Texas regulators order power market reform Phase I, analysis of bigger changes

Texas regulators on Dec. 16 approved a first phase of Electric Reliability Council of Texas market changes to be implemented quickly and directed regulatory staff to work with ERCOT to develop the "specifications" and "decision points" needed to implement a load-serving entity capacity obligation and backstop reliability ancillary service.

"It has been a long day," said Peter Lake, Public Utility Commission of Texas chairman, after the vote approving action on the first and second phases of a "blueprint" for ERCOT market redesign filed Dec.6 in the PUC's Project No. 52373, "Review of Wholesale Market Design."

"It has been a long month," Lake continued. "It has been a long six months as well as a long year. ... It has been a helluva six, seven, eight months going through what I would imagine has to be the darkest period in the commission's history, making remarkable progress with our partners in the Legislature and the governor, to then work with our stakeholder groups, ERCOT staff and leadership to bring about even before today's actions an outstanding amount of reform and improvement in enhancing reliability in ERCOT in a staggeringly short amount of time."

The actions approved unanimously during this meeting resulted from the mid-February winter storm and related power outages for about 4 million ERCOT customers, some for days, caused deaths estimated to range from about 150 to about 700 in Texas, plus between $80 billion and $130 billion in economic costs.

Phase I to come online quickly

As listed in the Dec. 6 filing, Phase I of the reforms, which are to be implemented as soon as possible, include the following:

• Lower the high systemwide offer cap, which typically prevails throughout the year, to $5,000/MWh from $9,000/MWh, effective Jan. 1
• Raise the minimum contingency level – the minimum amount of reserves considered necessary to avoid a cascading blackout – from 2,300 MW to 3,000 MW
• Make other changes to the Operating Reserve Demand Curve, in addition to the MCL change, to ensure market prices reach the cap before an Energy Emergency Alert requires an appeal for public power conservation
• Change the market to improve price signals for load-managed resources
• Set higher energy efficiency program standards
• Work to facilitate the aggregation of load resources, also known as 'virtual power plants"
• Allow the deployment of Emergency Response Service, through which power consumers are paid to be willing to curtail load, before an EEA is declared
• Consider changing ERS procurement process to a physical capacity (e.g., megawatts per hour) from its current process based on a $50 million annual spending cap
• Implement a fast frequency response ancillary service
• Facilitate the inclusion of loads in the non-spinning reserve ancillary service
• Develop a firm fuel-based reliability service similar to ERCOT's Black Start ancillary service
• Compensate resources, such as conventional generators, that provide voltage support
• Accelerate implementation of the ERCOT Contingency Reserve Service, a type of ramping ancillary service, and allocate its costs "consistent with cost-causation principals, in a non-discriminatory manner"

On Dec. 16, the PUC added direction to ERCOT to prioritize "non-inverter-based dispatchable generation" in its generation interconnection queue process, as requested in a Dec. 14 memo by commissioner Will McAdams. Inverter-based resources include solar and wind generation.

That memo designated as a second priority inverter-based resources greater than 10 MW that can be dispatched for at least two hours, and all other types of resources would proceed through a first-come, first-served process. McAdams also asked that existing projects be grandfathered-in, and that no project with a signed interconnection agreement be deprioritized.

Phase II analysis ordered

The PUC's action on Phase II of market reform, as worded in Chairman Lake's proposed motion, was to "direct ERCOT to work with PUC staff to identify and articulate specifications, decision points and other relevant metrics needed to develop" the programs described in the blueprint. as follows:

• A "Load-Side Reliability Mechanism" through which load-serving entities (retail electric providers, cooperatives, municipal utilities) would be obligated to procure commitments for sufficient capacity to serve forecast peakload during a future period
• A "Dispatchable Energy Credits" program through which LSEs would be required to obtain sufficient dispatchable capacity to meet net peakload (peakload minus renewables) during a future period
• A "Backstop Reliability Service," an ancillary service to meet specific reliability needs not met by ERCOT's real-time and ancillary service markets during periods of high uncertainty

The commission asked Kenan Ogelman, ERCOT vice president of commercial operations, to submit a report on these options by Feb. 15, with priority given to the Backstop Reliability Service option because it could be implemented more quickly than what has been called the "Load-Serving Entity Obligation" and the DEC proposals.

Commissioners McAdams and Jimmy Glotfelty pointed out that they were not specifically endorsing all of the proposals in Phase II, but they agreed that analysis of those options was needed.