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Likely low ERCOT reserve margins prompt 'hand-wringing' at meeting

Electric Reliability Council of Texas stakeholders' concern that ERCOT's next capacity and demand report might show a reserve margin below its 13.75% target prompted "hand-wringing" Friday about possible consequences from the North American Electric Reliability Corp.

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ERCOT's next Capacity, Demand and Reserves Report "is going to look really bad," said Clayton Greer, Morgan Stanley vice president for commodities, during the council's Supply Analysis Working Group meeting.

ERCOT has since late September approved the retirement of 4,618 MW of generation by mid-February.

Based on these retirements, plus expectations for delayed commercial operations dates for a number of planned ERCOT resources, Dana Lazarus, senior analyst for North American power at PIRA Energy Group, a unit of S&P Global Platts, estimates that ERCOT's planning reserve margin would be in a 10%-11% range for summer 2018 and a 9%-10% range for summer 2019.



ERCOT plans to issue an updated CDR Report on December 18, but Mark Henry, director of reliability services at the Texas Reliability Entity, the institution delegated by NERC to ensure compliance with reliability standards in the ERCOT footprint, said NERC will issue its Long Term Reliability Assessment a week earlier.

This LTRA will include a reliability assessment about ERCOT's bulk electric system.

Henry pointed out that NERC has no authority to ensure grid operators maintain a certain level of resource adequacy, but only to report about it, citing the following language in NERC rules:

"For cases of inadequate capacity or reserve margin, the Regional Entity will be requested to analyze and explain any resource capacity inadequacies and its plans to mitigate the reliability impact of the potential inadequacies."

However, NERC rules do not define "inadequate capacity or reserve margin," Henry said.

"What [NERC] is going to do is ask a lot of questions about what you are going to do," Henry said. "What they are going to say is, 'There's a problem, and you all need to fix it.'"

But Morgan Stanley's Greer said, "The fact that we are below [13.75%] doesn't mean we have a problem, but we are hoping the market will respond with additional capacity at some point in the future."


'REFRESHING'


When ERCOT's December 2012 CDR projected a sub-target reserve margin for the summer of 2013, dwindling thereafter, NERC President and CEO Gerry Cawley came to talk to the Public Utility Commission of Texas about NERC's reliability concerns, and Henry said that could happen again.

"This is not the first time this rodeo has been through town, right?" Henry said.

But Bill Barnes, NRG Energy director of regulatory affairs, said, "That can't happen again. The explanation has to be that this is the way the ERCOT market is intended to function," he said. "Reserves will fluctuate. It doesn't indicate at any time there's a problem. The last time this happened, it was not good."

Listening by phone to the meeting, Randy Jones, an independent consultant at Mountaineer Market Advisors who formerly served as Calpine's vice president for market design, offered some humorous commentary.

"It's refreshing to hear a lot of hand-wringing over learning that the market is finally beginning to work the way it was designed to," Jones said. "You guys need to save all of your advocacy for when you visit the commissioners. You can stew all day about it, but the decision has been made, and you just have to live with the consequences."

--Mark Watson, Markham.watson@spglobal.com
--Edited by Richard Rubin, richard.rubin@spglobal.com