ERCOT Board of Directors Briefs

IMM Says Negative Prices Now ‘the Exception’

Apr 25, 2016

At last week's ERCOT Board of Directors meeting, its Independent Market Monitor talked about negative prices and their impact on the energy market.

AUSTIN, Texas — ERCOT’s Independent Market Monitor said last week that negative prices are becoming less frequent and that they have virtually no impact on average energy prices, despite media attention given to them.

Steve Reedy, the IMM’s deputy director, told the Board of Directors during his regular update that while negative prices “are not a problem, they’re certainly something as an economist that interest me.”

Reedy said the Monitor saw “significant amounts” of negative pricing in ERCOT’s West zone — where most of the ISO’s 15,764 MW of wind capacity resides — during the first year of the nodal market, which went live in 2010. The completion of the $6.8 billion, 3,600-mile Competitive Renewable Energy Zone (CREZ) transmission buildout in February 2014 resolved most of the congestion issues.

“For the most part, we’ve seen [those prices] go away,” Reedy said. “We still have negative prices, but rather than being the norm early in the nodal market and in the zonal market, it’s now the exception.”

Reedy expressed mild frustration that a September Slate article detailing prices reaching as low as -$8.52/MWh led to a flurry of additional press coverage. He said the Sept. 13 event was typical of wind energy being offered into the market at off-peak hours.

Testing his hypothesis, Reedy asked Monitor staff to calculate negative prices’ effect on the ERCOT market by replacing every negative price with a zero.

The end result? An energy-weighted price of $26.78/MWh for 2015, virtually identical to the $26.77 average including the negative prices.

“It’s a late-night, early-morning phenomenon. It’s not an example of the CREZ being used up,” Reedy said. “It’s driven a lot of press, but it’s not had a major effect on the price.”

Ken-Anderson, PUCT at the ERCOT Board of Directors Meeting — Anderson © *RTO Insider*

Texas Public Utility Commissioner Ken Anderson asked whether ERCOT would be seeing the same behavior without the federal production tax credit, which is worth $23/MWh. “No, I don’t think that would be the case without the PTC,” Reedy told the commissioner.

“We’ve seen over the last five years that the west export capacity, due to CREZ, has expanded significantly,” he said. “Even with the growth of wind energy, we rarely get that crossover where [we end up with negative prices].”

Asked what was causing the low-priced energy, Reedy could only reply with anecdotal evidence, suggesting that some coal generators might be running overnight to reduce their fuel stockpiles, and that other market participants might be running units overnight to eliminate start-up risks.

Reedy also discussed the operating reserve demand curve (ORDC), a price adder created to reflect the value of reserves during high-load periods. ERCOT staff compiled stakeholder proposals for revising the ORDC in a white paper earlier this year, following Anderson’s call for a PUC review of it and its methodology. (See “State Regulators Seeking Answers to Summer Incident,” ERCOT: No Consensus on Operating Reserve Changes.)

Texas regulators are considering whether to artificially raise wholesale power prices, as ERCOT is seeing prices at 14-year lows. The PUCT met April 14 to consider the issue and will again discuss the topic May 4. Commission staff has issued a memo summarizing comments it has received from market participants.

[Editor’s Note: An earlier version of this article stated incorrectly that the white paper contained ERCOT staff’s recommended changes to the ORDC.]

Board Easily Passes LOC Revision

The board approved the Technical Advisory Committee’s recommended parameters for payments of lost opportunity costs to generators ordered to ramp down for grid reliability, with just two opposing votes and no discussion.

“No questions?” board Chair Craven Crowell asked the members, surveying the room. Addressing TAC Chair Randa Stephenson, he said, “Sounds like you did a good job on it then.”

“We worked hard,” Stephenson responded.

The board had remanded Nodal Protocol Revision Request (NPRR) 649 back to the TAC at its February meeting. Last month, the committee was able to reach agreement on one of three options, amending the language to reflect comments it received from the board. (See ERCOT Stakeholders Agree on Lost Opportunity Costs Rule.)

The Texas Office of Public Utility Counsel’s Tonya Baer (Residential Consumers) and the City of Dallas’ Nick Fehrenbach (Commercial Consumers) cast the two negative votes.

Stephenson, of the Lower Colorado River Authority, said the request’s original impact analysis of $100,000 to $150,000 had been reduced to the $50,000-$75,000 range, assuming high-dispatch limit (HDL) overrides remain at current levels. She said ERCOT has revised its procedures since Odessa-Ector Power Partners claimed its combined cycle plant had lost $300,000 because of three days of HDL overrides in November 2012 and only one HDL since last May.

“We anticipate costs to the load … when this does occur [again], it will be an uplift,” Stephenson said. She said the TAC will continue to monitor and report back on any uplifts.

The board also approved NPRR 745, which changes the emergency response service’s availability from an hourly to 15-minute interval evaluation and makes other minor changes.

ERCOT Net Above Budget, Despite Mild Weather

Bill-Magness,-ERCOT-CEO at the Board of Directors meeting — Magness © RTO Insider

ERCOT CEO Bill Magness told the board that 2016’s net revenues are $1.8 million above expected, despite system administration fees being $1.7 million under budget due to mild weather conditions. Timing differences kept spending $3.1 million under budget, he said in his report.

Pointing to an overhead screen filled with maps of Texas, Magness said, “That’s five different ways up there of saying it’s warm. The basic story is, we did have a pretty warm, pretty dry winter.”

Magness also reported that staff is testing an upgrade to ERCOT’s energy management system, which could go live as early as May 26. He noted the EMS is just one of several software systems scheduled to go live this year.

The CEO also mentioned ERCOT’s creation of the Grid Resilience Working Group, which will assess low-probability but “potentially high-impact” risks to the ISO’s system. Its first meeting is scheduled for April 26.

Bermudez, NPRRs Approved

The board re-elected unaffiliated Director Jorge Bermudez to a third and final term. His second term expires in June.

It also unanimously approved seven NPRRs and one change-request on its consent agenda:

NPRR 741: Clarifications to estimated aggregate liability (EAL) and total potential exposure (TPE) credit exposure calculations.
NPRR744: Reliability unit commitment trigger for the reliability deployment price adder and alignment with RUC settlement.
NPRR 746: Adjustments due to negative load.
NPRR 748: Revisions associated with NERC reliability standard COM-002-4 and other clarifications associated with dispatch instructions.
NPRR 749: Requires ERCOT to publish the cost of options for all outstanding congestion revenue rights within the CRR auction process.
NPRR 750: Clarifies the practice for setting telemetry when providing fast-responding regulation service.
SCR 787: Changes the net-dependable capability and reactive capability (NDCRC) application to provide historical generator information to all associated resource entities.