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ERCOT stakeholders push back on governance reforms, larger reserve purchases

Highlights

At least 6.5 GW of reserves required

Difference in costs to be calculated

Committee reform proposal questioned

Stakeholders in Electric Reliability Council of Texas' Technical Advisory Committee pushed back on governance reforms and expanded ancillary services procurement efforts.

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ERCOT's new standard of maintaining at least 6.5 GW of reserves by acquiring higher volumes of ancillary services has a mixed effect on pricing and costs, with increased prices and costs for ancillary services, which are uplifted to load, and expanded reserve totals diminishing scarcity pricing adders, thereby weakening energy prices.

The new minimum reserve standard represents an increase of about 2.5 GW from previous practices.

"We are one of ERCOT's largest providers of ancillary services, and we do still think this is a very bad idea," said Ian Haley, Vistra's director of ERCOT regulatory policy, during the July 28 ERCOT Technical Advisory Committee meeting. "It's giving us 50 cents in one pocket and taking $2 out of the other pocket in energy costs."

Ancillary service costs

Bill Barnes, NRG Energy's director of regulatory affairs, expressed concern that the uplift to load-serving entities such as NRG's Reliant retail electric provider unit could be excessive, but ERCOT has not yet enumerated how much the new practice is costing.

"People are saying, 'Well, the REPs will take care of that,'" Barnes said. "I think the public needs to know that [change] does come with a cost. I've heard estimates of a couple of hundred million dollars. ... The concern that we have is that it's causing irrational outcomes in the market and driving up costs unnecessarily. We think it could be more targeted in how you do this, how much you are buying, when you are buying it."

Kenan Ogelman, ERCOT vice president for commercial operations, said his staff would try to calculate in about seven days how much additional costs have been accrued in the procurement of ancillary services since the new, higher standards were implemented.

ERCOT's Technical Advisory Committee reports directly to the ERCOT Board of Directors, which a new Texas law mandated to be restructured to exclude market participant representatives. A selection committee named by Texas' governor, lieutenant governor and speaker of the state House of Representatives will name the reformed ERCOT Board of Directors.

During a segment regarding a 60-point "Roadmap to Improving Grid Reliability," Brad Jones, ERCOT interim president and CEO, said he expects a new ERCOT board to be seated by Sept. 1.

Therefore, Jones sought feedback from TAC members regarding Item 36, "Ensure the Technical Advisory Committee is comprised of senior-level members from each member organization to promote timely decision-making."

"Our government has lost confidence in the operations of TAC," Jones said. "It's uncertain to me what support the new board will want or need from the stakeholders leading TAC."

Bob Helton, who represents Engie North America and serves as an independent generator segment representative on TAC, said, "My biggest concern with a fully independent board is about communication between TAC and the board."

"I don't know if [the board] is going to be political or technical or something else," Helton said.

Substance vs. style

Clayton Greer, Morgan Stanley vice president for commodities, said that if Item 36 entails appointing a more senior officer in his organization to serve on TAC in Greer's stead, that officer would likely require Greer's input for virtually any significant decision, because the market is complex and its rules may seem arcane.

"There's no way my COO, for example, would know which way to vote, if there are changes on the fly," Greer said.

Jones asked, "Do you believe that with this new environment, with eight [new board] members who have not been around ERCOT before .. that TAC can continue to fill its role without raising its profile?"

"Absolutely," Greer said. "If they want substance, I think they've got it [at TAC]. If they want style, I agree that I am not very stylish."

NRG Energy's Barnes acknowledged that TAC "should be ... reconsidering how we've always done things," in light of the mid-February energy emergency during which a deadline winter storm resulted in about 4 million customers losing electricity service, some for days.

"TAC will probably be more important than it has ever been," Barnes said, in working with an entire board whose members are unaffiliated with any market segment.