-recovery factor, allowing the utility to recover $35.4 million in energy efficiency program incentives and administrative costs (49583).

Botkin Starts New Term as Commissioner

The open meeting marked Commissioner Shelly Botkin’s first since she was reappointed to the PUC by Texas Gov. Greg Abbott.

Botkin’s six-year term is set to expire in September 2025. She was originally appointed to the commission last year to fill former Commissioner Brandy Marty Marquez’s term, which expired in September. (See ERCOT’s Botkin Named to Texas PUC.)