Meeting Summary -10/31/24 P-55845 Staff Led Workshop
Grid Monitor AI
11/01/2024
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Questions and Answers - Stakeholders, ERCOT, IMM
Q1: Should the Commission direct ERCOT to determine AS procurement quantities based on a criterion that corresponds to maintaining a specified level of reserves less than the amount used in current operating procedures and more than the amount that triggers a Watch?
Jeff Billow from ERCOT addressed misconceptions about ancillary services, emphasizing their role primarily in addressing unexpected system events rather than capacity shortages.
Two main scenarios discussed: running out of capacity on extreme weather days and emergencies due to forecast errors or generator trips.
Ancillary services like Non-spin and ECRS are procured to manage unexpected events, not just capacity shortages.
The WATCH criteria indicates a state policy directive post-Winter Storm Uri to avoid signaling grid instability unnecessarily.
Highway analogy used to explain safety margins and reserve levels. Before certain policy revisions (NPRR1105 & NPRR1106), there was a greater buffer between declared emergencies and load shedding.
Recent changes reduced reserve margins from 2600 MW to 1000 MW between emergency alert (EEA1) and load shedding.
Debate over criteria for ancillary services procurement focuses on avoiding a WATCH state, with opinions differing on whether to continue current practices or use a different reserve standard.
Key discussion point: Determining the probability and criteria for entering a WATCH should ERCOT aim for a 1-in-5, 1-in-10, or 1-in-20-year event frequency?
Stakeholder comments varied on operational criteria, with some supporting ERCOT's approach and others suggesting aligning with a model targeting involuntary load shed.
1 - Michele Richmond, TCPA, AS Procurement Quantities
Michele Richmond represented Texas Competitive Power Advocates.
Emphasized that grid operation standards should determine ancillary service procurement.
Market activities should reflect control room operations.
Current demand curves do not reflect post-Uri real-time co-optimization changes.
Advocates for alignment between ERCOT's operational directives and market design to avoid policy disconnect.
Stressed the need for ERCOT's market design to align with Commission's decisions.
ERCOT operated more conservatively after Winter Storm Uri, which initially had some disagreement due to timing and retail market impact.
Over time, it was acknowledged that conservative operations can lead to more reliable systems, which consumers desire.
Support for ERCOT's approach in using ancillary services was expressed, but a stable amount of procurement is requested to avoid market disruptions.
Resource adequacy is a major concern, with upcoming large load growth over the next five years.
Importance of defining tools for reliability objectives, particularly with ancillary services and demand response resources, DRRS.
Concerns were raised about what tools remain if certain products are potentially eliminated for resource adequacy.
A suggestion was made for a comprehensive review of demand response programs, utilizing platforms for energy efficiency and demand response in the competitive retail market.
Possible new product design for different customer classes to aid ERCOT in managing resource adequacy and operational reliability.
1 - Andy Nguyen, Constellation, AS Procurement Quantities
Andy Nguyen from Constellation agrees with previous commenters, including TCPA.
Expressed concerns about the reliance on RUC, aligning with LCRA’s comments.
Emphasized a misalignment between ERCOT's desired operational reserve and the market's signal response.
Noted a reduction in RUC after the implementation of ECRS.
Concerned about ERCOT's comment regarding insufficient ancillary services potentially leading back to using RUC.
Utilizing RUC could be costly for consumers due to make-whole payments.
Potential negative impact on generators and concerns on aging fleet wear and tear were also mentioned.
Laurie Block represents the Texas Solar Power Association.
Agrees with ERCOT on the role of ancillary services as an operational reliability tool.
Emphasizes the importance of the energy-only market and maintaining its competitiveness.
Stresses the need to clearly define the true purpose of ancillary services before determining procurement quantities.
Acknowledges the conservative operations adopted by ERCOT post-Winter Storm Uri.
Highlights the importance of focusing on avoiding unintended consequences and preserving investment signals.
1 - Ned Bonskowski, Vistra, AS Procurement Quantities
Ned Bonskowski acknowledged agreement with several previous comments but highlighted a divergence in views related to resource adequacy and operational reliability needs.
Emphasized the importance of using energy and ancillary services markets to support resource adequacy, due to limitations placed on other tools.
Discussed the need for conservatism in ancillary service procurement to ensure sufficient resources during extreme events.
Used an analogy involving roads and rumble strips to explain current market structures and the need for additional capacity to prevent system failures.
