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CPS Energy Suggests Higher ERCOT Energy Market Cap, Proposes Alternative NSRS Offer Floors
August 19, 2011
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The current ERCOT market design, "may encourage other retailers to rely too heavily on short-term markets for supply," TXU Energy said in comments to the PUCT regarding changes to Non-Spinning Reserve Service (NSRS).
In the comments (Project 37897), TXU supported a compromise from the Lower Colorado River Authority, which would, among other things, set a minimum offer floor for online and offline NSRS and Reliability Unit Commitment (RUC). (see 8/19)
"TXU Energy recognizes that under the current ERCOT process for deployment of certain reliability-oriented ancillary services, real-time wholesale market price signals may not fully reflect the tight resource conditions that caused the reserve deployment. This may encourage other retailers to rely too heavily on short-term markets for supply and not appropriately manage the commodity risks when serving customers," TXU said.
"In addition to having the proper price signals to encourage development of new generation, proper price signals are an important element to support the continued development of more robust demand response markets, and ultimately allow customers to engage in these markets. Ensuring proper price signals is also critically important for customers and the market as a whole given the potential for future resource shortages in ERCOT," TXU said.
CPS Energy, however, said that any offers floors should be consistent with system conditions, and such conditions may not necessarily indicate scarcity.
CPS Energy, which would inject NSRS energy into SCED at a price, proposed the following offer floors:
- 18 times Fuel Index Price (FIP) for Online NSRS and 10 minute Quick Start units;
- $120 plus 15 times FIP for Off-line NSRS
CPS Energy said that these offer floors, "are in the general range of what a unit might offer its energy into SCED if it had not participated in NSRS and by injecting this energy into the system SCED will have pricing outcomes that match base point dispatch instructions."
"These floors represent the high end of a likely offer by the relevant unit if the unit needed to reflect its start-up and minimum energy in an offer curve. The deployment of NSRS does not necessarily represent scarcity conditions; however, such deployments should not result in extremely low prices either. In conclusion, since the floors proposed by CPS Energy would be in a range that units would offer into the market if ERCOT did not have an NSRS market, the floors result in neutralizing the negative pricing effects of NSRS deployment, but without having pricing outcomes that do not match system conditions," CPS Energy said.
CPS Energy noted that its proposed offer floor levels had been previously agreed to by stakeholders in PRR 776, which was the correction required for the very same problem in the old zonal market design.
CPS Energy said that high offer floors have several problems, in addition to reflecting scarcity when scarcity conditions may not exist.
On such problem, "is to undermine the day-ahead co-optimization between energy and ancillary services. Once offer floors are introduced, the economics surrounding the award of NSRS is no longer the same. When NSRS is deployed the unit must now wait to provide energy until the offer floor is reached. This disrupts the tradeoffs between energy and ancillary services such that co-optimization results cannot necessarily be accepted," CPS Energy said.
"Another issue is that very high offer floors will also undermine Real-Time co-optimization and possibly SCED look-ahead projects. Finally, when offer floors are set high, it results in load paying for NSRS and then paying an energy price that is artificially high," CPS Energy said.
CPS Energy further said that increasing the Energy offer cap and the Power Balance Penalty Factor is a better way to improve the resource adequacy signal sent by the energy market.
"This change will send the right price signals when there is scarcity, but it will not do so when scarcity does not exist," CPS Energy said.
CPS Energy proposed an increase to $4,000.
"This number may need to be further increased, but it is advisable to do so gradually. The reason is that higher energy prices will increase collateral requirements and make unplanned generation outages more costly. While increased revenue would attract generation, higher costs in terms of collateral and default risk would create the opposite incentives," CPS Energy said.
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