Meeting Summary - 08/28/24 TAC Workshop for Ancillary Services Study

1 - Introduction Julie Gauldin, PUCT Staff

2 - Presentation Nitika Mago, ERCOT

Introduction:

• Nitika Mago from ERCOT operations presented an update on Ancillary Services Study for PUC.
• The study covers the variety of ancillary service products in the current market and future considerations.
• Focus areas include product intentions, risk coverage, quantity determination, and the upcoming changes with RTC and DRRS.
• PUC Staff will file the Study in Project 55845 by September 30th.

Current Ancillary Services:

• Ancillary services support reliability and cover two primary purposes: meeting NERC requirements, mainly through frequency control and for operational risk reduction.
• Four current products: regulation (balances supply and demand), responsive reserve (arrests frequency decline), contingency reserve service (recovers frequency in 10 minutes), and non-spin reserves (for sustained errors or outages).

Changes in Resource Mix:

• Increased wind, solar, and storage capacity; decrease in coal and some gas resources.
• Growth in renewable capacity affects net load ramps, net load forecast errors, and system inertia.
• As net load ramps increase, it increases the risk of encountering intra-hour issues that ECRS and Non-Spin need to mitigate. 
• Increased net load forecast errors caused, in part, by wind and solar capacity increases have increased the risks that ECRS and Non-Spin mitigate.
• ERCOT does not currently see a need for a new AS for inertia, but it is important to continue monitoring the trends in inertia, specially as ERCOT’s renewable capacity grows and ERCOT’s transmission grid evolves 
• Current measures include adjusting quantities hourly and implementing Fast Frequency Response (FFR).

Future Considerations:

• RTC implementation in early 2026 for more efficient energy and ancillary service co-optimization.
• Development of DRRS (Dispatchable Reliability Reserve Service) to address net load variability risks
• Monitoring large demand growth impacts on frequency control.

Recommendations:

• Continue existing products and assess future needs based on system reliability.
• Regulation and frequency response requirements should reflect NERC standards.
• Develop probabilistic method to calculate appropriate quantity of Non-Spin and ECRS (the non-frequency responsive portion).
• Determine final AS quantities closer to operating day (within forecast window) rather than annually.

Response to IMM Analysis

Key Takeaway: Any policy decision(s) to expect periodic emergency operations, increase the use of RUC rather that procuring AS, and rely on non-obligated Resources for reliability services must be considered and decided by policymakers and should not be hidden within modeling assumptions.

Conclusion:

• Current methodology remains for 2025, and discussions should continue on future methodology improvements.
• ERCOT supports probabilistic approaches but emphasizes consideration of policy and operational impacts.

3 - Presentation Andrew Reimers, IMM

• A presentation of the initial IMM results of the AS service study

• Points Discussed

• Collaboration between ERCOT, PUC, and IMM for ancillary service study.
• Introduction of a stochastic framework for evaluating procurement volumes for ancillary services.
• Differences in perspectives on policy related to ancillary service products.
• Detailed explanation of ECRS (10-minute reserve) and Non-Spin (30-minute reserve).
• Proposal that stochastic methodology might be more efficient than current deterministic methodology.
• Potential for significant reduction in ERCOT's procurement of ECRS and Non-Spin.
• Current procurement increase and system condition changes in the gen mix and load growth.
• Possible future consideration of dynamic methodology setting.
• Recommendation to reduce battery duration requirements for ancillary services.
• Addressing confusion and clarifications on energy-only market standards and reliability.
• Key suggestions and analyses on reserve levels and their correlation with loss of load probability.
• Discussion on probabilistic analysis and historical conditions impacting reliability.
• Critical points on the relationship between ECRS and Non-Spin and market prices.
• Impact of headroom and reserve capacity on reliability assessments.
• Recommendations to ERCOT regarding methodology adjustments for a future-looking AS methodology.

• Questions Discussed

• Impact of reduced ancillary services on energy prices and self-commitment.
• Revised procurement methodologies and considerations for future conditions.
• Necessity and efficiency of high headroom targets in relation to reliability.
• Clarifications on the link between ancillary services procurement and reliability standards.
• Questions on the reduction impact of ECRS and Non-Spin on market prices and self-commitment.
• Discussion on duration requirements for batteries and expected impact under real-time co-optimization.
• Suggestions that ancillary service duration requirements might need re-evaluation with the introduction of real-time co-optimization and RUC protocols.
• Questions on the methodology for outage and forecast error handling for both ECRS and Non-Spin analysis.
• Concerns on the potential shift of reliability burden from ancillary services to RUC commitments.
• Debate on the rationale of procuring additional ancillary services and the related cost-benefit analysis.

