Recent changes to wholesale electric pricing

claudiamorrowtradefloorOn June 1, the Electric Reliability Council of Texas changed how wholesale energy prices are calculated during certain grid conditions, with the continued purpose of ensuring reliability and encouraging the development of generation resources.

Last September, the Public Utility Commission of Texas directed ERCOT to develop the processes necessary to implement the new pricing mechanism known as the “operating reserve demand curve.” Also known as ORDC, the operating reserve demand curve provides a price adder to real-time wholesale power prices as power reserves decline. The ERCOT board approved the market rules to implement ORDC, which went into effect June 1. Also effective June 1, the system-wide offer cap in the ERCOT real-time market increased to $7,000 per MWh (and is due to increase to $9,000 per MWh in June 2015).

The wholesale price hit the cap for about 10 minutes in 2013, and for nearly 20 cumulative hours when summer temperatures set records in 2011, ERCOT spokeswoman Robbie Searcy told the Houston Chronicle.

The PUC took these measures, and continue to consider others, to send appropriate price signals to encourage development of generation resources in the ERCOT market.

In its February 2014 Capacity, Demand and Reserves report, ERCOT projected that reserve margins in the ERCOT market would not fall below the current target reserve margin of 13.75 percent until 2017. A study by an independent consulting firm concluded that the economically optimal reserve margin, which balances the marginal costs of additional power reserves against the marginal costs of unserved load, is approximately 10 percent.

Discussions are expected to continue among the PUC, ERCOT, state lawmakers, market participants and other stakeholders regarding generation resource adequacy, including the appropriate level of planning reserve margin, and additional actions, if any, necessary to achieve such margin.

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