Raised a question regarding whether a commission directive for ERCOT to determine ancillary service protection quantities implies the need for rulemaking, suggesting a potential rulemaking process under HB1500.
1 - Katie Coleman, TIEC, AS Procurement Quantities
Ancillary services should cover specific operational risks, not additional reserve levels.
Prefer objective analysis to define risks and ensure transparency in risk assessment.
Concern with using WATCH criteria as it is subjective, prefer criteria with objective triggers.
Support market solutions including ancillary services over RUC.
Disagreement with the notion that no money is put in the market until critical conditions occur.
Recognition of efforts to price reliability risk earlier and changes to the operating reserve demand curve.
Future discussions anticipated on ancillary service demand curves and real-time co-optimization.
The importance of assessing if tools meet the reliability standard rule.
Encouragement for transparent definitions of risks and levels of coverage.
The reliability standard aims to avoid outages, and ancillary service procurement should align with this standard.
Transparency in procurement of operating reserves is crucial to meet planning and reliability standards.
Understanding the quantities and reasons for procurement is essential for addressing uncertainties consistently.
Demand response can be a larger component of ancillary services, potentially reducing costs if implemented for advance scenarios.
New products, such as hours or days in advance demand response, could lower overall consumer costs.
Conversations should focus on specific reasons and risks related to procurement rather than using metaphors or analogies.
1 - Cyrus Reed, Sierra Club, AS Procurement Quantities
Cyrus Reed from the Sierra Club's Lone Star Chapter presented comments on AS procurement quantities.
Expressed agreement with previous discussions, opposing the concept of "RUC-ing" due to cost and inefficiency, and potential pollution from older units.
Noted ERCOT's conservative strategy post-Winter Storm Uri, acknowledging its effectiveness but also its high cost to consumers.
Suggested that an EEA is clearer than a watch for managing events.
Advocated for considering demand response as a tool, highlighting opportunities for residential demand response between a watch and an EEA.
Pointed out that bringing in ancillary services too quickly might prevent consumers from gaining financial benefits through demand response programs.
Emphasized a risk versus reward assessment for the market concerning current measures.
1 - Stephanie Kroger, Hunt Energy, AS Procurement Quantities
Agreement with previous comments, particularly those by Ned.
Concern that the public is worried about power shortages and doesn't want to operate under such conditions.
Jeff mentioned two causes for potential power shortages: extreme weather events or insufficient capacity.
Highlighted the need to address resource adequacy as a critical issue.
Warning against waiting until 2026 to start analyzing reliability standards.
DRRS is identified as a key tool that requires further Commission guidance.
The dual purpose of DRRS should include reliability reserves.
1 - Resmi Surendran, Shell Energy, AS Procurement Quantities
Resmi Surendran from Shell Energy discussed a balanced position between load position and generation position.
Emphasized the importance of combining energy and ancillary services to provide necessary revenue for required resources.
Highlighted the need for transparent competitive markets to procure reserves.
Concurred with ERCOT's current operational approach to avoid 'WATCH', advocating for continuation if desired.
Stressed the significance of transparency in the market for hedging and price reflection to serve as investment signals.
Discussed the need for evaluation of the ASDC for real-time optimization and appropriate valuation of services.
Acknowledged the need to quantify and qualify the types of reserves and services needed.
Noted the significance not only of the quantity but also the valuation of the reserves.
Called for ERCOT to define the necessary services and ensure correct signaling for resource development.
Mentioned the IMM wants to replace a filing but did not react further to Iran's filing.
Jeff McDonald emphasized that procurement levels should be based on reliability criteria, specifically the probability of loss of load, rather than watch notifications.
He argued that using empirical evaluation for AS procurement based on the probability of loss load is more efficient and should be the standard.
A discussion on AS procurement compared the watch protocol to a rumble strip, highlighting that structuring operations around a probability of loss load covers all conditions, enhancing reliability.
Jeff clarified that reaching the 3000 megawatt mark in PRC (Physical Response Capability) is when ERCOT enters a watch for low operating reserves, marking it as an objective reliability criteria.
It was also clarified that ERCOT doesn't prefer to use RUC and would rather rely on market mechanisms to ensure sufficient capacity.
Support was expressed for increasing demand response within the market to help manage capacity issues.
A discussion about dynamic procurement suggested setting minimum procurement quantities annually and adjusting them closer to real time to address concerns about hedging practices.
