Texas regulators have rejected an ERCOT protocol change that took months of sometimes-contentious negotiations before the grid operator’s staff and stakeholders could reach a compromise that earned board approval. 

In taking up the rule change (NPRR 1224) that modified the ISO’s new ERCOT contingency reserve service (ECRS) product, the Public Utility Commission removed a proposed $750/MWh pricing floor. It also asked ERCOT to separately implement the revision’s trigger mechanism for the service (54445). 

The commission sided with staff’s determination that the operating reserve demand curve (ORDC), which uses scarcity pricing to value operating reserves, should be relied upon to generate “economically appropriate market pricing.” Staff said the offer floor “inappropriately supplants the role of the ORDC in pricing scarcity risk” and said the demand curve should remain the vehicle to price ECRS capacity and deployment risk until real-time co-optimization can be deployed. 

The ISO plans to add co-optimization of energy and ancillary services in real time in 2026. 

ERCOT COO Woody Rickerson said NPRR 1224 was originally drafted without an offer floor. It was expected, he said, “but we wanted to get market participant feedback on what the offer floor would be … the NPRR was written so that that offer floor can be filled in after market participant input.” 

“I thought you all were completely agnostic to that, to be honest,” PUC Chair Thomas Gleeson said. “Is it still fair to say that the part of this revision that is most important to ERCOT is the trigger?” 

“Yes,” Rickerson responded. “ECRS is a high-need reliability tool.” 

The trigger mechanism takes effect when there is a 40-MW power balance violation for at least 10 minutes. 

The rule change was approved by ERCOT’s Board of Directors in June and included the offer floor and trigger mechanism for the ancillary service product. ECRS procures capacity resources that can be brought online within 10 minutes and sustained at a specified level for two consecutive hours. (See “Contentious NPRR Revising ECRS Passes over Monitor’s Objections,” ERCOT Board of Directors Briefs: June 17-18, 2024.) 

ERCOT’s Independent Market Monitor has opposed ECRS after it first was deployed in June 2023. It says the grid operator’s first new ancillary service in 20 years created artificial supply shortages that produced “massive” inefficient market costs totaling more than $12 billion in 2023. (See ERCOT Board of Directors Briefs: Dec. 19, 2023.) 

Potomac Economics’ David Patton, whose firm serves as ERCOT’s IMM, again pressed his case against the protocol change. He made his third business trip to Texas in eight months to argue against the NPRR. 

“The market performance that was impacted by the deployment of ECRS in 2023 was calamitous. I’ve never seen something as bad as what happened,” Patton told the PUC. “The priority has to be to fix ECRS, not just iterate and improve and make it a little bit better. We know how to fix this. What the NPRR would do is institutionalize a fairly large share of the dysfunction that we saw in 2023.” 

Patton told RTO Insider the PUC’s decision was a “partial victory.” 

“The trigger mechanism, while it may be used in the near term, can be changed and improved by ERCOT if I can convince them that it is having unintended consequences. If the protocol revision had passed, we would be stuck with it,” he said in an email. “Ultimately, that decision had huge cost implications over the next two years.” 

Attorney Katie Coleman, who represents the Texas Industrial Energy Consumers lobbying group, agreed with the commission’s decision to remove the offer floor and allow ERCOT to address the deployment trigger. She called for a $100 floor during the board’s discussion. 

Coleman also agreed with Gleeson’s complaint that ERCOT’s board process “did not work” for him. Gleeson said he and Commissioner Lori Cobos, who both sit on the grid operator’s board, did not comment during the directors’ consideration of NPRR 1224 because they did not have all the information they needed. 

“I would argue that some of the most pertinent information I heard came in post-board decision. … I need to have all the information that I can have at the board because I think it is important for me to be able to tell the board what I think so that if they pass something, they know perhaps it may get rejected at the PUC. For me, that does a disservice to the board process,” he said. 

“Unfortunately, there was urgency to move something through the stakeholder process to try to get it implemented this summer, and as a result, some of the issues and analyses were not fully fleshed out before the board,” Coleman told RTO Insider. “We agree with [Chair] Gleeson that improvements are needed to make sure the board has all the information needed to make the right decision.” 

SPS Capacity Needs Partly Approved

The commission partly granted Southwestern Public Service’s request for additional capacity to meet SPP’s planning reserve requirement (PRM), approving three solar farms but rejecting a battery storage facility (55255). 

An administrative law judge in May approved SPS’s application for three solar facilities at existing plant sites in Texas and New Mexico offering 418 MW of nameplate capacity. However, the ALJ rejected a request for a 36-MW battery facility in New Mexico, saying SPS has failed to prove the facility is an economical solution to its capacity needs because it would add only an incremental amount of capacity relative to its $66 million cost. 

Gleeson filed a memo agreeing with much of the ALJ’s decision. He found fault with the conclusions that SPS “adequately considered” alternatives to the solar facilities and that its request-for-proposals process was conducted reasonably. Gleeson recommended adding a cost cap to the solar facilities, currently projected at just over $700 million, and agreed with the ALJ’s recommendation for a third-party review if the construction costs are 10% greater than projections. 

The PUC chair wrote that SPS’s “questionable” resource planning decisions placed the commission in a “difficult position.” 

“I believe a cost cap may be appropriate in this case because of SPS’s failure to adequately consider alternatives, which led them to the selection of a capital-intensive, non-dispatchable resource to satisfy their capacity needs,” Gleeson said. 

SPS filed in July 2023 to increase its capacity needs following SPP’s three-point increase in the summer PRM to 15%. The utility said the additional capacity would be needed as early as 2024 due to the retirement of aging natural gas facilities, the expiration of power purchase agreements, and projected customer load growth. (See SPP Board, Regulators Side with Staff over Reserve Margin.) 

The commissioners agreed SPS should ensure customers receive 100% of the solar facilities’ production tax credits as they are earned. 

Staff Begins Beryl Investigation

PUC staff has filed a memo outlining a proposed scope and approach to the commission’s investigation of Houston utilities’ response to Hurricane Beryl (56822). 

Staff is planning to send requests for information to electric and water service providers in the Greater Houston area and to invite generation companies, retail electric providers and communications service providers to submit the effects to their services and their response to the May derecho event and Beryl.  

They also are analyzing utilities’ emergency operations plans, vegetation management plans, infrastructure and storm hardening plans, after-action reports, and customer complaints. Their investigation will include reviews of storm preparedness and response best practices from infrastructure experts.  

A draft report is scheduled to be presented to the commission for its consideration during the Nov. 21 open meeting. A final report will be delivered to Texas Gov. Greg Abbott (R) and the state Legislature by Dec. 1.