Conclusions:

• Potential significant reduction in ECRS and Non-Spin procurement volumes without compromising system reliability.
• Support for a more probabilistic approach and dynamic planning in ancillary service methodology.
• Need for further analysis to understand the long-term impacts and interactions between different reserve products and system reliability.
• Alignment on the reduction of battery duration requirements, particularly with future real-time co-optimization implementations.

Action Items:

• Clarify reliability standards and metrics used for operational reliability vs. long-term resource adequacy analysis.
• Further develop stochastic analysis models to include changing generation mix and load projections.
• Plan additional studies to refine duration requirements for batteries in ancillary services.
• Coordinate with ERCOT on incorporating probabilistic methodology in future ancillary service planning.
• Prepare comments and feedback on relevant NPRRs and market rule changes.

4 - Q&A

• ERCOT responded in detail to every question submitted by TAC, available in the Ancillary Srvices Study for PUC, slides 25-29.
  

4.1 - Review previously submitted questions

• Discussed the idea of a portfolio approach in setting quantities to minimize overlap between products.
• Currently modeling ERCOT and non-spin for individual risks without an explicit goal of portfolio risk.
• DRRS thoughts discussed, it's still under consideration and its implementation details (RTC, DAM, RUC, NPRR1235).
• Backcasting deemed premature, forward-looking analysis prioritized.
• Covered policy and operating policy approaches in the slide deck.
• Duration and state of charge requirements for DRRS discussed, potential topic for RTC task force.
• Dynamic approach supportive, continued discussion encouraged.
• Avoiding overlap between product use cases reiterated.
• Long-term auction conversation open, no recommendations yet.
• No current incorporation of reliability standard requirements.
• DRRS methodology to be addressed post NPRR approval.
• Ancillary service cost allocation deemed out of scope.
• Clarified differences in dynamic procurement vs. current methods.
• Specific data requests mentioned, alternative work methods suggested.

4.2 New Questions

4.2 - Question 1, Shams Saddiqi, Crescent Power

• The study was expected to be more comprehensive, but seems to focus only on ERCOT's and non-spinning reserves.
• Issues with some resources providing Inertia Reserves (IR) that do not meet required response times.
• With the introduction of ECRS, consideration is needed on whether to continue allowing these resources for RRS, which affects consumer costs due to re-procurement.
• Question raised on whether 20% inertia is adequate for all thermal resources, or if more stringent performance-based criteria are necessary.
• Expectation for a detailed look into RRS and its impact on the market, particularly on costs due to non-responsive resources.

 4.2 - Question 1, Answer 1, Jeff McDonald, IMM

• Concerns exist regarding interactions and complexities of different reserve products.
• Reserve products interact with SCED and other reserved products.
• Acknowledged need for more time and study for better comprehension.
• Emphasis on ongoing consideration and improvement of reserve products.
• Mention of future development and integration with RTC (Real-Time Co-optimization).
• Requested feedback from Nitika on ERCOT's perspective.

4.2 - Question 1 Answer 2, Nitika Mago, ERCOT

• Discussion on who can provide RRS; no need to revisit protocols.
• Incentive for some resources to also participate in ECRS.
• RRS limits during low inertia conditions considered out of scope; active conversation with PDC based on GE's work.
• Evaluating GE study results and operating risks to determine if RRS limit changes are necessary.

4.2 - Question 1 Follow Up, Shams Saddiqi, Crescent Power

• Discussion on discounting certain resources that can't provide timely service.
• Double procuring IRs is costing the market money.
• Need to bring inefficiencies to the attention of the IMM.
• Protocols can be changed for more efficiency.
• Transitioning capacity to ECRS as it pays more and is better suited for ECRS.
• Continuous improvement mindset is emphasized.
• Past changes over the last ten years have been extensive.
• Future changes and improvements will continue.

4.2 - Question 2, Michele Richmond, TCPA

• Questions from TAC feedback were noted for IMM's response.
• Responses related to back casts and Monte Carlo model were discussed.
• Specific attention needed on questions 5 and 6 from slide 26.
• Question 5: View of ancillary services.
• Question 6: Ancillary services expected to provide resource adequacy.
• Request for IMM responses to these questions as ERCOT deferred to IMM.