Q2: Would the following procurement approach provide the appropriate balance amongst reliability, efficiency, and regulatory certainty to Market Participants: a. setting minimum procurement quantities annually based on one criterion, and b. setting final quantities closer to real time (e.g., five days ahead) based on some other, more conservative criterion?
Dynamic procurement is beneficial if done consistently and transparently, based on clear criteria.
Arbitrary or unpredictable methodologies should be avoided to prevent unnecessary expenses and confusion.
Procurement should not be overly conservative several days in advance; it should consider uncertainties not known during the annual process.
Decisions on procurement should account for specific conditions such as higher forecast error likelihood in load, wind, solar, or increased outages.
Avoiding conservative procurement could save costs by not interfering with longer-term procurement plans.
The ancillary services market is already illiquid; adding complexity through dynamic procurement could be risky.
Procurement decisions should include consideration of which specific products are necessary, potentially opting for different services based on anticipated conditions.
2 - Katie Coleman, TIEC, AS Quantities Determination
The proposal could be workable if the market is given expectations around minimum amounts.
Factors requiring additional ancillary service needs should be evaluated closer to real time for better assessment.
Industrial clients generally pay ancillary services directly without much hedging against costs.
Efficient, dynamic procurement closer to real time is better for industrial clients.
Small commercial and residential customers face issues with cost prediction by retailers.
Dynamic procurement can be aligned with customer cost prediction if there are clear criteria, transparency, and consistency.
The goal is to avoid unpredictable, arbitrary determinations.
Middle ground could be setting a minimum quantity with additional quantities procured closer to real time based on risk assessment.
2 - Ned Bonskowski, Vistra, AS Quantities Determination
Current practice involves dynamically procuring ancillary services with ERCOT and Commission approval.
Additional ancillary services may be procured during events like a solar eclipse or other conservative operations.
Concerns exist regarding changes to ancillary service quantities as it could lead to inefficient trade-offs.
Consistent and transparent procurement of operating reserves is crucial for planning reserves.
Dynamic procurement could result in less predictable signals, complicating market predictions.
Potential market confusion and uncertainty are concerns, especially for retail providers needing to hedge.
2 - Laurie Block, TSPA, AS Quantities Determination
Agreement with previous statements regarding the importance of predictable and transparent rules for generator investment decisions.
Emphasis on the need for clear and identifiable guidelines if the Commission introduces unpredictable elements.
Discussion on the potential impacts of unpredictability in market fundamentals on investment decisions.
Importance of details and differences in ancillary services, highlighting that not all services require dynamic procurement.
Acknowledgement that certain services, such as those countering forecast errors related to weather, might necessitate different approaches.
Advocacy for clarity and understanding in any new proposals from the Commission.
2 - Bryan Sams, Calpine, AS Quantities Determination
Reducing the overall procurement of ancillary services could decrease market revenue for generators, impacting the reliability standard.
Emphasis on the need to measure the potential impact of reduced procurement on reliability.
Concerns about hedging incentives for different representatives, and the risk of exposure to price volatility.
Importance of ensuring sufficient credit to cover potential risks.
Support for transitioning to a dynamic procurement process for higher efficiency and flexibility.
Current energy market is illiquid and difficult to hedge, with North Hub being the most liquid product.
Ancillary services are even more challenging to hedge with little expected impact from the proposed changes.
Advocacy for known procurement ranges posted in advance to assist in market adjustments.
Suggestion for ERCOT to publish minimum and reasonable maximum procurement amounts to aid market stability.
Recommendation for these ranges to be announced in December for the following year.
2 - Stephanie Kroger, Hunt Energy, AS Quantities Determination
Challenges for developers, lenders, and investors seeking regulatory certainty and clarity regarding expected revenues.
Concerns that dynamic scheduling or procurement may increase these challenges.
Difficulty in achieving predictability and transparency in market dynamics.
Agreement with concerns about market confusion and lack of transparency when introducing RTC.
Suggestion to study dynamic scheduling further after addressing RTC.
2 - Resmi Surendran, Shell Energy, AS Quantities Determination
Concerns about minimum and maximum quantities in dynamic situations; hedging becomes difficult if variability is large.
Recommendation to set the minimum to cover at least 90% of scenarios to reduce variation.
Advocacy for predictability and transparency to enhance comfort in hedging.
Consideration of different quantities needed during high risk vs. low risk periods.
Observation that ancillary service value is low during low risk periods, affecting cost differences.
