ERCOT Board approves “urgent” market revisions

The Board approved revisions limiting ancillary services prices to the cap and revising price adder to reflect load shed.

Chad Seely, ERCOT Vice President, General Counsel, and Corporate Secretary, began ERCOT's Urgent Board Meeting on June 28, 2021, by welcoming Chris Ekoh, appointed as Interim Public Counsel on June 21, now an ex officio director.

PUCT chairman Peter Lake was elected Presiding Director for the days Board meeting.

Chairman Lake noted that this urgent Board meeting was convened to consider urgent revision requests to change ERCOT market rules. Each of the items was recommended for approval by ERCOT’s Technical Advisory Committee (TAC) with no opposing votes.

Chairman Lake noted that this has been an accelerated process, the proposed revisions not having gone through the normal ERCOT vetting process like a typical NPRR, due to the fact that these are critical revisions and an acknowledged “stopgap” to ensure the best possible functioning market through the upcoming summer. He added that “these are not perfect in form or philosophy” and a big part of implementing Senate Bill 3 will be improving on these issues and other broader market issues.

The estimated aggregate budget impact of the proposed revisions is $26,000 to $50,000. There are no staffing impacts and all have July 1, 2021 implementation dates.

Mr. Seely noted that it would take 2 to 3 months to put in the necessary system impacts for NPRR1081 but, in the interim, ERCOT will use its existing system work around in order to effectuate the pricing outcomes proposed by the revision.

The three proposed revisions were approved unanimously with no discussion.

NPRR1080, Limiting Ancillary Service Price to System-Wide Offer Cap – URGENT

NPRR1080 improve market efficiencies by limiting the Ancillary Service Market Clearing Prices for Capacity (MCPCs) to the effective System Wide Offer Cap (SWCAP). This limitation will be achieved by reducing the Ancillary Service penalty factors used in Day-Ahead Market (DAM) and Supplemental Ancillary Services Market (SASM) to values equal to or immediately below the SWCAP.

According to TAC, during the February 2021 extreme winter weather event, Ancillary Service MCPCs reached record highs well above the $9,000/MWh SWCAP in effect at the time.  This occurred for two reasons.  First, the DAM clearing algorithm considers resources’ opportunity cost of providing other services that they would otherwise be able to provide, and the opportunity costs were higher than had previously been encountered.  Second, the Ancillary Service penalty factors for not awarding Ancillary Service are significantly higher than the SWCAP, so the DAM algorithm was willing to clear the Ancillary Service Offers despite the resulting MCPCs being above the SWCAP.

In this NPRR and the accompanying OBDRR030, ERCOT and the Independent Market Monitor (IMM) propose to limit Ancillary Service MCPCs to the SWCAP. The changes proposed in this NPRR are consistent with economic market design principles.  Since Ancillary Service is procured to reduce the probability of losing Load, such principles dictate that the value of reserves should not exceed the Value of Lost Load (VOLL), which is equal to the SWCAP.  However, reducing Ancillary Service penalty factors to the SWCAP increases the likelihood of Ancillary Service insufficiency during tight conditions because the DAM algorithm will have the option of forgoing an Ancillary Service Offer at a lower cost.

Some TAC members questioned the capping of Ancillary Service prices as an out-of-market action which may disincentivize Resources to provide Ancillary Services and expressed concern that the changes within NPRR1080 may be misaligned with PUCT rules regarding Ancillary Services. 

ERCOT staff replied that this change is already contemplated in the ERCOT Board-approved Real-Time Co-Optimization (RTC) NPRRs, and NPRR1080 merely accelerates implementation of this component.

OBDRR030, Related to NPRR1080, Limiting Ancillary Service Price to System-Wide Offer Cap

OBDRR030 is the companion to NPRR1080. It changes the Ancillary Service penalty factors to the effective System-Wide Offer Cap (SWCAP) and sets the Ancillary Service penalty factors equal to or immediately below the SWCAP in the DAM and SASM engines. Setting the Ancillary Service penalty factors at or near the SWCAP will prevent Ancillary Service Shadow Prices from exceeding the SWCAP, thereby limiting the MCPCs, as set forth in NPRR1080.  The Ancillary Service penalty factors for Responsive Reserve (RRS) and Non-Spinning Reserve (Non-Spin) are $0.01/MWh and $0.03/MWh below the SWCAP, respectively, in order to allow the DAM and SASM clearing engines to prioritize the different Ancillary Service products.

NPRR1081, Revisions to Real-Time Reliability Deployment Price Adder to Consider Firm Load Shed – URGENT

NPRR1081 modifies the calculation of the Real-Time On-Line Reliability Deployment Price Adder so that the combination of System Lambda, the Real-Time On-Line Reserve Price Adder, and the Real-Time On-Line Reliability Deployment Price Adder will be equal to the Value of Lost Load (VOLL) when ERCOT is directing firm Load shed during Energy Emergency Alert (EEA) Level 3.

During the February 2021 winter event, Real-Time Market (RTM) prices initially cleared well below the VOLL even while firm Load was being shed in EEA Level 3.  Recognizing that this outcome was “inconsistent with the fundamental design of the ERCOT market,” the PUCT issued an order requiring ERCOT to “ensure that firm load that is being shed in EEA 3 is accounted for in ERCOT’s scarcity pricing signals.” In conformance with the PUCT’s order, ERCOT temporarily adjusted the calculation of the Real-Time On-Line Reliability Deployment Price Adder to account for the MW value of the directed Load shed. 

Consistent with the action directed by the PUCT in February, ERCOT and the Independent Market Monitor (IMM) are now proposing a more permanent solution, an out-of-market reliability action, that will modify the calculation of the Real-Time On-Line Reliability Deployment Price Adder when firm Load is being shed in EEA Level 3.  The revised calculation will ensure that the combination of System Lambda, the Real-Time On-Line Reserve Price Adder, and the Real-Time On-Line Reliability Deployment Price Adder will be equal to the VOLL when ERCOT is directing firm Load shed during EEA Level 3.  This will ensure that Real-Time energy prices reflect the VOLL when Load is being shed, which is fundamental to an energy-only market design in order to provide effective economic signals.

ERCOT and the IMM intend to bring a separate NPRR with additional changes including a recall period analogous to the recall period for Emergency Response Service (ERS) as well as reporting changes for the firm Load shed amount.

Some Protocol Revision Subcommittee (PRS) participants voiced concerns over the exact end-point of a load shed event and the procedures for exiting EEA Level 3, which ERCOT had noted should be addressed in a future NPRR.

At TAC, participants debated the potential benefits and consequences of the concept proposed in the 6/17/21 LCRA comments; and generally supported the concept but desired additional to time for review and encouraged filing a separate NPRR for consideration.

At the conclusion of the Board meeting, Mr. Seeley reported that ERCOT anticipates holding another Board meeting on July 23, 2021 at 10 AM to discuss the 2022/23 ERCOT budget and seek approval of the financial statement that was deferred earlier in the year.

Chairman Lake noted that, while many things are changing at both the PUCT and ERCOT, the Board still has a lot to do.