4.2 - Question 2, Answer 1, Jeff McDonald, IMM

• IMM does not view the situation as a severe problem to be solved.
• There is a difference in perspective on the cost-benefit ratio of over procuring ancillary services, particularly in the last year.
• Critiques on ECRS focus on deployment practices and procurement volumes.
• No dispute on the concept of ancillary services.
• Resource adequacy linked to market revenue, whether from energy, ancillary services, or resource adequacy capacity products.
• Ancillary services provide market revenue necessary for supporting resources.

4.2 - Question 2 Follow Up, Michele Richmond, TCPA

• Michele Richmond asked for clarification on the different viewpoints regarding the procurement and deployment of ancillary services.
• She emphasized the importance of having a common perspective to understand the end goal.
• Richmond questioned whether the analysis is being approached from individual viewpoints or a unified one.

4.2  Question 2 Answer 2, Jeff McDonald, IMM

• Jeff McDonald emphasized that the focus of their recent work with ERCOT staff was on operational reliability, not planning or resource adequacy.
• The discussions did not include planning or resource adequacy perspectives.
• For resource adequacy in a spot market, future needs must be reflected in current procurement and price formation, but this topic was not part of the current study.
• Tuning a spot market to provide resource adequacy under extreme low growth scenarios is complex and was not addressed in the study.
• ERCOT bases ancillary service quantities on operational risks anticipated for the next year.
• Different viewpoints may exist on the criteria for assessing these operational risks, but historically, the calculation is risk-based.
• Policymakers have the authority to change the criteria, but currently, the focus remains on short-term operational needs.
• Clarity is needed that the study's information is meant for short-term operational use and not as a tool for resource adequacy or market investment incentives.

4.2 - Question 3, Ned Bonskowski, Vistra

• Reviewed provisions in Pura in law related to ancillary services and their role in the ERCOT power market.
• Commission is mandated to evaluate if existing and additional ancillary services meet reliability needs and provide incentives for dispatchable generation according to PURA 35.004(g)(1) and (2) and Chapter 39, Section 159.
• Discussed past views of ancillary services as operational risk management tools.
• Emphasized the shift in policy implying that ancillary services now also need to support resource adequacy and reliability standards.
• Aimed to build a record to help the commission meet statutory obligations related to dispatchable generation investment.
• Recognized that procurement quantities and the commission's reliability standard rulemaking process are key considerations.
• Suggested legal expertise may be needed for further interpretation of PURA regulations.

4.2 - Question 3 Answer 1, Davida Dwyer, ERCOT

• Davida Dwyer from ERCOT discussed the possibility of following new approaches based on commission interpretation of Pura.
• Highlighted the importance of considering PURA 35.004(g) regarding evaluation of additional services for reliability.
• Clarified that there are services procured for reliability that are not categorized as ancillary services.
• Discussed the commission's role in deciding whether resource adequacy should be considered in designing ancillary services.
• Stressed the historical use of ancillary services and the commission's role in deciding any potential changes.
• Emphasized the need for stakeholder input to assist the commission in executing its functions.

4.2 - Question 3, Answer 2, Eric Goff, Goff Policy

• Eric Goff discusses different approaches to solving uncertainty.
• Goff disagrees with a hypothetical approach of solving the issue with missing money for ancillary services.
• There are models based on operational concerns and cost-efficiency to address future operational risks.
• If the commission decides to go beyond current ERCOT practices, multiple approaches or a mix of them could be considered.

4.2 -  Question 3, Answer 2 Follow Up, Eric Schubert, LyondellBassel

• TEF currently has $5 billion dedicated to supporting potential dispatchable resources; legislature might increase this amount.
• Operational issues can be addressed by ensuring appropriate resource adequacy and ancillary services, solving most resource adequacy concerns.
• More intermittent resources require backup power, which ancillary services can provide.
• Commission is exploring expanding demand response to residential customers as a policy measure.
• Operational focus is crucial while commission and legislature debate long-term policies for dispatchable resources.

5 - Conclusions & Next Steps Julie Gauldin, PUCT Staff

• Another workshop is scheduled for Halloween day.
• An update on the workshop will be provided during tomorrow's open meeting.
• A draft study report will be filed by the end of September.
• Questions will be filed shortly after the draft report is submitted.
• Adequate time will be provided to answer questions before the workshop.
• The study will be discussed at least two open meetings during November and December before it is finalized.
• The finalized study will be submitted as part of the agency report to the legislature.

6 - Adjourn