Evaluation of whether dynamic procurement provides real benefits when there are large cost differences.
RTC design currently uses a demand curve that dictates ancillary service quantities hour by hour.
Question raised on whether dynamic procurement would alter the demand curve hourly, leading to energy and ancillary service price instability.
Need for careful consideration of several factors before implementing dynamic procurement.
2 - Resmi Surendran and Bill Barnes - AS Quantities Determination
Discussion on setting a maximum value for purchasing beyond which additional procurement might be needed during extreme situations.
Concerns regarding dynamic assessments leading to purchasing requirements above the predefined maximum were expressed.
Suggestion to categorize standard conditions and extreme situations separately, with different processes for each.
The importance of having a clear methodology for calculating potential maximum values for better market predictability was emphasized.
Bill Barnes expressed a preference for predefined maximum limits for predictability, even if based on conservative criteria.
Discussion on the option to procure long-duration demand response resources as additional reserves needed by ERCOT, separate from ancillary services.
2 - Mark Walker, Engie North America, AS Quantities Determination
Mark Walker from Engie North America agrees with concerns about reducing revenues in the ancillary service market impacting investment decisions.
Operational complexities include outage scheduling, maintenance, and fuel procurement, creating uncertainty.
Walker stresses the importance of understanding obligations as a retail provider, mentioning the need for long-term hedging.
Retail providers cannot pass hedging costs to customers and face risks from service outages.
Uncertainty in the market increases hedging costs and creates challenges in modeling.
The perception of ERCOT saving money by purchasing less ancillary services may not account for the overall market impact.
Ultimately, increased risk and costs may penalize customers.
2 - Jeff Billow, ERCOT, AS Quantities Determination
Commitment to transparency and providing detailed information to stakeholders before rollout.
Implementation would occur after RTC, earliest January 2027 if RTC is December 2025.
Consideration of including minimum and maximum criteria in the process.
Consistent criteria for both annual and dynamic approaches is preferred.
Annual calculations may include worst-case scenarios but procurement will be a percentage of that.
Dynamic procurement involves calculating risk variables to determine daily requirements.
Discussion on the appropriateness of dynamic procurement for certain AS or risks.
Q3: Is dynamic procurement more appropriate for some AS or for some risks than for others? If so, which AS or which risks are best managed with a more dynamic procurement of AS?
Mark Walker, representing Engie North America, addressed comments from NRG about changing the DRRS duration requirement from 4 to 12 hours during winter.
Engie North America opposes the change from 4 hours, as it is a standard clearly set in the statute.
ERCOT does have the ability to adjust the duration if needed, but there is no current analysis supporting a shift to 12 hours.
Any change would require thorough consideration, analysis, stakeholder input, and proper processes.
Increasing the minimum duration to 12 hours could eliminate many resources currently available for DRRS.
Shorter durations help incentivize developers to invest in longer-duration batteries, benefiting ERCOT and the market.
Suggests that discussions on this topic would be more appropriate in the context of ancillary services and real-time call optimization.
Stephanie Kroger from Hunt Energy Network concurs with previous speakers and emphasizes the need to define the purpose of DRRS clearly.
She references statute requirements, particularly PURA § 35.004.G2, stressing that the need for additional services for reliability and adequate incentives for dispatchable generation has not been fully addressed in the draft report.
There is an opportunity for the Commission to clarify the purpose of DRRS and fulfill statutory requirements, especially those under PURA § 39.159b.
Stephanie Kroger suggests that DRRS should not be part of the RTC construct and should be treated as a separate ancillary service.
The distinctiveness of DRRS lies in its separate operational requirements regarding online timing and duration.
She highlights that proper price formation discussions should occur only after the clearer definition of DRRS's purpose and structure.
PCM is preferred for resource adequacy, but ancillary services are necessary due to existing decisions and stakeholder advocacy.
DRRS is closely tied to the reliability standard and PURA § 39.159, which mandates reliability requirements for ERCOT.
The TEF aids investment but is not a market design. The discussion around fund timing is crucial as initial distributions must occur by 2025, necessitating clarity on market design.
Concerns exist over how DRRS capacity can be procured without distorting prices. Suggestions include adjusting the demand curve and extending its range.
ERCOT is authorized to determine DRRS duration, especially for thermal generation. Proper release and deployment strategies, including offer floors, are needed to prevent price distortion.
Reliability Deployment Price Adder ensures the market signals additional needs without reducing prices during reliability service utilization.
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