ERCOT Panel Rejects Potentially Costly Change

Written on: August 3, 2016

PrintProposed rule changes for the state’s power grid — changes that some feared would lead to higher wholesale electric prices around Houston — have been rejected by a key stakeholder panel at ERCOT.

Had it received the panel’s endorsement, the proposals would have increased the pricing of electricity from certain older, near-retirement generation plants. NRG, the Houston wholesale power operator of such a unit, wanted the changes. They were opposed by consumer representatives and others.

ERCOT, or the Electric Reliability Council of Texas, oversees the state’s main power grid and administers a segment of the state’s wholesale power market. The NRG proposal, known officially as “Nodal Protocol Revision Request 784” (or NPRR 784), was taken up on July 28 by ERCOT’s Technical Advisory Committee.

NPRR 784 would have changed ERCOT’s rules for “reliability-must-run” generation units. These are older power plants that otherwise face retirement, but which ERCOT has determined should remain temporarily operational in order to prevent transmission system overloads.

In June ERCOT announced that it had executed a Reliability Must Run agreement with NRG so that it would continue operating its aging Greens Bayou Unit 5 through the summer. NRG had asked to retire Greens Bayou Unit 5, but ERCOT determined the unit was needed for reliability purposes.

Payments for RMR service are based on costs identified in the ERCOT rules. Under NPRR 784, however, those rules would have been adjusted in such a way as to ensure that RMR units are dispatched only after the dispatch of all other relevant generation units needed to prevent transmission system overloads at the spot.

In practical terms, the change could increase 10 fold the dispatch price for Greens Bayou Unit 5, according to estimates. It also would lead to higher dispatch prices for other area plants. Increases in wholesale power prices eventually impact electricity prices paid by end-use consumers.

Proponents of NPRR 784 said it would have ensured the “right” price signals are sent to the wholesale power market when RMR units are needed. “How do you prevent future RMR? By sending the right price signals,” said Bill Barnes, NRG’s Energy Director.

But not everyone agreed.

“If we pass this, we’re paying for incorrect price signals,” said Amanda Frazier of Energy Future Holdings.

Katie Coleman, an attorney with Texas Industrial Energy Consumers, raised other objections. “We have concerns about the incentive this creates for a generating company with a fleet of units in a certain area to retire units and get high pricing for its other units,” she said.

It’s expected that the grid congestion that prompted ERCOT to enter into the Greens Bayou Unit 5 RMR contract will be relieved in 2018, after the completion of new transmission lines for the Houston Import Project.

UPDATE: NRG, which also opposed the Houston Import Project, appealed the Technical Advisory Committee’s NPRR 784 decision to the full ERCOT board. The board rejected that appeal on Aug. 9 by an 11-3 vote, with one abstention.

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

R.A. Dyer is a policy analyst for TCAP,  a coalition of more than 170 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.

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